Epic Games, the maker of the Unreal game engine, as well as Fortnite's hugely popular game, took Apple to federal court last Monday to file a lawsuit that is expected to take several weeks and focus entirely on the company's share. It has hit the mobile economy a lot.
The lawsuit is currently pending against a developer: Epic Games, a $ 29 billion company. But the outcome of this case could have far-reaching implications for Silicon Valley companies and transform the money supply in the world of smartphones and other similar devices.
If Epic wins, Apple's $ 2 trillion company may have to reconsider its rules over its heavily lucrative App Store. Apple has been under a lot of pressure from Washington and the European Union in recent times over App Store rules.
The lawsuit is one of the most high-profile counterterrorism lawsuits in the tech world in decades, and the most dangerous case against Apple in recent years.
What is the case about?
Epic Games has accused Apple of launching a monopoly on its App Store because in-app purchases on the iPhone only have to be made through Apple's own payment system. We currently have more than 1 billion iPhones worldwide, and Apple typically has a 30 percent commission on how much users pay.
Epic says the fee - for which critics have dubbed it "Apple Tax" - is unfairly set and puts double pressure on small app developers. The same developers sometimes try to compete with Apple's own (non-taxable) apps, putting them below Cupertino.
The money from the App Store commission is very important to Apple, and it is a huge revenue stream that is increasing day by day. Subscription fees and expenses generated $ 54 million for Apple last fiscal year. Analysts say revenue from this area is now more important than ever for Apple, especially given that the iPhone peaked a few years ago and has since declined in sales.
Apple, meanwhile, says a 30 percent share of the cost is important because it uses the money to secure apps for its devices and protect users' privacy. Epic estimates that about 80 percent of the App Store's revenue is "net profit," but Apple says that incredible figure is "simply wrong."
Where is the trial held?
The case of Apple and Epic Games is being pursued in a mostly empty federal court in Auckland, California. The court's live audio stream will be made available to the public, but due to Covid-19 concerns, severe restrictions have been placed on his physical presence in court.
Where else is the Apple App Store under pressure?
Washington lawmakers met with Apple and Google lawyers last month to focus on the power and influence of tech giants. Justice Department investigators are reportedly currently scrutinizing App Store rules.
And last week, EU lawmakers filed charges against Apple, saying it had violated antitrust laws by abusing its position in the music streaming app distribution market. The decision was made because of a lawsuit filed by the Swedish company Spotify against Apple.
What is the status of the Epic case and who decides on the winner?
Epic has so far overcome many legal hurdles to reach this point, so federal Judge Ivan Gonzalez Rogers believes the Epic case was at least worth a full trial. But under US law, plaintiffs in antitrust lawsuits often have a hard time winning. This is because US courts have long offered new interpretations of competition law (dating back more than a century), and this view has been largely in favor of large corporations.
In an initial pre-trial ruling, the judge said he found it unlikely that Epic was right on Sherman's 1980 antitrust law by accusing Apple of acting like an illegal monopoly. Even proving that Apple has launched a monopoly will not be enough, because such a thing alone is not illegal under US law. Instead, Epic must show that Apple is using the monopoly power to hurt its competitors and disrupt the market to its advantage. Experts say proving this will not be easy at all.
Both sides have relinquished their access to the jury, which means that the final verdict will be announced by Judge Gonzalez Rogers. Whatever his opinion, we can say with certainty that we will see several appeals court hearings.
What happened in court on Monday?
Epic Games lawyers tried to convince Gonzalez Rogers that Apple had designed the App Store in a way that would give it an upper hand over other developers. The company has no other option or process to pay. Users either have to use Apple's payment system or not pay at all for an app or an item within an app. Epic lawyers say doing so is illegal.
"When iPhone users take over, they enter a different world," said Katherine Forrest, an Epic lawyer. "Every time they make an in-app purchase, a 30 percent tax is levied."
Apple's lawyers said in their opening remarks that the 30 percent fee would enable the company to ensure that strict standards of security and privacy were met. They said that this is not an abuse of power, but a necessary approach to maintaining the quality of Apple's operating system, or iOS.
"Epic wants the court to force Apple to allow any third-party app stores to make untested apps available to all iOS devices," said Apple Lawyer Crane Dunn.
Dan said Apple did not voluntarily set a 30 percent fee. Instead, he argues that when the App Store launched in 2008, it became the industry standard for digital transactions on platforms such as gaming platforms.
Epic Games CEO Sweeney Tim Sweeney was also in court on Monday. He wore a blue suit instead of his usual comfy T-shirt and pants. "I loved the early days," Sweeney told the judge when it came to talking about Apple's mobile ecosystem, but over time, the rules have taken a very restrictive form.
He says the same rules have made it very costly and difficult to support applications running on Apple devices. Sweeney estimates that by deducting 30 percent of all in-app purchases, Apple has sometimes even made more money than the developers who built the app. He says the purpose of the Epic case is not to get compensation, but to ask the judge to order a change in Apple's behavior in the police market for iPhone apps. "Epic is just looking to change Apple's future behavior."
When it came to Apple's question, Richard Dorn, the company's attorney, pointed to Epic last year's decision that allow Fortnite players to buy in-game currency through Epic's own payment system at a lower cost than set prices. In the App Store. He said that this was a violation of the rules for using Apple services.
"As the CEO of Epic, did you intentionally decide to terminate your contract with Apple during August 2020?" Dorn asked Sweeney.
"Yes," Sweeney replied, adding that he knew removing Fortnite from the App Store would be a possibility. But he also hoped that Apple would "seriously reconsider its rules." When Apple refused to do so, Sweeney filed a lawsuit against Apple, releasing a mocking version of an old Apple ad, urging Fortnite gamers to support Epic Games with the hashtag FreeFortnite. Epic executives called the campaign the "Freedom Project."
On Monday, Dorn asked Sweeney if the whole affair was a public relations ploy and Apple wanted to cut costs by damaging Apple's reputation. "Our goal was to show smart phone owners that by reducing the fees of the [App Store] platform, they can also save on the costs they incur," Sweeney said.
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