Apple (NASDAQ:AAPL) this week further escalated its thermonuclear war with Epic Games, countersuing the maker of Fortnite and Unreal Engine. The move comes about two weeks after Epic notched a legal victory barring Apple from terminating Epic's overall developer account, which could have crippled Unreal Engine and countless content creators that use the graphics technology.
Here's what investors need to know about the latest development in the legal dispute.
Epic's move was a "cold-blooded launch"
Apple alleges that Epic's transgressions constitute willful breach of contract, pointing to an email sent by Epic CEO Tim Sweeney proclaiming that the company would "will no longer adhere to Apple's payment processing restrictions" mere hours before it activated the direct payment system in Fortnite at the heart of the dispute. That system allowed players to make in-app purchases and pay Epic directly, bypassing Apple and its 30% cut. Sweeney has shared the exchange on social media.
Epic had characterized the update as a mere software patch for online services known as a "hotfix," according to Apple. That code allowed Epic to flip the switch on its direct payment system through its own servers in a move that Apple calls a "cold-blooded launch."
"This was little more than theft," Apple wrote in its filing. "Epic sought to enjoy all of the benefits of Apple's iOS platform and related services while its 'hotfix' lined Epic's pockets at Apple's expense."
Through its multipronged campaign, Epic has positioned itself as a victim in the fight while framing Apple as an oppressive Big Brother monopolist. It released a parody of the Cupertino tech giant's famous "1984" commercial to drive that message home.
Epic has made over $600 million on iOS
"Although Epic portrays itself as a modern corporate Robin Hood, in reality it is a multi-billion dollar enterprise that simply wants to pay nothing for the tremendous value it derives from the App Store," Apple said in the filing before noting that Epic has generated over $600 million in revenue through the iOS App Store to date. Based on Apple's 70-30 split, that would suggest Apple itself has pocketed around $257 million from all those sales of cosmetic skins and dance emotes.
As a private business, Epic's financials are not readily available, but the company reportedly generated $4.2 billion in total revenue in 2019, according to VentureBeat. Fortnite revenue had been skyrocketing in early 2020 across all platforms as the COVID-19 pandemic boosted broad demand for video game entertainment.
It's worth noting that Epic has not been seeking monetary damages thus far, instead asking the courts to essentially help break up what it alleges is an illegal monopoly on iOS app distribution.
"Apple's conduct has caused and continues to cause Epic financial harm, but as noted above, Epic is not bringing this case to recover these damages; Epic is not seeking any monetary damages," Epic wrote in its initial complaint. "Instead, Epic seeks to end Apple's dominance over key technology markets, open up the space for progress and ingenuity, and ensure that Apple mobile devices are open to the same competition as Apple's personal computers."
Apple is now seeking "punitive damages," although it's unclear how much money the richest company in the world is asking for.