Context: Apple terminated an app developer account obtained by Epic Games’ Swedish subsidiary in order to build an alternative iOS app store as it is entitled to do under the European Union’s Digital Markets Act (DMA) (March 6, 2024 games fray article). What particularly sparked outrage on the internet is the fact that Apple’s correspondence with Epic about that subject (which Epic published on its website) places a lot of emphasis on Epic CEO Tim Sweeney’s criticism of Apple’s policies, including an innocuous X (formerly known as Twitter) post that compared Apple’s garage start-up, innovation-focused roots to current disputes.
What’s new: The EU’s internal market commissioner Thierry Breton (a French politician and former CEO) has announced on X that he has directed the EU Commission’s services (i.e., the officials running the day-to-day business of the EU’s executive government) to look into Apple’s termination of Epic’s developer account. Should Apple refuse to resolve the situation, a hefty fine of theoretically up to $30 billion, and certainly not just one or two billion dollars, could be imposed for a reckless breach of the DMA.
Direct impact: For the first time in the long-running debate over Apple’s App Store regime, Apple’s senior management has failed miserably by appearing to just use their power to silence critics. Apple has made a serious mistake of judgment, possibly the worst PR and political mistake in its history. Apple must give Epic its developer account back at the earliest opportunity. From a purely legal point of view, Apple’s reliance on the final outcome of Epic’s multi-year U.S. lawsuit is not a wholly unreasonable position to take. Apple’s blunder was to appear to punish Epic for speaking out instead of limiting its argument to the legalistic implications of a U.S. court win over a question of contract law, especially for the purpose of not allowing Fortnite back on iOS, not even in the EU. That was probably bad advice by lawyers who are first-rate at their job but didn’t understand the political and PR implications of what they were doing.
Wider ramifications: Once Epic operates an iOS app store in the EU, there will be a potential for further disputes. By having acted in the impression of some people like a fascist totalitarian regime, any move that Apple will make with respect to Epic’s future iOS app store will be viewed as potential retaliation. That is a very uncomfortable situation for Apple to be in. At the same time, it’s important to understand that even if Apple backs down in this context (as it probably will very soon), there are other issues concerning alternative iOS app stores in the EU that prevent effective competition from emerging. Those won’t be resolved by Epic’s app store. The EU’s resolve to win the war against Apple’s abusive practices appears very strong now. But it will still take a lot of work to open up the market.
Sometimes even super-smart lawyers recommend utterly stupid things because they suggest what’s best for their chances of winning their cases, but not best for their clients in the greater scheme of things. That’s where executives have to use their judgment and set the right priorities, just like politicians won’t let generals do everything they want to just to win a war. Apple is normally a world-class PR operation, but now its senior leadership has failed.
Were Steve Jobs still alive, he’d be furious and fire a bunch of executives after this blowback from the European Union’s internal market commissioner Thierry Breton:
For the first time, Apple is now paying a price for its hubris, for its ruthlessness and for the disdain with which it treats developers. Apple used developers to build its market power, and increasingly just treats them as serfs.
The price could amount to approximately $30 billion, or at least many billions (not just one or two), unless Apple backs down. Apple will now be forced to cave. Apple will fold.
There is hardly anything worse in the Free World than for a bully—which is what Apple appears to be in this context—to be accused of using its market power to silence critics. This is not your average antitrust matter where the question is where to draw the line between hypercompetitive (allowed) and anticompetitive (illegal) behavior. This here is about fundamental values. Apple comes across as a company that has only two values: power and money.
For the avoidance of doubt, this is about appearance more so than substance. But Apple has no one to blame for that appearance but itself. It optimize for the courts of law, not for the court of public opinion.
When Apple App Store chief (and former marketing chief) Phil Schiller—a seasoned, measured and charismatic executive—reached out to Epic CEO Tim Sweeney about that EU developer account, he listed a number of things that Mr. Sweeney had said on X (“hot garbage”, “horror show”, “devious new instance of Malicious Compliance”, “Junk Fees”, “Apple taxes”). To be clear, games fray agrees with much (but not all) of Epic’s criticism and also with some wordings (such as “horror show” and “taxes”).
It got worse when Apple’s lead counsel in the U.S. dispute with Epic, Mark Perry (whose work on the case itself was unbelievably effective, especially before the Ninth Circuit), sent the official termination notice to Epic’s lead counsel Gary Bornstein and pointed to the following tweet by Tim Sweeney that no one in his right mind would consider offensive:
That was not like saying “Junk Fees”: it was actually constructive criticism. Seriously, it was half-way between lashing out at Apple and the extremely subtle kind of criticism that high-ranking politicians used in the Soviet Union and its satellite states like East Germany, where they heaped praise on leaders and their governments, but indicated between the lines that there was room for improvement.
