The 36 Most Interesting Findings In The Groundbreaking Epic Vs Apple Ruling That Will Free The App Store

Epic won, sort of. And lost.

Fortnite maker Epic sued Apple over a year ago (and Google too, separately) for the right to offer its own payment mechanisms in its games on iPhone and iPad. Apple’s in-app payment mechanism, of course, charges a 15-30% fee. Today, Epic won, as U.S. District Judge Yvonne Gonzalez Rogers ruled that Apple must allow developers to provide third-party payment options in apps.

Apple sort of won too, as Rogers did not find that Apple was a monopoly, even though it did engage in anticompetitive conduct as defined by California law. And, in fact, Rogers ruled in favor of Apple on nine of the ten claims Epic made.

“The Court does not find that Apple is an antitrust monopolist in the submarket for mobile gaming transactions,” Rogers wrote in her judgement. “However, it does find that Apple’s conduct in enforcing anti-steering restrictions is anticompetitive. A remedy to eliminate those provisions is appropriate.”

However, clearly, the big win for Epic — and for the entire app industry — is that Apple is being forced to open up the App Store for multiple payment options.

Rogers, perhaps more than any other judge, delved deep into the mobile apps and games industry in order to make her judgement. Here are the most interesting rulings, findings, and facts unearthed in Judge Rogers’ 185-page report:

