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Apple accuses Epic Games of "coercing platforms for its own gain, under the guise of being ‘pro-gamer’": PlayStation/Xbox example

If you’re already familiar with the procedural history of this matter (scope of temporary restraining order etc.) and the concept of converting a TRO into a PI, you can just click here to skip the recap.

On Friday, September 4, Epic Games brought its motion for a preliminary injunction against Apple, once again asking Oakland-based Judge Yvonne Gonzalez Rogers of the United States District for the Northern District of California to obligate Apple

  • to tolerate on its App Store an iOS version of the Fortnite action shooter game that would bypass Apple’s in-app payment system (in this regard, a motion for a temporary restraining order (TRO) was denied), and

  • to refrain from terminating Epic’s other developer accounts, particularly the one that ensures Epic’s access to Apple’s development tools for the purpose of maintaining and improving the Unreal Engine (that part of the TRO motion succeeded because Judge Gonzalez Rogers was concerned about overreach and the potential impact).

TROs are in effect for only a fortnight (whichever way one may spell it) unless the enjoined party consents to an extension. After that period, a preliminary injunction (PI) can and often does replace it, which is commonly referred to as “converting a TRO into a PI.” What makes a PI preliminary is that it’s in effect until a final judgment grants or denies a permament injunction; a TRO is even more preliminary than a PI. In this case, the court discussed a PI briefing schedule with the parties, which will culminate in a PI hearing on Monday, September 28–ten days after a deadline for Epic’s second filing in that context, its reply brief in support of its motion. Until the court’s decision on the PI motion, Apple must comply with the TRO.

Typically, a TRO gets converted into a PI, but there are cases in which judges change mind on the basis of more elaborate briefing and in-depth analysis. With respect to the merit of the underlying case, there’s not enough time at the TRO stage to fully consider all outcome-determinative aspects of complex matters, so if a judge believes that irreparable harm is imminent, a TRO might come down just to prevent a tragedy, even though a PI might subsequently be denied. Epic is still trying to persuade the court to #FreeFortnite, but that part is again doomed to fail, given that Epic could simply publish an iOS version of the game that wouldn’t offer alternative payment mechanisms. Epic itself accepted and complied with those terms for years, and all that Apple says it wants is compliance with its longstanding standard terms. For Apple it’s certainly going to be a challenge to defeat the Unreal Engine part of Epic’s motion this time around, but such an outcome is nowhere near as inconceivable as a free pass for Epic to violate Apple’s App Store terms while litigation over whether or not those terms violate the antitrust laws is still in progress.

Apple filed its opposition brief late on Wednesday, September 15 (this post continues below the document):

20-09-15 Apple's Opposi… by Florian Mueller

Apple attached multiple declarations (including two that are basically economic expert reports) to its opposition brief. Before I discuss Apple’s brief as a whole, and the other declarations, I’d like to highlight what is nothing short of a bombshell accusation of bullying that I just found in a sworn declaration by Mike Schmid, Apple’s Head of Games Business Development for the App Store (click on the image to enlarge; this post continues below the image):

Here’s the same paragraph as plain text, making it easier to read on some devices:

“19. Epic has repeatedly leveraged the global phenomenon that was Fortnite to coerce platforms to change their rules. For example, in September 2018, Epic quietly updated Fortnite to enable cross-platform play between PlayStation and Xbox. This was explicitly against PlayStation’s rules and Epic pushed PlayStation into a difficult situation with its own user base, where it was forced to make a significant change on Epic’s terms, not its own. Epic’s strategy of coercing platforms for its own gain, under the guise of being ‘pro-gamer,’ is something Epic continues to do.” (emphasis added)

What Apple just told the court is that the “hotfix” (which Apple said became Epic’s “hot mess”), which activated an alternative payment mechanism in Fortnite by simply having a server tell the client to do so, was not the first case of Epic being sneaky in its dealings with a major games platform. According to Mr. Schmid’s declaration, “Epic quietly updated Fortnite to enable cross-platform play” between the PlayStation and Xbox versions of its flagship game. Then PlayStation (a Sony subsidiary) modified its rules to bless Epic’s breach, as opposed to taking the measures that it could have for breach of contract. Apparently, Sony determined that it was better to soften than to enforce its rules. There was probably more, relatively speaking, at stake for Sony than for Apple, which is part of the reason why the latter is still unwilling to make an exception for Epic or to change its rules for everyone. But it’s also about philosophies, and Apple is Apple while Sony is Sony.

Mr. Schmid’s declaration also provides some information on the economic relevance of iOS to Epic’s business. In this legal dispute, Epic obviously wants the court to believe that its economic viability is under threat if the App Store doesn’t carry Fortnite. There’s no question that Epic has made a ton of money on iOS in absolute terms, “enjoying nearly 130 million iOS downloads globally—and earning Epic more than $550 million through iOS alone.” But apparently Epic told Apple the opposite of being irreparably harmed if it couldn’t publish iOS apps:

“18. On a variety of occasions, Epic personnel have told me [Mr. Schmid] that if Apple did not comply with its demands, Epic would simply terminate its relationship with Apple and remove its games off of the iOS platform. Epic has repeatedly told me that it could do this because Apple is the ‘smallest piece of the pie’ when it came to Fortnite revenue. On several occasions, Epic personnel have told me that Apple represents just seven percent of Epic’s revenue. The data available to Apple largely bears this out. With respect to Fortnite, all of the App Store’s competing platforms besides Google’s Android have a higher Average Revenue Per Daily Active User (ARPDAU) than does Apple iOS, with some platforms—like Xbox and PlayStation—a full 70% or 40% higher than iOS, respectively.”

The above is perfectly plausible. Per-user revenue is typically lower on Android than on iOS, with a large part of the installed base of Android being in relatively poor economies (which is why some Android game makers pursue more advertising-centric revenue strategies in parts of the world than in the United States and Europe). But volume makes up for some of this, so for Epic, Android might still be a greater revenue opportunity than iOS. It comes as no surprise that game console users would spend more money playing Fortnite, given that those who are very much into games in general and a shooter game like Fortnite in particular will want to play it on a large screen and with game-specific input devices rather than a touch screen.

Those numbers are going to create a serious credibility problem for Epic with the court.

Again, I’m going to comment on Apple’s brief and the other declarations later, but thought many of you would find Mr. Schmid’s revelatory declaration extraordinarily interesting. Finally, here’s the document:

20-09-15 Mike Schmid Declar… by Florian Mueller

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