Source Code: Your daily look at what matters in tech.

source-codesource codeauthorDavid PierceNoneWant your finger on the pulse of everything that's happening in tech? Sign up to get David Pierce's daily newsletter.64fd3cbe9f
×

Get access to Protocol

Will be used in accordance with our Privacy Policy

I’m already a subscriber
Apple Epic Trial

Epic v. Apple: Everything you need to know about the biggest trial in tech

This case has it all: monopolies, secret code names, commercial parodies and potentially billions of dollars at stake.

Epic v. Apple: Everything you need to know about the biggest trial in tech

The outcome of this case could change how billions of dollars flows between tech companies.

Illustration: David Pierce/Protocol

On Monday, Apple and Epic Games will meet in court to decide one of the most consequential antitrust arguments in the history of the tech industry. The trial has been nearly a year in the making, following Apple's removal of Fortnite from the App Store in August 2020. It's arguably the biggest courtroom showdown Apple has engaged in since its smartphone patent war with Samsung nearly a decade ago.

This time, however, Apple is the one on defense. Epic alleges that the iPhone maker's App Store and in-app purchase policies both violate antitrust law. At the heart of the case are arguments over whether Apple can and should exert total control over iOS and the App Store, or whether developers should be allowed to distribute apps over alternative marketplaces or simply bypass Apple's longstanding 30% commission on digital goods.

The outcome of this case could change how billions of dollars flows between tech companies and could provide hints as to how tech antitrust cases and regulations are likely to work in the coming years. Or, as often happens in these cases, it could end up much more narrow than that. And no matter what happens, there will certainly be appeals.

We'll be updating this page through the trial, but here's everything you need to know about Epic v. Apple.

The Stakes

What Epic wants: To be able to sell V-Bucks to iOS-using Fortnite players without having to use Apple's in-app purchase tools, and to be able to operate its own app store on iOS.

What it would mean: A sweeping Epic win would both establish the App Store as a monopoly and advance the idea that Apple abuses that power to shut down other app markets. Apple could be forced to give Epic and other developers ways around Apple's 15% to 30% commissions, or to open up the iPhone to side-loaded apps or even full-blown alternative app stores.

What Apple wants: To prove that the App Store is a necessary and inseparable component of the entire iOS experience. It says that without the app review process, without the software enhancements and OS-level functionality that come from approval and without the security and simplicity provided by the in-app purchase system, the iPhone would be a fundamentally different device and, in Apple's view, a worse one.

What it would mean: If Apple can succeed in defending itself against Epic, it would make it much, much harder for anyone else to come after Apple on similar grounds. It would set the precedent that the App Store is as inextricable from the rest of the iPhone as its A-Series chip.

How we got here

On Aug. 13, 2020, Epic implemented an alternative in-app payment system for Fortnite on iOS and Android to bypass Apple's 30% cut.

Both versions were promptly removed by Apple and Google, an outcome Epic was well prepared for as it countered immediately with antitrust lawsuits against both companies and a carefully crafted media blitz under the hashtag #FreeFortnite. Epic filmed a video casting Apple as the very villain it once said it was rebelling against, using a parody of its iconic "1984" Ridley Scott-directed Macintosh ad, and even promoted its lawsuit within the world of Fortnite itself.

The video Epic had ready as soon as Apple kicked Fortnite out of the app store. Video: YouTube

Apple fired back by attempting to strip Epic of both its iOS developer access and the developer license it uses to distribute its Unreal Engine on the macOS platform, setting up early courtroom fireworks as Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California had to rule on what, if any, restrictions Apple could continue to impose on Epic and Fortnite prior to trial.

Following a series of pre-trial hearings, Gonzalez Rogers ruled that Apple could in fact keep Fortnite off the App Store and prevent Epic from publishing new iOS versions and additional iOS apps for the duration of the trial, but Apple was barred from voiding Epic's developer agreement for the Unreal Engine.

Since then, we've seen a fair amount of discovery and document filings shedding light on Apple and Epic's business practices and communications, revealing some revelatory findings like how much money Fortnite makes on various platforms and Apple's ecosystem lock-in strategy with regard to iMessage. In the run up to Monday, both sides have put out massive document dumps detailing their respective strategies and outlining witness lists and expert testimony.

How the trial works

Epic v. Apple starts Monday and is estimated to last about three weeks. In total, each side will have 45 hours to present its case. Gonzalez Rogers has been overseeing the case since the beginning and will preside over the trial as well.

