Context: Apple terminated the developer account of a Swedish Epic Games subsidiary that wants to build an alternative app store for iOS in the EU (March 6, 2024 games fray article). Then Apple came under pressure after the European Commission confirmed it was investigating a potential breach of the Digital Markets Act (DMA), followed by an X post by EU internal market commissioner Thierry Breton that placed particular emphasis on the fact that the EC would not let gatekeepers silence critics (March 8, 2024 games fray article).
What’s new: On its website, Epic Games just announced the following:
“Apple has told us and committed to the European Commission that they will reinstate our developer account. This sends a strong signal to developers that the European Commission will act swiftly to enforce the Digital Markets Act and hold gatekeepers accountable. We are moving forward as planned to bring the Epic Games Store and Fortnite to iOS in Europe. Onward!”
Direct impact: It is out of character for Apple to fold, especially so very quickly, over a legal issue. But the EC could have imposed a hefty fine of not only one or two billion euros, against which Apple would then have had to defend in court. Now Epic is able to develop its Epic Games Store. Whether Apple will also allow Fortnite on that store is not certain given the termination of the Fortnite-related U.S. developer account, but Apple may no longer have an appetite for fighting with the EU over basic access-to-platform questions like that. Separately from that kind of question, Apple is likely still going to defend onerous terms that limit the market potential of alternative app stores to niches such as “adult content” and other apps that Apple doesn’t allow in its own App Store (which would also apply to Fortnite).
Wider ramifications: The EC has now asserted its authority, which is obviously limited by the rule of law, but a force to be reckoned with. This outcome (and how quickly things changed after the EC took Apple to task in public) will not go unnoticed by other gatekeepers.
Apple has made a couple of DMA-related concessions this week. It thankfully made a change to its commercial terms so as to protect small developers against the risk of exorbitant app installation costs resulting from a sudden surge of downloads (March 6, 2024 games fray article), an issue that games fray was (to the best of its knowledge) the only media outlet to discuss. In its final compliance report Apple also clarified that up to 30 days of absence from the EU are possible without losing access to alternative app stores or being unable to update apps downloaded from them. And now this U-turn concerning Epic’s developer account.
The tone of Epic’s announcement shows that there is no “gag order” (such as a contract that would limit Epic’s ability to speak out) in place. This is Epic being Epic. Authentic as always.
For Apple. this is an uncomfortable situation to be in. Epic Games CEO Tim Sweeney told Apple’s App Store chief Phil Schiller that Epic would comply with the rules. But such rules are often interpretable. No app store operator is as likely as Epic to play the role of an “agent provocateur” who will test the limits of Apple’s interpretation and application of its own rules for alternative app stores.
Take Apple’s restriction on functionality of alternative app store frontends. Apple says those alternative app stores should just be stores, and nothing else. But what if Epic wanted to add mini games? What if Epic wanted to use its Unreal Engine to provide a virtual reality shopping experience in the Fortnite universe? That’s just one area of many in which there could be disagreements.
Epic can be trusted that there won’t be any “hotfixes” like the one in 2020 by which Epic suddenly activated an alternative payment system that Apple wasn’t able to see. Epic is going to be transparent. Anything less would not be condoned by the EC. But even if Epic transparently informs Apple of what its Epic Games Store for iOS does, there may be features or aspects that Apple does not consider compatible with its own rules. In that case, there is always the risk of the EC becoming involved again.
Apple made the right decision today, and the best one for its own purposes. This situation could have escalated further with the EC potentially announcing a fine at some point in the not too distant future. Apple may not like the notion of having to deal with Epic. Apple also didn’t like the fact that Epic was pointing an Australian court to the opportunity it now has in the EU. And now it’s clear that Apple felt forced to fold. But none of that is nearly as bad as being portrayed as a bully that doesn’t tolerate dissent. Actually, if Apple primarily wanted to silence critics, it’s unlikely that app developer Kosta Eleftheriou, who frequently criticizes Apple for not detecting scan apps or not quickly removing them from the App Store, would have continued to voice such criticism even after he settled a U.S. antitrust lawsuit with Apple.
