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Apple (AAPL)-Epic Games Ongoing Legal Dispute Escalates

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Apple (AAPL - Free Report) has countersued Fortnite developer Epic Games alleging breach of contract and is now seeking damages, per a CNBC report.

Apple is now “seeking restitution of all money Fortnite collected through its payment system, and seeking a permanent injunction banning its external payment mechanism in all apps, including Fortnite.”

Markedly, Tencent (TCEHY - Free Report) backed Epic Games’ filed lawsuits against both Apple and Google, after the hit video game was removed from their respective App Store and Play Store following payment dispute.

Notably, per Apple, since its debut in 2018, Fortnite’s iOS app has 130 million downloads and Epic Games has earned almost $500 million.

Epic Games’ challenge against Apple’s in-app payment rules has been the primary bone of contention between the two companies. Notably, Apple’s policy of charging commission (as high as 30%) on digital sales through its digital stores has been criticized by a number of developers like Spotify (SPOT - Free Report) and Match Group in recent times.

Apple Inc. Price, Consensus and EPS Surprise

 

Apple Inc. Price, Consensus and EPS Surprise

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Further, Apple’s App Store rules are facing congressional scrutiny. Moreover, the iPhone-maker’s stringent approval process for third-party software has also faced criticism from the likes of Microsoft and Facebook (FB - Free Report) .

Overview of Apple Versus Epic Tussle

On Aug 13, Epic Games introduced a new feature that allowed users to bypass Apple’s in-app purchase service. The company offered a discount (20%) on digital purchases made by Fortnite users directly through its app instead of the App Store.

This infuriated Apple that resulted in the removal of Fortnite from the App Store. Apple stated that the game violated its software-distribution platform guidelines.

Epic Games retaliated by suing Apple and accused this Zacks Rank #2 (Buy) company of anti-competitive behavior. The company also urged the court to block Apple’s removal of Fortnite from App Store. You can see the complete list of today’s Zacks #1 Rank(Strong Buy) stocks here.

Further, on Aug 17, Apple threatened to terminate Epic Games’ developer account effective Aug 28, which would mean that Epic Games would be unable to develop or sell any game through App Store.

Much to Epic Games’ relief, on Aug 24, a federal judge in California passed a temporary restraining order that prevented Apple from cutting its developer accounts. However, the judge allowed Apple to continue its Fortnite ban.

Nevertheless, Apple suspended an Epic Games’ developer account on Aug 28. The company argued that this account did not include the Unreal Engine that’s used by third-party developers to make 3D games and it was in-line with the court’s order.

What’s Next?

Apple’s move to countersue Epic Games reflects the iPhone-maker’s urgency to protect its iOS ecosystem. Notably, the App Store has emerged as a major revenue contributor to the company’s Services business.

As stated in the court filing, cited by a report from The Verge, Apple’s App Store currently has 27 million developers globally with almost 1 billion customers across 175 countries. The store hosts more than 1.7 million apps.

Markedly, the App Store continues to draw the attention of prominent developers from around the world, helping the company offer appealing new apps that drive App Store traffic. Moreover, per Apple, the iOS app ecosystem has created roughly 300,000 new jobs since April 2019 and supports more than 2.1 million U.S. jobs across all 50 states.

 

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