The trial will be held largely in person, but with only six people per side allowed in the courtroom at a time. (A few witnesses will testify over Zoom.) Masks have been a contentious issue, with the court ruling that attorneys will be required to wear masks, but witnesses will be given transparent masks for when they're testifying.

Each witness will wait in a sort of green room before they're called to the stand. Beyond that, each company also gets a "designated representative" who can be in the courtroom the entire time. That'll be Tim Sweeney for Epic and Phil Schiller for Apple.

The themes and recurring narratives

This case is about how to read the Sherman Act. The biggest question for this specific case is not about app stores or Fortnite, but about how to define a monopoly. That's the biggest issue facing enforcers in general right now, really: how to approach digital markets and separate vigorous competitors from those damaging the whole process to maintain their dominance, even as would-be reformers push to go beyond the long-held "consumer harm" readings of the Sherman Act and toward a definition that makes more sense for huge internet platforms.

The App Store is hugely profitable. Apple talks about how much it invests in app review, and how much benefit it provides to developers throughout their time in the App Store. Epic counters by saying that the App Store is outrageously profitable — former App Store exec Phil Shoemaker testified last year that the App Store costs Apple about $100 million a year to run, and while Apple doesn't disclose App Store revenue specifically, it's estimated to be many tens of billions a year — and thus should be considered a business rather than a service to the ecosystem.

But "Project Liberty" could be a profit move, too. Epic wants people — and Gonzalez Rogers — to see it as the white knight fighting on behalf of developers, gamers and little guys everywhere. Apple instead wants to paint Epic as another tech giant eager to keep more profit for itself, and says Epic's entire "Project Liberty" plan to pick this fight is little more than a thinly-disguised money grab.

30% is an industry standard for commissions. Google charges the same for Play Store apps (though Epic's suing over that, too), and most similar platforms offering apps and games use the same 70-30 split. Apple says that's lower than brick-and-mortar splits, and that Apple shouldn't be penalized for doing the same thing as everyone else. Epic says Apple started the 30% trend, and that it also gives special deals to companies like Amazon.

But what about game consoles? One of the biggest arguments put forth by Apple defenders is the lack of alternative app stores and 70-30 revenue split on console platforms like PlayStation and Xbox. Epic said in a recent filing that computing devices like smartphones are differentiated from consoles because "video game consoles operate under a radically different business model than smartphones." But the existence of alternative platforms with similar restrictions bolsters Apple's argument that the App Store has an industry-standard approach with regard to gaming platforms.

The Mac model might be the answer. A big part of Epic's argument hinges on the fact that the Mac has an App Store, with in-app purchases, and still allows people to buy and sell stuff in other ways. Apple touts the Mac as a secure device, Epic argues, so what gives?

And then there are web browsers. Apple has long made the case that if you don't want to buy things through Apple's in-app systems, no problem! Just open up Safari and do it there. Part of Apple's defense will be that there's no way it could be a monopoly, simply because Safari exists and so do web apps. And it will surely point to things like Microsoft's new Cloud Gaming service, which wasn't allowed in the App Store but is now coming to iOS through Safari.

We've been through this before. There will be many parallels drawn to the last big tech antitrust fight, United States v. Microsoft Corp., from 2000. Some of the folks involved in this trial actually participated in that one, too, and the way the courts thought about software and internet power will certainly affect the outcome here, as well.

The cast of key characters

For Epic:

Tim Sweeney, co-founder and CEO — Called as a witness by both Apple and Epic to testify on "Epic's efforts to compete in app distribution and in-app payment processing," among other topics.

Mark Rein, co-founder and VP of business development — Called as a witness by Apple only to testify on "the Epic Games Store business model and commission."

Daniel Vogel, chief operating officer — Called as a witness by Apple to testify on "Epic's exploration of sideloading on iOS and Android; Epic's launch of Fortnite outside of the Google Play Store."

Steve Allison, Epic Games Store general manager — Called as a witness by both Apple and Epic to testify on "the Epic Games Store business model and financial projections; the Epic Games Store's revenue split; the Epic Games Store's market share."

Andrew Grant, engineering fellow — Called as a witness by both Apple and Epic to testify on topics like "Epic's interest in workarounds to undercut Apple's 30% commission."

Matthew Weissinger, VP of marketing — Called as a witness by both Apple and Epic to testify on "marketing and promotional support services offered by video game consoles and mobile operating system providers, including Apple."

