Washington keeps close eye as Apple antitrust fight goes to court
Apple will head to federal court in California on Monday to defend itself in an antitrust trial with Epic Games, a case that is expected to be closely watched in Washington as lawmakers and regulators crack down on the market power of Silicon Valley giants.
Epic Games is suing Apple over claims of anti-competitive behavior. The dispute stems from Apple’s decision in August to kick Epic’s popular Fortnite game out of its app store after the developer set up its own payment system in an attempt to avoid the 30 percent commission fees charged by Apple.
The trial comes amid a backdrop of federal and state-led antitrust lawsuits against tech giants, including Facebook and Google, and as Congress weighs steps to revamp antitrust laws after a House Judiciary panel released a blockbuster report alleging Apple and other companies stifled competition.
“There really does seem to be an interest in trying to find a way to have antitrust law apply for the type of conduct that Apple is engaging,” said David W. Kesselman, a founding partner of Kesselman, Brantly & Stockinger and antitrust expert.
“One of the real questions is how this judge is going to apply the law … in the face of what we’re seeing as a reevaluation of whether or not a digital marketplace behemoth like Apple should be held accountable in a new way,” he added.
At the heart of Epic’s lawsuit is an accusation that Apple unlawfully maintains a monopoly over the market for iOS, its mobile operation system.
Apple does not allow other app stores on its iPhones, meaning iPhone users must use the App Store to get apps — and app developers must use the Apple App Store to reach iPhone users.
“The relationship between Apple and the developer community is, in some ways, synergistic,” Epic games said in a pre-trial court filing.
“That synergy, however, does not result in a level playing field,” Epic added. “As Apple has gathered more and more users into its ecosystem and locked them in, the importance of the Apple ecosystem to developers has increased to the point that nearly all developers rely on Apple — but Apple does not need to rely on any single developer.”
Apple is arguing that it does not have a monopoly given other app stores on the market, such as the Google Play Store on Android products. Unlike Apple, Google does allow third-party app stores on Android products.
But Apple’s argument goes beyond highlighting what it views as app store competition. Apple is also staking its case around defending its App Store rules as a way to ensure data privacy and security.
That argument may be a benefit to Apple heading into the trial, said Ari Lightman, professor of digital media at Carnegie Mellon University’s Heinz College.
“Apple as an organization has been very, very conscious associated with consumer privacy and security. So their argument is, ‘We’re protecting our consumers,’” he said.
In a pre-trial court filing, Apple stated that it builds its in-app payment system on “principles of efficiency, reliability, security and privacy.”
The company said it made a “significant investment” in its in-app payment system with “robust security,” and “continues to invest in and improve that system today.”
“They’re arguing that, because we do all this, there’s a mandate associated with it, ‘We need to recoup our investment associated with providing a safe and user friendly and effective environment associated with our users to find apps within the store,’” Lightman said.
Apple used the same privacy argument when defending its fees during a recent Senate antitrust hearing on app store competition, though executives from several app-based companies that testified at the hearing were dismissive of the argument.
Amid backlash, both Google and Apple cut app store commission fees this year in half to 15 percent for the first $1 million of revenue each developer earns annually.
Epic Games is by no means a small entity, but the outcome of the trial may very well impact start-ups subject to the app store fees, according to antitrust experts.
“Epic has, by virtue of their size, been able to take the fight directly to Apple in a court of law, as well. Something a small or midsize developer would be ill advised to do given the prospects of spending a decade in the courts and tens of millions in legal fees,” David Heinemeier Hansson, founder and CTO of Basecamp, said earlier this month during a press conference organized by the Coalition for App Fairness.
Meghan DiMuzio, the group’s executive director, said the trial will likely highlight shared challenges facing developers of all sizes. The coalition, which counts Epic Games as a member, is pushing for more regulation of app stores.
“What I’m most interested in, and encouraged by, and hopeful, is that this will help drive greater awareness to those challenges and some of the experiences of developers like Epic and others,” DiMuzio said.
If Epic is successful in its suit against Apple, it could open up challenges to other tech giants, such as Google and Facebook, Kesselman said.
“That’s going to be one of the big policy arguments that Apple is going to make,” Kesselman said.
“They’re going to not only try to argue the evidence and case law, but I’m sure they’re going to try to argue that this is bigger than this case and if any change like that’s going to happen, that they probably will argue it should come from Congress,” he added.
Lawmakers are already putting forth proposals to revamp antitrust laws, with bipartisan members of the House and Senate ramping up scrutiny of the top tech companies at recent hearings. Lawmakers are pushing forward despite some partisan disagreement over what proposals to pursue.
Sen. Amy Klobuchar (D-Minn.), chair of the Senate Judiciary antitrust subcommittee, introduced a bill to boost funding for the Federal Trade Commission and the Justice Department’s antitrust division as well as amend the Clayton Act to make anti-competitive mergers more difficult. GOP Sen. Josh Hawley (Mo.) has also proposed a bill that would reform the Sherman and Clayton antitrust acts.
In the House, Judiciary antitrust subcommittee Chair David Cicilline (D-R.I.) is planning to release a draft of up to 10 antitrust bills this spring while Republicans have separately signaled support for offering antitrust regulators more resources as well as reforming the burden of proof for merger cases.
President Biden has also signaled a willingness to take on Big Tech’s market power through nominations and appointments to key positions, namely his nomination of Lina Khan, an influential antitrust scholar, to the FTC.
During a Senate Commerce Committee nomination hearing, Khan said app store competition is a “significant issue.”
“Certain terms and conditions really lack any type of beneficial justification, and so I think in those cases we need to be especially skeptical and look really closely,” Khan said.
Regardless of the trial’s outcome, the result could propel Congress to take action to update century-old laws that some antitrust legal experts say are ill-equipped to deal with the new wave of tech giants.
“If Apple loses, the Hill may take a look at this and it would corroborate and confirm their concerns about Apple’s market power, and there could be legislation against high tech companies,” said Jeffrey Jacobovitz, a partner at Arnall Golden Gregory and a former antitrust attorney at the FTC.
“If Apple prevails, the hill may look at this and say, ‘It looks like the Sherman Act cannot resolve the issues against a high tech company like Apple, what can we do to modify it in order to have potential plaintiffs prevail against Apple or the government.’”