For a reminder, games fray explained in its previous article on this matter that Apple was most likely just looking for an excuse to deny Epic the opportunity to make an iOS app store while coming across as constructive. It backfired. In the end, Apple’s correspondence with Epic appeared to suggest in some people’s eyes that a large part of the reason for excluding Epic from the iOS ecosystem in the EU was Epic’s outspoken criticism of Apple’s terms. Epic founder and CEO Tim Sweeney does not mince words on X (formerly known as Twitter).
It is important to move on and make further progress. Whenever Apple moves in the right direction, even if under regulatory pressure, that is a good thing. There still are huge issues remaining, and there is no reason to assume that Apple is prepared to make any major concessions now short of an amended DMA or a court ruling based on a highly purposive interpretation of that law. Apple will presumably stand its ground in some other ways. But the wholesale exclusion of a developer (in this case, Epic) from Apple’s ecosystem is not going to work. That’s what the EC has now shown.
What Apple faces now is a “duty to deal” as it is called in U.S. antitrust law (where it is extremely hard to establish). Apple must fulfill its obligations under the developer agreement with Epic and under the DMA as well as other applicable EU laws. From a purely legal point of view, Apple’s position that its resounding victory in U.S. court (where all appeals were exhausted) allowed it to terminate any or all developer agreements with Epic and its subsidiaries was not unreasonable. It would normally have been a non-trivial legal question to resolve whether the DMA trumped U.S. contract law in this case. But the question of “silencing” overshadowed everything else after last night’s X post by EU internal market commissioner Thierry Breton.
What Epic did (and described as an act of “civil disobedience”) in the summer of 2020 was unharmful in terms of its effects (no one last money), but the method of hiding a feature from Apple’s reviewers’ eyes was not allowed under its developer agreement and bad actors could have employed the same method for different purposes (as they do, in fact: scam apps on the App Store sometimes come with hidden features and content, with one extreme example being a children’s game that after a couple of weeks or months turns into an illegal gambling app).
The specific issue in the summer of 2020 is, however, irrelevant now: Apple can meter at the operating system level how often an app (be it an app store frontend or an app distributed via alternative app stores) is installed, and can charge on that basis. There is no “hotfix” with which Epic could activate program code that would prevent iOS from reporting to Apple when an app gets installed. Apple will always know what gets installed.
The EU Commission and Epic have won a high-profile battle against a company that more than any other is prepared to fight regulators and regulation. With the greatest respect for Epic, this was an unnecessary distraction caused by Apple and it’s now important to focus on general DMA compliance issues again. The rules that Apple has in place in the EU at the moment are meant to sustain Apple’s death grip on the iOS app ecosystem. Makers of apps that are currently on Apple’s App Store (as opposed to apps that Apple never allowed or, like Fortnite, threw out at some point) will be able to distribute through alternative app stores only if they are prepared to lose a very significant part of their customer base along the way and inconvenience the part they don’t lose.
A key element of Apple’s EU app distribution terms is a Core Technology Fee (CTF) of €0.50 per install per year. As explained in the previous article, those who oppose that fee, which also affects alternative app stores and the apps they carry, have to plan for an important end game that is called FRAND (fair, reasonable and non-discriminatory terms) and challenge Apple’s claim that it’s a reasonable intellectual property royalty. IP valuation is a specialized field that involves legal, technical and economic issues, and only a small community enjoys engaging in it, but it’s definitely going to be a (arguably even the) battlefield between Apple and the critics of its app distribution terms. And the answer is not going to be limited to lobbying.
“Now this is not the end. It is not even the beginning of the end.
Sir Winston Churchill, British prime minister
But it is, perhaps, the end of the beginning.”
(speech at the Lord Mayor’s Day Luncheon, 10 November 1942)