Many people shared the sentiment of iconic software developer and Y Combinator founder Paul Graham:
Why did Apple do that? Was it really about silencing Tim Sweeney?
If one analyzes the sequence of events against the backdrop of a cross-jurisdictional dispute, it’s clear that silencing Tim Sweeney was not Apple’s primary objective, if it was one at all, which is not even even certain. But that makes it all so stupid: they wanted to achieve something else, and now they come across as an anti-free-speech bully. That’s why Steve Jobs must be turning in his grave.
In the summer of 2020, Apple terminated Epic’s developer account because Epic submitted a Fortnite update with hidden code that allowed the subsequent activation of an alternative payment mechanism. No customer was harmed. The security of the iPhone was not compromised. But the way Epic did this would also have enabled a malicious attack, and it was an intentional breach of Apple rules that Epic argued were unlawful and unenforceable under antitrust law. It’s just that Epic lost in court: first in district court, then in the appeals court, and the Supreme Court declined to hear their case. On that basis, Apple now has a final judgment in its favor, according to which “Apple has the contractual right to terminate its DPLA with any or all of Epic Games’ wholly owned subsidiaries, affiliates, and/or other entities under Epic Games’ control at any time and at Apple’s sole discretion.”
The first thing that happened was that Epic Games’ Swedish subsidiary obtained an iOS developer account. Apparently they just filled out a web form and paid the annual developer fee ($99). This suggests Apple never made the effort to black-list all Epic legal entities, in which case the form would have been rejected and the payment wouldn’t have been processed. Apple could have added program code that would have immediately made any company name that is identical or similar to one on the list (or simply contains “Epic Games”) subject to manual approval by the legal department.
Epic celebrated this as a “good faith move by Apple”:
But it’s not like Apple knowingly and willingly enabled Epic to make an iOS app store in the EU. In fact, games fray doubted that there was a “conscious decision by Apple’s executives and lawyers to give Epic a chance.” That view was validated by Apple itself in response to iMore, which quoted games fray and asked Apple for comment:
“Apple has confirmed to iMore that Epic Games Sweden entered the [developer agreement] without any executive review on Apple’s part, confirming Mueller’s suspicion.”
Apple then read on X and on Epic’s website about Epic’s plans to use that account to build an EU app store and to bring back Fortnite Mobile on iOS, albeit only in the EU. They knew that Epic would be the troublemaker among EU app store operators. It was foreseeable that Epic would use that app store to provoke further controversy. In fact, one huge issue was clear based on Epic’s announcement: they were going to publish Fortnite Mobile for iOS in the EU and distribute it through their store. They would have needed what Apple calls notarization: a security review. If Apple had then refused to notarize it, such as with a view to the U.S. legal situation over Fortnite, there would have been the next EU controversy. And so forth.
Apple also saw that Epic’s Australian lawyers were using the EU app store story already to make some kind of argument in their antitrust dispute down under.
Theoretically, Apple could then have decided to simply terminate that agreement with the Swedish entity, pointing to the U.S. court ruling that couldn’t be any clearer, period. If this had been only a question of U.S. law, that’s what would have happened. But they did know that Epic would then run to the EU Commission and complain, and if the EC wasn’t going to act, Epic would seek a preliminary injunction in the EU, such as from a Swedish or German court (Germany being the largest EU market and known for its injunction-happy courts).
So Apple decided to be pseudo-constructive: Phil Schiller’s email to Tim Sweeney was meant to lay the foundation for a termination of the account while seemingly giving Epic the chance to prove that it could be trusted not to breach the rules again.
In retrospect it is clear (and if people had Apple had thought things through holistically and strategically, it would have been clear to them beforehand) that Phil Schiller’s email, which was almost certainly drafted by lawyers at least in part, should not have elaborated on Tim Sweeney’s criticism. One may or may not agree with terminology like “Junk Fees” (games fray will explain separately what Epic and other App Store critics should do to attack Apple’s fees more effectively), but that’s free speech.
The right message would have been: Epic committed a serious breach in 2020, courts in the U.S. sided with Apple over it, and it’s clear from public statements that Epic disagrees with Apple’s new EU terms, suggesting that Epic may once again decide to breach rules in an act of civil disobedience.
Readers can reasonably interpret Phil Schiller’s email to Tim Sweeney as suggesting to him that he should promise to cease his public criticism, though games fray believes Apple didn’t really want Epic to make any meaningful promises: Apple’s first preference was to have a basis for terminating the account, but it wanted a basis on which the EU Commission might view this as a difficult matter to get involved in as there has to be some deference for the decisions made by the U.S. courts (games fray believes Epic should have won the U.S. case, but it’s a fact of life that it didn’t).