1. Neither Apple nor Epic defined the App Store market space accurately. Apple’s not a monopoly, as Epic claimed, because the space is not just mobile games on iOS, but it also doesn’t compete in the overall total video gaming industry, as Apple claimed. “Ultimately, after evaluating the trial evidence, the Court finds that the relevant market here is digital mobile gaming transactions, not gaming generally and not Apple’s own internal operating systems related to the App Store. The mobile gaming market itself is a $100 billion industry.”
2. Games account for 70% of all App Store revenues. “Generally speaking, on a revenue basis, gaming apps account for approximately 70% of all App Store revenues. This 70% of revenue is generated by less than 10% of all App Store consumers. These gaming-app consumers are primarily making in-app purchases which is the focus of Epic Games’ claims. By contrast, over 80% of all consumer accounts generate virtually no revenue, as 80% of all apps on the App Store are free.”
3. Almost all in-app purchases happen in games. “Over 98% of Apple’s in-app purchase revenue came from games in 2018 to 2019.”
4. Apple is not a monopoly. “Given the trial record, the Court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws. While the Court finds that Apple enjoys considerable market share of over 55% and extraordinarily high profit margins, these factors alone do not show antitrust conduct. Success is not illegal.”
5. Apple has acted in anticompetitive ways, and not just in California. “Nonetheless, the trial did show that Apple is engaging in anticompetitive conduct under California’s competition laws. The Court concludes that Apple’s anti-steering provisions hide critical information from consumers and illegally stifle consumer choice. When coupled with Apple’s incipient antitrust violations, these anti-steering provisions are anticompetitive and a nationwide remedy to eliminate those provisions is warranted.”
6. People do value the privacy and security of the App Store model. “Apple justifies this control primarily in the name of consumer privacy, security, as well as monetization of its intellectual property. Evidence supports the argument that consumers value these attributes.”
7. Apps (and games) benefit from the App Store model. “Both Apple and third-party developers like Epic Games have symbiotically benefited from the ever-increasing innovation and growth in the iOS ecosystem. There is no dispute in the record that developers like Epic Games have benefited from Apple’s development and cultivation of the iOS ecosystem, including its devices and underlying software.”
8. Epic’s Unreal Engine is insanely profitable, at least in terms of margin. “For instance, in 2019, Unreal Engine generated about $97 million in revenue for Epic International, which enjoys a 100 percent gross margin on its “engine business.”
9. Epic Games has nine sources of revenue for Fortnite. “Users can subscribe to Fortnite Crew ... pay an up-front fee to gain access to one of Fortnite’s game modes ... redeemable codes sold through traditional retail and online stores ... providing third-parties with promotional codes redeemable for Fortnite content ... hardware bundle agreements with console makers ... Epic has provided other partners with redeemable codes for exclusive Fortnite cosmetics and V-Bucks ... licensing agreements with brands through which it received the revenue from sales of in-game cosmetics featuring the licensed content as well as a small portion of the brand’s sales generated from Fortnite ... licenses Fortnite intellectual property to third parties to use in physical merchandise.”
10. Epic effectively paid a higher commission on sales on PlayStation than the App Store. “Tor all Fortnite transactions via the PlayStation Store, Epic Games agreed to make additional payments to Sony above this commission rate based on the amount of time that PlayStation users play Fortnite cross-platform.”
11. Apple enables purchases from elsewhere to work on iOS, and not just in ‘reader’ apps like Kindle or Netflix. “In addition to cross-platform play, Apple also facilitated cross-progression (game progress synced across platforms), and cross-wallet functionality (allowing purchases from one platform to be used on others).
12. 115 million people played Fortnite on iPhone, and for most of them, iPhone is where they found Fortnite. “Before Fortnite was removed from the iOS platform, more than 115 million registered players had accessed Fortnite on an iOS device. Of this amount, 64% of Fortnite for iOS players—approximately 73 million in total—had only ever played Fortnite on iOS devices.”
13. Epic made $700M on iPhone and iPad, but only 13.2% of Fortnite users made purchases there. “In only two short years, and with access to the iOS platform and Apple’s support, Fortnite on iOS earned Epic Games more than $700 million across over 100 million iOS user accounts ... the vast majority of Epic Games’ Fortnite revenue (93%) is generated on non-iOS platforms ... 13.2% made a purchase on an iOS device— meaning that Epic Games was able to transact with 86.8% of paying Fortnite users without paying any commissions to Apple.”
14. As a publisher of games, Epic has a 60% to 40% revshare, or in some cases 50/50. “Where Epic Games serves as a publisher, its agreements provide that it first recovers all of its costs and then splits remaining revenues 60/40 with the 40% share to the developer, or 50/50.”
15. Epic seems to have started distributing third-party apps on its own app store mainly for legal optics. “While Epic Games urges in this lawsuit that Apple must allow third-party app stores in the App Store, the Epic Games Store did not itself distribute any third-party app stores until a few days before trial (approximately April 22, 2021).”
16. Epic has an 88% to 12% revshare on its own app store, as opposed to Apple’s 70/30 split. That 88/12 split makes the store run at a loss, primarily due to guaranteed revenue agreements. “Like other platforms, the Epic Games Store uses a commission model and markets an 88/12 split of all revenues to developers from the sale of their games. The evidence is also undisputed that this 88/12 commission is a below-cost price and the store is expected to operate at a loss for many years at this rate.”
17. Initially, Epic’s game store required apps to use its internal payment processing system. “From Epic Games Store’s launch to December 2019, Epic Games collected its commission through its own payment mechanism, which it required developers to use for all game purchases and in-game purchases.”
18. The Epic game store is bigger than you might think. “Today, Epic Games Store has over 180 million registered accounts and more than 50 million monthly active users. It supports more than 100 third-party app developers and publishes over 400 of their apps.”
19. Epic CEO Tim Sweeney sees the App Store and Google’s Google Play as barriers to the creation of an open and accessible metaverse. “At the end of 2019 Tim Sweeney conceived of a plan called ‘Project Liberty’ which was a highly choreographed attack on Apple and Google, Inc. The record reveals two primary reasons motivating the action. First and foremost, Epic Games seeks a systematic change which would result in tremendous monetary gain and wealth. Second, Project Liberty is a mechanism to challenge the policies and practices of Apple and Google which are an impediment to Mr. Sweeney’s vision of the oncoming metaverse.”
20. Apple has massively patented the App Store. “Apple’s intellectual property as it relates to the iOS ecosystem generally are significant. The record is undisputed that Apple holds approximately 1,237 U.S. patents with 559 patent applications pending. With respect to the App Store itself, Apple holds an additional 165 U.S. patents with 91 more U.S. patent applications pending.”
21. Almost half of App Store revenue comes from apps that have been used for over half a year. (In other words, a standard sales commission would be long out of the picture.) “41% of [Apple’s] monthly billings are generated from apps that were downloaded more than 180 days prior, as contrasted to 31% for apps downloaded between 30 and 180 days prior and to 28% for apps downloaded less than 30 days prior.”