Thomas Ko, senior director and head of online business strategy and operations — Called as a witness by both Apple and Epic to testify on "Epic's payment processing services; Apple's payment processing services; Epic Direct Payment on iOS."

Also testifying: Joseph Babcock (former CFO), Joseph Kreiner (VP of business development), Haseeb Malik (former marketing manager), David Nikdel (online gameplay systems lead), Nick Penwarden (VP of engineering) and Alec Shobin (senior marketing manager).

Epic's lawyers: Paul J. Riehle of law firm Faegre Drinker Biddle & Reath LLP, and Christine A. Varney, Katherine B. Forrest, Gary A. Bornstein, Yonatan Even, Lauren Moskowitz and M. Brent Byars of law firm Cravath, Swaine & Moore LLP.

For Apple:

Tim Cook, CEO — Called as a witness by Apple to testify on "Apple's corporate values; Apple's business and operations; development and launch of the App Store; competition faced by Apple."

Eddy Cue, senior VP of internet software and services — Called as a witness by Epic to testify on "App Store business strategy; App Store financial performance; current and historical App Store policies and practices."

Craig Federighi, senior VP of software engineering — Called as a witness by both Apple and Epic to testify on "iOS and macOS engineering, security, privacy and competition issues; App Store policies and practices."

Phil Schiller, Apple fellow and former marketing chief — Called as a witness by Apple to testify on "Apple's business and operations; development and launch of the App Store; App Store policies and guidelines; the App Store business model; the App Store commission; app distribution," among other topics.

Matt Fischer, App Store VP — Called as a witness for both Apple and Epic to testify on "competitors and competition in the sale of apps and the different app marketplaces; Apple's business relationships with app developers."

Eric Gray, director of commerce and payments — Called as a witness by both Apple and Epic to testify on "design and operation of Apple's payment processing policies and practices."

Trystan Kosmynka, senior director of marketing — Called as a witness by both Apple and Epic to testify on "App Store policies and guidelines; Apple's app review and curation process and procedures."

Scott Forstall, former senior VP of iOS software — Called as a witness to testify on "iOS and macOS engineering, security, privacy and competition issues; historical App Store policies and practices; Apple's in-app purchasing function."

Phillip Shoemaker, former technology director for App Store review — Called as a witness by both Apple and Epic to testify on "historical App Store review policies and practices."

Also testifying: Eric Friedman (head of fraud engineering, algorithms and risk), C.K. Haun (senior director, developer technical services), Ron Okamoto (former VP of worldwide developer relations), Carson Oliver (director of business management), Shaan Pruden (senior director of partnership management and worldwide developer relations), Mark Rollins (finance manager) and Michael Schmid (head of App Store game business development).

Apple lawyers: Veronica Smith Moyé and Richard J. Doren of law firm Gibson, Dunn & Crutcher LLP.

Third-party witnesses

Lori Wright, Microsoft's VP of Xbox business development — Called as a witness by both Apple and Epic to testify on "the Microsoft Store; Xbox video game console business and operations; Xbox cloud gaming; distribution of apps on the App Store."

Benjamin Simon, Yoga Buddhi Co. founder and CEO — Called as a witness by both Apple and Epic to testify on "app distribution; participation in the Apple Developer Program; App Store review process; participation in the Coalition for App Fairness."

Aashish Patel, Nvidia's director of product management — Called as a witness by both Apple and Epic to testify on "Nvidia's GeForce Now service and business model; differences between streamed apps and locally hosted apps; differences between native apps and web apps."

Adrian Ong, Match Group senior VP of operations — Called to testify for Epic on "lack of competition among mobile devices and mobile operating system software" and "Apple's prior antitrust violations."

Shelley Gould, SmartStops co-founder and president — Called to testify for Apple on "App Store review process; communications with Apple" and "... benefits that Apple provided to SmartStops."

Further reading

If you want to get deep in the weeds of the trial, start with two documents: Epic's Findings of Fact and Conclusions of Law and Apple's version of the same. Between them, they're 690 pages of not-so-light reading, but they preview practically everything the two sides will argue at trial.

More recently, Apple filed a selection of its expert testimony, previewing the evidence it will use to prove its case. Epic quickly followed up with its own. Both rely on outside experts, academics and analysts to put their arguments in a broader context.

For some good catch-up reading on applying antitrust law to tech companies, there's Lina Khan's seminal paper, "Amazon's Antitrust Paradox," and Tim Wu's "The Curse of Bigness." Wired published a sweeping look at the Microsoft case after it ended in 2000. Around the same time, University of Chicago law professor Richard Posner wrote an influential essay called "Antitrust in the New Economy."

