Apple's Filings in Epic Games Case Argue It Has Reduced Industry Commissions, While Third-Party App Stores Would Compromise Privacy and Security
Prior to its upcoming bench trial with Epic Games, Apple filed hundreds of pages of documents covering findings of fact, which include some interesting and previously unknown tidbits about Epic Games.
Epic Games planned its rebellion against Apple for at least two years ahead of when it opted to brazenly violate Apple's App Store rules, with Apple's App Store fees at the heart of the dispute. Epic is of the opinion that it should not have to pay Apple a 30 percent cut to distribute apps on iOS devices, but court filings show that Epic itself used to charge much higher fees.
Back in the 1990s, when Epic initially agreed to distribute games from other developers, it collected a 60 percent commission. According to Apple's documents, Epic CEO Tim Sweeney said at the time that the 60 percent fee Epic collected was a "fairly favorable royalty," as most distributors at that time charged 70 percent commissions.
Prior to when digital distribution platforms like the App Store existed, Sweeney commented that it was "so daunting" trying to sell games through brick and mortar locations.
"See, you put a huge amount of effort into developing a program. If you have to release it, then that's basically doubling the effort, because of all the polish and documentation that's needed. And unless you're going to make serious money from that, then it's not worth it."
According to Apple, the App Store "upended the status quo" and introduced a "frictionless marketing, distribution, and transaction system" for both developers and users. Apple claimed that its model revolutionized payment for developers, who kept a 70 percent cut from the App Store instead of having to pay 70 percent to a distributor for typical retail sales.
In its filing, Apple pointed to Epic's own high fees that it charged are evidence that deals negotiated prior to the App Store were much inferior to the 30 percent cut that it takes, while also informing the court about the reduced 15 percent fee that small developers are now eligible for.
Though Epic CEO Tim Sweeney has spent a lot of time maligning Apple on Twitter, he is a fan of Apple's privacy practices. According to Apple's court filing, Sweeney said that he "found Apple's approach to privacy superior to Google's approach to customer privacy and customer data," and that Apple does a "great job."
Apple claims that Epic's lawsuit could have a direct impact on the security and privacy of the iPhone as customer privacy is one of the reasons that Apple wants to oversee apps that are allowed on iOS devices. Apple is planning to soon implement App Tracking Transparency rules that will limit the data that developers can collect from users. If alternate app stores were made possible, there would be no rules on the information that could be sourced from iPhone users.
Apple believes sideloading iOS apps would create "unacceptable vulnerabilities" that would risk exposing customers to viruses and malware. Epic at one point apparently considered disregarding Apple's Enterprise certificate policies to get apps on devices without the App Store, but Epic's own engineers had previously expressed concerns about sideloading apps on Android devices.
There was a series of leaks in the binaries for the Fortnite installer after Epic launched it on Android devices via sideloading in August 2018, which led to malware and fraud. And as a programmer noted on another occasion, '[o]verall a bit worried about the security aspect of this all, a lot of malware already doing the rounds impersonating the Fortnite app.'
The court filings feature some clear indications why Epic Games wants lowered App Store fees - it's not making money from the Epic Games Store. Epic lost around $181 million in 2019, and was projected to lose $273 million in 2020. Epic committed $444 million in minimum guarantees to developers, but made only $401 million. Epic said that it will lose around $139 million in 2021, but Sweeney has said that it's an investment into growing the business.
Apple spins this as “losing money”, but spending now in order to build a great, profitable business in the future is exactly what investment is! It’s equally true whether you’re building a factory, a store, or a game. — Tim Sweeney (@TimSweeneyEpic) April 10, 2021
Apple claims that Epic is funding the Epic Games Store through other parts of its business, such as Fortnite, which are more profitable.
There are plenty more details about how Epic Games planned its attack on Apple and Google, which can be found in the court filing embedded below. We're also sure to hear additional information when the two companies meet in court on May 3.
Apple CEO Tim Cook and several other Apple executives will testify, as will Epic Games CEO Tim Sweeney and executives from Facebook and Microsoft. Former Apple executive Scott Forstall will also be called as a witness by Epic.