Epic Games challenges Apple and Google in Australia

In a lawsuit, the Fortnite maker alleges that by controlling in-app purchases, the tech companies are stifling competition and innovation

When Apple launched its first iPhone in 2007, all apps were developed by Apple.

According to Walter Isaacson’s biography of Steve Jobs, Jobs initially resisted allowing third-party developers to create apps for the iPhone. However, he eventually relented and launched the App Store in 2008. Apple, however, maintained strict control over what was permitted on the platform, as revealed in a 2021 email.

Apple’s control over its ecosystem will be a focal point in a case to be heard over the next five months in Melbourne’s federal court. Concurrently, Google, which has prided itself on having a more open ecosystem than Apple, will face scrutiny of its own practices.

In April 2021, two Australian federal court cases were paused awaiting the results of similar cases in the US. Epic Games, the creator of the popular game Fortnite, has been engaged in a worldwide legal dispute with Apple and Google for the past three years, accusing them of misusing their market power by exerting control over their app stores.

In 2020, Fortnite was removed from the Google and Apple app stores after Epic Games introduced its own in-app payment system, circumventing the platforms’ systems and bypassing the fees Apple and Google collect for in-app transactions.

Epic Games lost its antitrust case against Apple in 2021 but emerged victorious in its case against Google late last year. Initially distinct, the Australian cases have been consolidated into a unified entity. Justice Jonathan Beach opted to hear both cases along with an associated class action concurrently to prevent duplication of witness evidence.

David and Goliath?

In the Australian legal proceedings that commenced in 2020, Epic Games has accused Apple of misusing its market power by exerting control over in-app purchases and by banning the Fortnite app, actions that Epic Games claims have significantly reduced competition in app development. Additionally, Epic Games has alleged that Google has harmed app developers and consumers in Australia by restricting choice regarding app distribution and in-app payments on Android devices.

The legal disputes between Apple and Google bear similarities to their respective phone operating systems, but they also exhibit significant differences. Apple’s iOS and App Store are entirely closed ecosystems under Apple’s control. This means that any app on your phone, including payments made through that app, must go through Apple.

Google’s Android operating system for the Play Store follows similar rules, but Google allows for “sideloading” of apps, which enables apps to be installed directly on the phone without using the app store. Additionally, Google permits phone manufacturers like Samsung to have their own app stores. Fortnite remains available on Android but only through sideloading or via the Samsung store.

Both companies impose fees for transactions conducted through their app stores. Google Play levies a 15% fee on the first US$1 million earned by developers annually, which increases to 30% thereafter. Apple developers pay a 15% fee if their revenue from the previous year is below $1 million, but a 30% fee if it exceeds that threshold.

Fees are standard practice in the industry, with Epic’s own store charging developers a 12% fee.

Epic contends that it should be permitted to provide its own store as a competitor to Apple’s store and offer alternative payment options within its app on the official Games Store.

Google’s claimed openness backfired in a US case where a jury deemed tying the Google Play Store to in-app payments illegal. The jury also found Google guilty of anti-competitive agreements with developers to maintain their apps in the Play Store.

In contrast, the Apple case focused narrowly on mobile gaming transactions. The judge ruled that Apple was not a monopoly but a competitor against Google and others. The judge supported Apple’s security concerns about opening the App Store and endorsed the company’s right to charge a fee for its intellectual property through in-app payments.

Apple is anticipated to conduct a case in Australia that closely mirrors the one in the US. The company contends that there are few distinctions between the cases, as the fundamental principles of Australian competition law align with those in US antitrust laws.

Apple perceives Epic not as David against Goliath but as a multibillion-dollar corporation aiming to increase profits at the expense of iPhone users’ security.

Google asserts that it provides users with the option to choose from various app stores and offers developers alternative avenues to sell content outside Google Play. It highlights its permissions that allow for app sideloading while emphasizing its commitment to maintaining user security—a principle it accuses Epic of undermining.

“It is evident that Android and Google Play offer more choice and openness than any other major mobile platform, and this model benefits Australian developers and consumers,” stated Wilson White, Google’s VP of government affairs and public policy, in a recent post.

“We remain committed to defending our right to a sustainable business model that ensures user safety, supports developer growth, and fosters a thriving and healthy Android ecosystem for all Australians.”

Apple is required to implement modifications in the EU App Store

Opening submissions will span two weeks, followed by evidence from fact witnesses and experts over three months, culminating in two weeks of closing submissions concluding in mid-July.

Expected witnesses include Epic’s CEO, Tim Sweeney, who is present in Melbourne for the hearing, along with key executives from Apple and Google.

A concurrent class action representing Australian developers and consumers hinges on the outcome of Epic’s case.

The case is unlikely to be resolved this year, as Judge Beach is not expected to deliver a verdict within six months, which could then be subject to appeals.

Regardless of the case’s outcome, Apple and Google may face setbacks in the app store arena. Apple has been compelled to adjust its App Store in the EU, permitting alternative payment options and marketplaces under the Digital Markets Act. Consequently, Apple restored Epic’s developer account in the EU last week.

Epic suggests that while Apple’s implementation of these changes is flawed, it could prompt other governments, including Australia, to enact similar measures.