22. The court thinks it is logical that some fees be paid by developers at some level. “It is logical that no developer would want to pay prices higher than is competitive or necessary. However, it is also true that, with few exceptions, not every business is entitled to have access to what is effectively shelf space if they cannot afford to pay a commission to the platform host.”
23. At least some App Store guidelines are good and worthwhile, in the opinion of the court. “Evidence exists to show that the Guidelines are used in appropriate ways for appropriate purposes ... for instance, Apple proactively requires, much to some developers’ chagrin, measures to protect data security, privacy, data collection and storage. The data collection and disclosure requirements are not insignificant.”
24. But not all App Store guidelines help create a fair marketplace. “Epic Games raises legitimate concerns regarding some of the consequences of Apple’s App Guidelines and its refusal to share control of data absent customer agreement ... Apple does a poor job of mediating disputes between a developer and its customer ... it has created overly simplistic rules to issue refunds which can also increase fraud ...” and disallow important functions “such as Match Group’s desire to obtain the information to run registered sex offender checks and age verification.”
25. Apple’s App Store margins are very high. “Plaintiff’s expert, Ned Barnes, through both reverse engineering and review of documents from Tim Cook’s files, calculated operating margins to be over 75% for both fiscal years 2018 and 2019 ... the consistency between Mr. Barnes’ analysis and Apple’s own internal documents suggest that Mr. Barnes’ analysis is a reasonable assessment of the App Store’s operating margin.”
26. .5% of people generate more than half of all App Store revenue. “In the third quarter of 2017, high spenders, accounting for less than half a percent of all Apple accounts, spent a ‘vast majority of their spend in games via IAP’ and generated 53.7% of all App Store billings for the quarter, paying in excess of $450 each. In that same quarter, medium spenders ($15- $450/quarter) and low spenders (<$15/quarter), constituting 7.4% and 10.8% of all Apple accounts, accounted for 41.5% and 4.9% of all App Store billing, respectively. 81.4% of all Apple accounts spent nothing and account for zero percent of the App Store billings for the quarter. The trend has largely continued to the present.”
27. Both Apple and Epic want to lock their customers in. “On balance, the Court reads the emails to suggest that Apple sought to compete by distinguishing their product, and in the process, making its platforms ‘stickier.’ That, however, is not necessarily nefarious. Every business seeks to decrease switching away from its products. Epic Games’ executives, for instance, used the word ‘lock-in’ to refer to price cuts that make it easier for users to play Fortnite in a hard economy.”
28. Apple’s 30% fee for in-app purchases is entirely arbitrary, and Apple took steps to hide that from consumers. “The Court does agree that the comments confirm that the 30% is not tied to anything in particular and can be changed. Moreover, it shows that Apple used other provisions to hide information on those commission rates from the consumers, presumably to hide the profitability of the transactions, namely the use of anti-steering provisions. Without information, consumers cannot have a full understanding of costs.”
29. Most Fortnite iOS players did not follow the game off-platform ... but the valuable payers did. “22% to 38% of strict iOS-only—users who never accessed Fortnite on a non-iOS platform before—shifted their game time and spending to other platforms after the iOS hotfix ... Dr. Hitt shows that Epic Games retained 81% to 88% of its iOS player revenue.”
30. Apple has 58% market share in mobile gaming. “Using Apple’s internal documents the Court is able to calculate Apple’s market share at 57.1% in the global mobile gaming industry. The Court reaches that value by taking Apple’s own internal records for 2017 which show Apple’s internal calculation that it controls 24% of the global video gaming market and dividing the number by 42% which reflects Apple’s belief of the portion of the mobile gaming market relative to the global video gaming market ... Apple would have 57.6% market share in the global mobile gaming industry in 2020.”
31. Besides China, there’s essentially a global market for apps. But Apple has artificially segmented that by country. “At least for purposes of this case, Apple’s restrictions appear to be imposed by Apple, rather than by market forces. Importantly, the Court finds more persuasive that Apple actually treats app distribution as a global enterprise. Its rules and guidelines apply globally to all storefronts, the business development team engages with developers globally, the DPLA applies globally, and the complexity and justification for the complexity of the IAP system is due in large part because of the global nature of the business.”
32. Apple’s insistence on apps using its own payment service has resulted in higher costs — at least for developers. “The Court finds that Apple’s restrictions on iOS game distribution have increased prices for developers. In light of Apple’s high profit margins on the App Store, a third-party store could likely provide game distribution at a lower commission and thereby either drive down prices or increase developer profits.”
33. Apple slowed innovation in software delivery on mobile devices because it did not have to compete with third-party app stores. “A third-party app store could put pressure on Apple to innovate by providing features that Apple has neglected. Because this competition is currently precluded, Apple’s restrictions reduce innovation in ‘core’ game distribution services.”
34. The closed App Store model is not the only way to achieve security and safety for app users. “Ultimately, the Court finds persuasive that app review can be relatively independent of app distribution. As Mr. Federighi confirmed at trial, once an app has been reviewed, Apple can send it back to the developer to be distributed directly or in another store. Thus, even though unrestricted app distribution likely decreases security, alternative models are readily achievable to attain the same ends even if not currently employed.”
35. Apple doesn’t verify digital purchases, it just processes them. “One of Apple’s strongest arguments for IAP security was that it can verify digital good transactions. Unlike for physical goods, Apple uses IAP after confirming that the developer has actually delivered a digital good to the user and is entitled to the corresponding payment. The evidence shows, however, that Apple itself does not perform the confirmation. Apple’s Head of Pricing, Mr. Grey, testified that Apple simply asks the developer to confirm that delivery occurred and then issues a receipt. Apple has not shown how the process is any different than other payment processors, and any potential for fraud prevention is not put into practice.”
36. Apple denies its customers the ability to choose. “While some consumers may want the benefits Apple offers (e.g., one-stop shopping, centralization of and easy access to all purchases, increased security due to centralized billing), Apple actively denies them the choice. These restrictions are also distinctly different from the brick-and-mortar situations. Apple created an innovative platform but it did not disclose its rules to the average consumer. Apple has used this lack of knowledge to exploit its position. Thus, loosening the restrictions will increase competition as it will force Apple to compete on the benefits of its centralized model or it will have to change its monetization model in a way that is actually tied to the value of its intellectual property.”

The entire report is here. Anyone who wants an excellent overview of the mobile apps and games industry could do a lot worse than taking an hour or two to read through it.

Listen to this report in the TechFirst podcast.