Last Thursday, Epic Games, creator of the hit game Fortnite, announced a discount for the purchase of V-Bucks — its in-game currency. For iPhone and Android smartphone users, you had to purchase the V-Bucks through its own payment portal instead of Apple’s App Store or Google’s Play Store to get the discount.
Both Apple and Google were not happy with Epic’s action because they claim that it breaches their contract. It states that apps must exclusively use Apple’s App Store or Google’s Play Store to receive payment from customers. The issue is that both stores charge a 30% commission from the sales price, which Epic has called a tax. Epic’s discount is essentially removing Google or Apple as the middleman.
As a result, Apple and Google removed Fortnite from the App Store and the Play Store. This means that the game cannot be downloaded for new users. And for those who already have the app installed on their phones, they cannot be updated automatically. While it is possible to download and install these games on the iPhone or an Android phone, it will have to go through several security checks before it is installed. Also, upgrading the software must be done through the creator’s website which is likely to make the process more cumbersome.
Epic Games responded by suing both Apple and Google for antitrust violations. While Epic is not seeking monetary damages, it is seeking an injunction ordering both companies to stop engaging in allegedly anti-competitive behavior, including forcing Epic to accept payment only through the App Store and the Play Store.
Soon after filing the lawsuit, Epic Games released a 40-second video parodying Apple’s iconic 1984 commercial. The video depicted Apple as the monolithic villain. They also issued a press release to their fans and to the news media. In essence, they anticipated Apple’s and Google’s response and chose to fight them. Epic Games is represented by the white-shoe firm Cravath, Swaine, and Moore led by Christine Varney, who was the former FTC commissioner.
The timing of this lawsuit is interesting as most of us are staying at home more often and playing a video game is one of the few ways we can enjoy ourselves without violating a governmental stay-at-home rule. And since many of us have reduced income or no income at all due to COVID-19, a discount on just about anything is welcome news.
But is Apple and Google’s behavior really monopolistic? I have my doubts.
Let’s first look at the 30% surcharge which does sounds shocking. But I don’t think it was because of monopolistic behavior. If you look at most smartphone apps, they sell for small amounts of money. Most are less than $10. Thus a 30% surcharge is not particularly painful. Any lower than that means that the commission margins will be so small that Apple and Google may not be willing to support these apps.
Also, while Epic Games is unquestionably providing its customers with a choice in payment, I am not convinced that this promotes competition that the antitrust laws were designed for. Epic Games controls how V-Bucks are created and spent. And the company alone sets the price. Apple and Google do not control the price of V-Bucks but instead charge a supplemental fee for using payment service. If Epic Games wants competition that benefits customers, shouldn’t it design a system that allows market forces to determine the price of V-Bucks? Since Epic alone creates and controls the price of the very currency they are trying to sell, it makes the company look more like the monopolist.
Next, Google and Apple must be allowed to control which apps should be approved in order to maintain the integrity and public reputation of their platforms. Otherwise, the flood of crap apps could result in people switching phones or damaging the smartphone market altogether.
A good historical example is the video game market crash of 1983. In the early years of the video game industry, sales of software and hardware were booming. But this resulted in companies quickly making poor quality games in the hopes they would sell. People complained about the quality and some of them switched to personal computers which did many other things in addition to playing video games.
When Nintendo revived the industry in 1987 with the introduction of the Nintendo Entertainment System (NES), one of the things the company did to avoid another crash was to control which games were playable on the system. They did this by including a “lockout” chip in the system which prevented unauthorized games from being playable on the NES.
Accordingly, Google and Apple should be allowed to reject substandard apps. This is particularly important when it comes to payment processing. If there are numerous payment processing apps that compete with the App Store or Play Store, eventually one or more will cut too many corners to save money. This means that payments cannot be processed reliably, or worse there can be a hack and credit card information can be disclosed to hackers.
And finally, since we are on the subject of payment processors, there is speculation that Epic Games is doing this to create and install their own alternative payment system on the Apple and Google phones. Other game companies can use this system to receive payments at a lower commission than Apple and Google. If this is the case, then why stop at a payment processor? They should just create a smartphone for gamers. The phone will have its own operating system that is more intuitive to gamers. And gaming “whales” that spend a lot of money on games like Fortnite should be eligible for a subsidy on these phones.
Epic Games’ battle royale lawsuit against Google and Apple will indeed be epic. But I think this battle should be decided by the players’ wallets and not in an antitrust lawsuit.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at [email protected]. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.