Protocol will be covering the trial every day, and you can follow along with our coverage right here.

Protocol | Fintech

Marqeta turns to a fintech outsider

Randy Kern, a Salesforce and Microsoft veteran, is taking a plunge into the payments world.

Randy Kern is joining Marqeta after decades at Microsoft and Salesforce.

Photo: Marqeta

Marqeta has just named a new chief technology officer. And it's an eyebrow-raising choice for a critical post as the payments powerhouse faces new challenges as a public company.

Randy Kern, who joined Marqeta last month, is a tech veteran with decades of engineering and leadership experience, mainly in enterprise software. He worked on Microsoft's Azure and Bing technologies, and then went on to Salesforce where he last served as chief customer technology officer.

Keep Reading Show less
Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.

As President of Alibaba Group, I am often asked, "What is Alibaba doing in the U.S.?"

In fact, most people are not aware we have a business in the U.S. because we are not a U.S. consumer-facing service that people use every day – nor do we want to be. Our consumers – nearly 900 million of them – are located in China.

Keep Reading Show less
J. Michael Evans
Michael Evans leads and executes Alibaba Group's international strategy for globalizing the company and expanding its businesses outside of China.
Protocol | Policy

What can’t Jonathan Kanter do?

Biden's nominee to lead the DOJ's antitrust section may face calls to remove himself from issues as weighty as cracking down on Google and Apple.

DOJ antitrust nominee Jonathan Kanter's work as a corporate lawyer may require him to recuse himself from certain cases.

Photo: New America/Flickr

Jonathan Kanter, President Joe Biden's nominee to run the Justice Department's antitrust division, has been a favorite of progressives, competitors to Big Tech companies and even some Republicans due to his longtime criticism of companies like Google.

But his prior work as a corporate lawyer going after tech giants may require him to recuse himself from some of the DOJ's marquee investigations and cases, including those involving Google and Apple.

Keep Reading Show less
Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

Protocol | Enterprise

Couchbase plots escape from middle of database pack with $200M IPO

The company has to prove it can beat larger rivals like MongoDB, as well as fast-growing competitors like Redis Labs, not to mention the big cloud companies.

Couchbase celebrates its initial public offering on the Nasdaq market.

Photo: Nasdaq

At first glance, Couchbase appears to be stuck in the middle of the cloud database market, flanked by competitors with more traction and buzz. But fresh off a $200 million IPO Thursday, CEO Matt Cain relished the opportunity ahead to prove why his company can beat out rivals the market considers more valuable.

The NoSQL database provider's public offering helped propel Couchbase to a $1.2 billion valuation. But unlike one of the last big data-related IPOs, market leader Snowflake's historic debut on the public markets last December, Couchbase has some work to do to differentiate itself.

Keep Reading Show less
Joe Williams

Joe Williams is a senior reporter at Protocol covering enterprise software, including industry giants like Salesforce, Microsoft, IBM and Oracle. He previously covered emerging technology for Business Insider. Joe can be reached at JWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.

People

SPACs are so Q1 and other takeaways from a disorienting year in IPOs

Amid the frenzy of tech IPOs this year, a few surprising discoveries stand out.

Through it all, the house always wins.

Image: CSA Images/Getty Images

2021 is shaping up to be a disorienting year for tech IPOs. The first six months brought us the Alex Rodriguez SPAC, an $85 billion Coinbase debut and a mysterious delay in the Robinhood S-1 filing that was ultimately cleared up when the firm paid a token fine.

Amid the recurring frenzy, it's easy to slip into a familiar pattern of analysis: Wait for an S-1 to drop, react to the financial disclosures, then see whether the stock "pops" after its trading debut. By the time one stock starts trading, several tantalizing new S-1s are already up for inspection. The problem with this cycle is that it stops too early: A stock's opening-day pop only really reflects the extent to which a few overworked investment bankers underestimated investor demand. A pop makes for headlines. It doesn't make a company.

Keep Reading Show less
Hirsh Chitkara
Hirsh Chitkara (@ChitkaraHirsh) is a researcher at Protocol, based out of New York City. Before joining Protocol, he worked for Business Insider Intelligence, where he wrote about Big Tech, telecoms, workplace privacy, smart cities, and geopolitics. He also worked on the Strategy & Analytics team at the Cleveland Indians.
Latest Stories