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Apple's battle royale with Epic Games begins

Experts expect US judge to allow Epic to use third-party apps on Apple's app store, but not to reinstate Fortnite

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Financially, Apple does not have much to lose by kicking out Epic's battle royale game Fortnite, but there are broader risks for the tech giant.

Washington

THE legal fight between Apple and Epic Games kicks into full gear on Monday with decisions that will influence the future of app stores in the US and how the world's largest technology platforms make money from developers.

US district judge Yvonne Gonzalez Rogers will decide whether to force Apple to let battle royale video game Fortnite back into the App Store with Epic's in-house payment option.

She will also rule if Apple can block third-party apps using Epic's Unreal Engine development software.

Most legal experts expect the judge to extend her temporary injunction for Unreal Engine, but not reinstate Fortnite in the Apple App Store.

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"Epic faces an uphill battle," said Mark Lemley, a professor at Stanford Law School. "Apple's pricing policies are problematic, and anti-trust law should probably do something about it. But courts are very reluctant to dictate who a company, even a monopolist, has to do business with."

The decisions will have far-reaching consequences, especially as authorities across the globe examine whether tech giants including Apple and Alphabet's Google have broken antitrust rules.

On Monday, the judge will consider if Epic is likely to succeed on the merits of its antitrust claims and whether the company will suffer irreparable harm if she does not issue an injunction. At stake is Apple and Google's ability to charge fees of up to 30 per cent to developers using their app stores.

Consumers spent US$50 billion worldwide on the App Store and Google Play in the first half of 2020, showed Sensor Tower estimates. That generates billions of dollars in highly profitable revenue for the companies. Some developers deride this as an unfair and unwarranted tax. Epic and its founder Tim Sweeney have led the backlash this year.

Google may change its policies if the Fortnite case ends up favouring Apple, said Lewis Ward, an analyst at researcher IDC. No matter the outcome, Epic has gained a lot of goodwill among gamers and other developers.

"In the larger court of public opinion in the US, my sense is that Epic is generally viewed as the good guy here, and Apple is viewed as the bad guy," he said. "It has raised the profile of Epic from an already well-respected game company to one that has a philosophy or a vision of where the games industry should go over time.

"That vision is one that is more aligned with how the Internet began, which was open and free and cheap."

The impact on Epic's business so far has been "fairly negligible", said Doug Clinton, the co-founder at Loup ventures, which he said amounted to tens of millions of dollars in lost revenue.

While players can no longer download Fortnite on their Apple devices, many of them have simply shifted their playing to consoles and PCs. Fortnite climbed SuperData's rankings of top-grossing titles among console games in August, reaching third place. It ranked sixth in July, before the legal spat between Epic and Apple began.

Financially, Apple does not have much to lose by kicking Fortnite out. The company has taken in about US$350 million in revenue from Fortnite since the game launched on the iPhone in 2018, showed Sensor Tower data. Apple pulled in sales of more than US$250 billion in its latest fiscal year.

If the court forces Apple to keep distributing Unreal Engine, that could be positive for the iPhone maker. The decision would let other games that use the tools continue distributing their software via Apple's platform, resulting in a 30 per cent cut for each sale or in-app purchase. However, Apple argues that the continued distribution of Unreal Engine by what it considers to be a rogue developer could harm consumer security.

There are broader risks for Apple from the case. If Epic continues to paint Apple as the bad guy to younger iPhone and iPad owners who play Fortnite, that could twist the perception of these users toward Apple.

If Epic wins key decisions, that would make it more difficult for Apple to impose its App Store payment system on other developers, curbing a high-margin source of revenue. BLOOMBERG

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