It’s highly unlikely that the contractual equivalent of a “gag order” in terms of Epic promising to cease and desist from public commentary on Apple’s rules would have led Apple to say: “OK, on this basis we let you make your own iOS app store.” But it is not unreasonable to assume that such a promise might have been part of a hypothetical deal.
Again, what Apple wanted was just to create a situation in which it could use its rights under U.S. law (which are beyond all doubt) and discourage the EU Commission from wading into an already fully litigated U.S. contract (and antitrust) dispute.
The PR disaster for Apple is now that an EU commissioner (and again, he’s also a former CEO of a large corporation, plus a former Harvard professor) has interpreted Apple’s actions as being primarily about silencing critics. It is an interpretation that games fray does not agree with, but it’s Apple’s own fault that it’s not an unreasonable conclusion for a third party reading the Epic-Apple correspondence to draw.
Apple’s mistake was to believe that pointing to Mr. Sweeney’s public criticism strengthened its argument. Apple was trying to stress a pattern: after criticizing Apple’s rules in the U.S. for several years, Epic started its “Project Liberty” with the Fortnite “hotfix” that constituted a breach of Apple’s rules, and now history may repeat itself.
PR is normally one of Apple’s absolute strengths. It’s in Apple’s DNA to play and control the press. Apple managed to position its App Tracking Transparency (ATT) initiative as a good deed when it was, more than anything, a money and power grab. Now, for the first time in such a context, Apple made the wrong call.
What are Apple’s options now?
It’s game over for Apple with respect to the termination of Epic’s account. The DMA is not a Lex Apple: there’s half a dozen gatekeepers already, with possibly more to be designated soon. Even with respect to Apple, there are strategically more important issues, though the current DMA may not be the right tool to address some of the most pressing ones. And now the EU makes it clear that the termination of Epic’s account is the first major DMA enforcement issue, overshadowing objectively more critical matters.
Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California exposed Apple’s contempt for developers when Tim Cook had to admit that he doesn’t get any reporters on developer satisfaction with Apple. She did realize some issues, but ultimately gave Epic only a consolation prize and largely ruled for Apple, saying Epic had failed to make its case for “myriad” reasons.
Now Apple’s attitude toward developers has been exposed by one of the EU’s most powerful politicians. Again, games fray thinks it’s not proven that Apple really wanted to silence Tim Sweeney, but it’s not unreasonable to assume that it was at least part of the plan.
Apple can give up, knowing that there is the potential for various subsequent disputes with Epic once there is an Epic Games Store on iOS in the EU. But this way they avoid that the situation gets worse. At some point the EC may impose a fine on Apple as the refusal to let Epic make an App Store is arguably a violation of the DMA. Here, again, games fray has a more differentiated perspective: it is not a given that European courts would put Epic’s rights under the DMA above the final U.S. judgment. A court of law may very well find that what Epic did in the U.S. in 2020 justifies Apple’s refusal to let Epic make an iOS app store in the EU. Epic’s case is unique and there would still be plenty of other companies that could make an alternative iOS app store there, even if Epic has to pay a price for past conduct that was miscalculation (they were too confident they’d win in court).
But now the whole focus has shifted to the question of “silencing” critics.
Under the DMA, the EC could impose a fine of up to 10% of Apple’s worldwide revenues. That means the fine could exceed $30 billion. Whether the EU Commission would go that far in this case is another question, but the €1.8 billion fine recently imposed on Apple in the Spotify case would most likely be considered inadequate to deter bullying. Apple could appeal a fine, hoping that the EU judiciary (first the EU General Court, ultimately the European Court of Justice) will defer to U.S. courts on whether Epic is entitled to a developer account. But that’s a high-risk gamble.
Prior to Mr. Breton’s X post, games fray thought the EU Commission would likely prioritize commercially more important DMA enforcement questions and would prefer not to have to take a position on how to resolve a conflict here between a final U.S. court ruling under U.S. contract law and the rights of those who want to make an alternative app store under the DMA. But now it’s become a subject of bullying and of behavior that goes against a fundamental value of the Free World.
Epic will win this battle. Apple could still win the war in terms of defending its death grip on the iOS app market. But with a DMA compliance plan that doesn’t truly enable alternative app stores to compete with Apple in the mass market and its behavior toward Epic, Apple has now done everything it possibly could, short of hurling insults at an EU commissioner, to strengthen the EU’s resolve. The EU’s response to Apple’s arrogance, belligerence and bullying could even include a near-term upgrade of the DMA’s app store rules, a possibility that a German vice minister has already talked about in public (as MLex reported).
Three days after games fray explained why Apple has eight reasons to defend its App Store monopoly (one of which is about more than just money and power), it is clear that Apple has gone too far. What’s going to happen now in the EU is going to indirectly influence what happens in other jurisdictions.