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Antitrust Expert Jeffrey S. Jacobovitz on What’s at Stake for Apple and Epic in Legal Battle – The Esports Observer

Almost 10 months in the making, Epic Games is finally facing off against Apple in an Oakland, California, court in an antitrust court battle that could have long-term ramifications for not only Apple but other closed app marketplaces where platform owners have nearly total control over every aspect of how developers sell their software to users.

To recap the trial which got underway on Monday, Epic is claiming that Apple has a monopoly on its iOS platforms, charges an exorbitant amount of money (30% typically, though that percentage may vary from developer to developer), and forces developers to use its payment system. Epic took a stand in August of 2020 by implementing an update to Fortnite, its popular battle royale game, to divert sales to Epic, and cut Apple out, avoiding the 30% percent royalty fee per transaction. After a contentious chain of emails between Epic CEO Tim Sweeney and Apple executives, Apple decided to ban Fortnite from the Apple App Store. 

Epic immediately sought relief from the courts and filed an antitrust lawsuit against the iOS owner. Separately, it also filed a similar lawsuit against Google, who also removed the game from its Google Play store for Android devices. The courts denied Epic’s attempts to restore Fortnite to the Apple App Store, mostly calling the whole ordeal a “self-inflicted wound” that could be remedied by the developer simply reverting the update that caused all the problems between the two companies to begin with. In tandem with the Fortnite fight, Epic sought relief for an Apple attempt to remove its developer status related to Unreal Engine, the company’s development platform used by countless mobile, PC, and console games. On that front, the court sided with Epic noting that allowing Apple to do this would affect too many developers who use the platform. Had Apple prevailed it would have been able to stop games like PUBG Mobile from implementing updates and new features tied to Unreal Engine.

So here we are: Apple and Epic agreed to begin the case on May 3 and to a bench trial at the tail end of 2020, the majority of filings and motions have been settled, and now it’s time to settle in for a very long and contentious battle. At stake for Apple if Epic prevails when this three-week trial is complete, is that the company may have to change the way it operates its app store, and no doubt there will be even more lawsuits from other developers emboldened by the fact that the tech giant can be bested in court. If Apple wins, Epic’s most popular game will not return to the app store, and its status as a developer may be imperiled. If Unreal Engine is not supported on iOS perhaps developers will shift to other platforms such as Unity

But there are a lot of other ramifications no matter who prevails. To understand the case and what it means more broadly for both developers and platform holders, The Esports Observer talked to Jeffrey S. Jacobovitz, a partner at Washington D.C.-based law firm Arnall Golden Gregory. To say that Jacobovitz is an expert on antitrust litigation and enforcement is a major understatement; he worked at the Federal Trade Commission’s Bureau of Competition, the enforcement arm of the agency, for several years before going into private practice. In his current role, Jacobovitz serves as chair of the antitrust group at Arnall Golden Gregory and also serves as vice-chair of the compliance and ethics committee of the ABA antitrust section. He is joined by Kevin M. Bell, also a partner at Arnall Golden Gregory and the co-chair of the firm’s intellectual property practice.

What is This Case all About?

When asked to explain the case in layman’s terms, Jacobovitz said that Apple is being challenged on its market power and how it uses its monopoly to stifle competition. For example, on April 30, European Union regulators said that Apple was in breach of EU competition law related to how it handled music streaming apps such as Spotify.

“Essentially this case is about Apple’s market power and them charging 30% for the use of their app store and how they are utilizing that, and excluding competition. Epic is suing over what happened with Fortnite — it also sued Google in a separate case. And there are also investigations in the European Union, which by the way, is very aggressive in antitrust enforcement. 

“What’s critical here, I think, is Epic is taking on Apple, and a lot of it will be a battle of experts in terms of how they define how much market power Apple has. And then, whatever the result, the Hill (Congress) is looking at this very closely because it may facilitate some action on their behalf, because they’ve been scrutinizing big tech, and this may be one area where they want to see if the Sherman Act is broad enough to cover Apple.”

Apple’s position is fairly straightforward, according to Jacobovitz: “Apple’s position is that they are entitled to charge 30%, they don’t have market power, [developers] could utilize other companies and what they are doing is not improper.”

Both Apple and Epic agreed in September of 2020 that they would opt for a bench trial instead of putting the case in the hands of a jury. District Court Judge Yvonne Gonzalez Rogers will oversee the case and make the final ruling. Jacobovitz said that there are benefits and issues with putting a complicated case such as this before a jury.

“Most plaintiffs want to use a jury because juries tend to award more money than judges and you have the biggest shot of at least six jurors, you know, as opposed to one judge who you don’t know how they might rule.”

On the other hand, Jacobovitz says that judges know a lot more about antitrust issues, the law, and previous rulings. 

“Judges are more knowledgeable in the area of antitrust than jurors, but, you know, particularly if you have a plaintiff’s class-action case or a case like that you want to make sure you have a jury because you’re looking for a big award.”

Ultimately, Jacobovitz thinks that no matter the outcome, this case will likely be appealed to the Ninth Circuit.  “A case of this size will likely go up to the Ninth Circuit, which is a pretty liberal circuit. But, generally, it would be appealed.”

What are the Long-Term Ramifications of an Apple Loss?

Jacobovitz sees a number of challenges for Apple depending on how this case plays out for the company including more government oversight, and further legal challenges. 

“The ramifications are global because there are lawsuits in the UK, Australia, and the European Union. There have been governmental investigations of Apple. There could be additional lawsuits.”

More broadly, he believes that a loss for Apple will embolden companies that have a beef with the platform owner over its App Store practices.

“I think what it means is it gives them some optimism that Apple can be defeated in court, no matter how big they are, you can take them on,” he said, adding that “everyone paying 30% would have a standing challenge if they lose.”

Jacobovitz, who has also opposed Microsoft in two antitrust cases, said that it is interesting that the mega tech company is siding with Epic against Apple — it filed a brief in support of Epic against Apple in 2020. In its defense during those antitrust cases, Microsoft was fond of saying that, while it may have market power at the moment, it would likely not hold onto it over time.

“I would imagine Apple probably would utilize the same argument,” he said. “I don’t know if you know what happens in antitrust cases, but generally, the plaintiff will have an antitrust economist, the defendant will have an antitrust economist. And in this kind of case, they will be pretty prestigious economists. And a lot of it comes down to who the judge or jury believes. Sometimes they don’t believe either economists. Sometimes they believe both. It’s almost like any other case where there are expert witnesses.”

Finally, -Bell offered a broader assessment of what all this means for the tech industry, and Apple in particular, but maybe the most important point is the impact of it all:  “…the impact of being able to crack the nut on the fact that you can take on Apple in a venue and have success.”

Bell suspects that if Apple loses it will have to seriously re-evaluate how it operates its app store, how much it charges, and how it can avoid future lawsuits and avoid the Eye of Sauron that is the U.S. government. 

“They have somebody on the Hill now constantly talking about privacy issues,” Bell said. “In Washington, I would say that there’s a lot of discussion about a few companies and all the businesses that they are expanding into and the government trying to keep them out of it. But the question is when does it start to have enough impact where they can’t just be the behemoth that they are, but actually have to deal with paying attention to some things that they’ve had strongholds on?”

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