Epic v. Apple: what went south in 2020, including a callback to apple's famous 1984 ad

Feature Image: a still from Apple’s famous 1984 Superbowl ad

B. Relevant Background

On June 30, 2020, the developer program licensing agreements for the Epic Games account, the Epic International account, KA-RA S.a.r.l. account, and the Epic Games enterprise account were renewed by the payment of separate consideration==[6]==.

That same day, Epic Games founder and Chief Executive Officer ("CEO") Tim Sweeney sent an email to Apple executives, including Apple CEO Tim Cook, requesting the ability to offer iOS consumers:

(1) competing payment processing options, "other than Apple payments, without Apple's fees, in Fortniteand other Epic Games software distributed through the iOS App Store"; and

(2) a competing Epic Games Store app "available through the iOS App Store and through direct installation that has equal access to underlying operating system features for software installation and update as the iOS App Store itself has, including the ability to install and update software as seamlessly as the iOS App Store experience." (Sweeney Decl. ¶ 14, Ex. A (Dkt. No. 65-1 at 2).)

Mr. Sweeney highlights that these two offerings would allow consumers to pay less for digital products, and allow developers to earn more money. Mr. Sweeney also wrote that he "hope[d] that Apple w[ould] also make these options equally available to all iOS developers in order to make software sales and distribution on the iOS platform as open and competitive as it is on personal computers." (Id. ) In this email, Mr. Sweeney does not provide any offer to pay Apple any portion of the 30 percent it charges on either app distribution or for IAP.

On July 10, 2020, Apple Vice President and Associate General Counsel Douglas G. Vetter responded to Mr. Sweeney's email with a formal letter. In short, Apple's response to Epic Games’ requests was no. Both requests were unequivocally refused. (Sweeney Decl. ¶ 15, Ex. B (Dkt. No. 65-2).) As relevant here and with respect to the Epic Games Store request, Mr. Vetter wrote:

Apple has never allowed this. Not when we launched the App Store in 2008. Not now. We understand this might be in Epic's financial interests, but Apple strongly believes these rules are vital to the health of the Apple platform and carry enormous benefits for both consumers and developers. The guiding principle of the App Store is to provide a safe, secure and reliable experience for users and a great opportunity for all developers to be successful but, to be clear, when it comes to striking the balance, Apple errs on the side of the consumer.

(Id. ) Mr. Vetter also reiterated that Epic Games’ request to establish a separate payment processor would interfere with Apple's own IAP system, the business model of which has been used in the App Store since its inception. (Id. )

On July 17, 2020 Mr. Sweeney responded to what he described as a "self-righteous and self-serving screed," writing that he hoped "Apple someday chooses to return to its roots building open platforms in which consumers have freedom to install software from sources of their choosing, and developers can reach consumers and do business directly without intermediation." (Sweeney Decl. ¶ 16, Ex. C (Dkt. No. 65-3 at 2).) He stated that Epic Games "is in a state of substantial disagreement with Apple's policy and practices," and promised that it would "continue to pursue this, as [it] ha[s] done in the past to address other injustices in [the] industry." (Id. )

In fulfilling Mr. Sweeney's promise to "pursue this" perceived "injustice," Epic Games covertly introduced a "hotfix" into the Fortnite version 13.40 update on August 3, 2020. Epic Games did not disclose the full extent of this hotfix to Apple, namely that this hotfix would enable a significant and substantive feature to Fortnite permitting a direct pay option to Epic Games that would be activated when signaled by Epic Games’ servers. Until this signal was sent out, this direct pay option would remain dormant. When activated, however, this direct pay option would allow iOS Fortnite players to choose a direct pay option that would circumvent Apple's IAP system. Relying on the representations, that intentionally omitted the full extent and disclosure of this hotfix, Apple approved of the Fortnite version 13.40 to the App Store.[7]

The hotfix remained inactive until the early morning of August 13, 2020, when Epic Games made the calculated decision to breach its allegedly illegal agreements with Apple by activating the undisclosed code in Fortnite, allowing Epic Games to collect IAPs directly. Fortnite remained on the App Store until later that morning, when Apple removed Fortnite from the App Store, where it remains unavailable. Later that same day, Epic Games filed this action and began a pre-planned, and blistering, marketing campaign against Apple. This marketing campaign included: a large-scale twitter campaign, a releasing of a parody video of the iconic Apple 1984 commercial, a Fortnite tournament in support of its lawsuit with in-game prizes, and a releasing of a limited time skin in Fortnite called the Tart Tycoon,[8] among other actions.

The following day, Apple responded sternly. It informed Epic Games that, based on its breaches of the App Store guidelines, and the developer program license agreement, it would be revoking all developer tools, which would preclude updates for its programs and software. Apple gave two weeks to comply with the App Store guidelines and the agreements. Apple also identified general consequences for any failure to comply, but specifically cited Unreal Engine as potentially being subject to harm should Epic Games fail to comply within the two-week period.

Thereafter on August 17, 2020, Epic Games filed the request for a temporary restraining order, requesting the reinstatement of Fortnite with its activated hotfix onto the App Store, and to enjoin Apple from revoking the developer tools belonging to the Epic Affiliates. The Court declined to reinstate Fortnite onto the App Store, but temporarily restrained Apple from taking any action with respect to the Epic Affiliates’ developer tools and accounts.

On August 27, 2020, as planned by Epic Games, an updated version containing season four of Fortnite was released on all platforms except for the iOS platform, which Epic Games could no longer update due to its breaches of the Apple agreements and guidelines. By design, Fortnite users can only play amongst other users currently operating the same version. Because of this release, iOS Fortnite players no longer had the ability to play cross-platform with other players (unless these players chose not to update their version, forgoing playing the new season).

On August 28, 2020, on the expiration of the two-week deadline, Apple terminated Epic Games’ developer program account, referenced as Team ID ’84, stating "Apple is exercising its right in Apple's sole discretion to terminate your status as a registered Apple Developer pursuant to the Apple Developer Agreement and is terminating the Developer Agreement and the Program License Agreement pursuant to their terms.... [W]e will deny your reapplication to the Apple Developer Program for at least a year." (Grant Decl. ¶ 35, Ex. H (Dkt. No. 63-8 at 2).)[9]

Following this, the parties engaged in briefing on the motion for preliminary injunction on a slightly expedited basis. The Court heard oral argument on the motion on September 28, 2020.

[6]The renewal price for the enterprise accounts were each $299; the other agreements were each renewed at a price of $99.

[7] Epic Games disputes that its use of the hotfix was deceptive where it is common practice in the gaming and software industry. The deceptive conduct does not derive from Epic Games’ use of the hotfix specifically, but from using a hotfix to clandestinely add features in violation of the guidelines and its agreements with Apple, and then failing to disclose such code. Moreover, Epic Games did this despite receiving an unambiguous refusal from Apple only a few weeks prior to the introduction of its hotfix. The record further reflects that while hotfixes are commonly used in the industry, their uses are generally to fix or patch critical bugs or defects—not to enact substantive and significant new features. Epic Games’ adamant refusal to understand this basic distinction is not only baffling, but undermines its credibility with this Court.

[8] Modeled presumably on Mr. Cook's likeness.

[9] The record also reflects that Apple made moves in early September to cancel Epic Games’ ability to use the Sign in with Apple ("SIWA") on the Fortnitegame. Apple eventually relented to allowing its continued use without waiving any right to revoke SIWA in the future.

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This court case 4:20-cv-05640-YGR published on Oct 9, 2020, is part of the public domain. The court-created documents are works of the federal government, and under copyright law, are automatically placed in the public domain and may be shared without legal restriction.