Editor’s note: Rick Smith, editor and co-founder of WRAL TechWire, writes The Skinny.
RESEARCH TRIANGLE PARK – Arguments resume in federal court today between Epic Games and Apple as the publisher of globally popular Fortnite wages legal combat against a globally powerful technology conglomerate. And entrepreneurs as well as execs at emerging entrepreneurial companies are watching since this case (as well as Epic’s suit against Google) alleging monopolistic practices could set precedent for the little seeking fair play from the mammoth.
Given what’s at stake – Epic’s fight against 30% fees taken from the big app store providers vs. Apple defending what it says are clearly stated rules that Epic violated – The Skinny reached out to several entrepreneurs, investors, lawyers active in the tech sector, and NSCU economist Dr. Michael Walden to offer their insight about the significance of the legal battle.
“The Epic-Apple case is very, very important,” says Walden.
Rick Smith, WRAL TechWire’s editor and a cofounder, writes The Skinny.
“Should the court respect the rights of private companies to operate as they wish, or should the court worry more about the longer run consequences for how our broader economic system operates? More specifically, are dominate tech companies now taking on characteristics of public utilities, and thus should be regulated? These are ‘heavy’ and very consequential questions.”
Not everyone is on the side of Epic – at least not entirely.
“Should the chicken charge the egg or the egg charge the chicken?”
“I have mixed feelings about this Rick,” says David Gardner, a veteran investor who runs Cofounders Capital in Cary. “I’ve used an iPhone since the first month of the release of the iPhone I and I really like the quality control standards that Apple enforces on any app it lets in its app store.
“On the other hand, I’ve seen first hand how difficult Apple’s exuberant fees of up to 30% of a company’s gross revenue can cause, especially on early stage and small companies.”
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From the perspective of an investor in startups, Gardner points out: “Apple argues that it deserves a third of a developer’s app revenue because it maintains the platform and network the app developers are utilizing and benefiting from. However, Apple does not seem to appreciate the fact that the thousands of apps that developers have developed to run on Apple’s iOS platform have become part of the appeal and value of owning an iOS device.
“Should the chicken charge the egg or the egg charge the chicken?”
Epic has allies
Jim Verdonik’s legal erxperience in the tech sector dates back to the internet’s earliest days. And he says Epic – founded and run by billionaire Tim Sweeney whom Apple says has grown rich and his company grown to multi-billions in value due in significant part to sales of products through its app store – is in better condition financially than other challengers of “BIG TECH.” You know – Apple, Google, Amazon, Microsoft …
“Is Epic Games all alone? Yes and no,” says Verdonik, co-founder of Innovate Capital Law in Raleigh. “Epic is one of the few companies willing to spend money in court to battle the giants Apple and Google, but there is broad support for Epic in the app community. The Coalition for App Fairness (www.Appfairness.org) describes the grievances or many developers against app store extortion. …
Epic Games blasts Apple’s latest filing as ‘half-truths and outright falsities’
“I’m not an antitrust expert, but most experts think Epic has an uphill battle with respect to Apple being able to remove Fortnite and other computer games from its app store. The experts are more divided about whether Apple can also prohibit the distribution of upgrades to Unreal Engines to punish Epic for price competition on its Fortnite product. Because many other computer games and other businesses depend on Unreal Engines, they will be damaged by Apple’s actions. That brings more allies into the anti-Apple alliance.”
Access to oxygen
Donald Thompson of Raleigh-based Walk West, is watching the Apple-Epic battle as both an investor and entrepreneur.
“Apple has created a powerful distribution platform, a digital shopping mall for app developers. However, there is a concept of charging to much rent,” says Thompson.
“In this case Epic has the financial strength, courage and conviction to punch against a digital bully.”
Thompson points out that startups and emerging ventures such as Epic must protect their intellectual property against all challengers and also be prepared to fight for market access.
“Intellectual property is the business of technology enterprises, and it’s ability to measure value and monetize that value is the essence of our digital economy” Thompson explains. “IP ownership and protection is your business foundation for enduring value, and must be diligently protected.”
But the best IP is of limited value if people can’t find it.
“Market access for the upstart is like oxygen for us,” Thompson says. “How can David slay Goliath if the field of competition is not even accessible for the new market entrants”
Partnerships vs. fighting
Tom Snyder is executive director at RIoT, a Raleigh-based Internet of Things users group, that is all about helping young and emerging companies develop and commercialize IoT technology – itself a young and emerging field of development. But RIoT also includes big tech firms such as IBM, seeking to link entrepreneurs with potential partners.
So what’s his take on Epic vs. Apple?
“At RIoT, we work every day with companies large and small that are leveraging technology platforms to solve interesting problems across healthcare, agriculture, manufacturing and other market sectors. … We regularly advise startups to not reinvent the wheel. In almost every case, it is not wise to build your own cloud infrastructure or a new wireless communications network or manufacture semiconductor devices when these are globally available at extremely low cost,” he explains.
“This is good advice. But with the limited number of technology giants, this advice feeds the ‘strong get stronger’ problem present in the tech sector. And as we see the Internet of Things expand, connecting more and more products and services to the internet, the simple assessment of antitrust in the narrow view of direct competition may not be sufficient.”
Snyder’s emphasis is on partnerships.
“Our advice to entrepreneurs and startups remains the same. It is better to partner collaboratively with established technology platform companies,” he says.
“We need global technology platforms to effectively distribute the intellectual property developed in the startup and small business community. IP that solves big challenges in agriculture to healthcare. From energy to entertainment.
“But,” he adds, “we must demand that those technology platforms are interoperable and open to ensure the competitive principles of free markets.”
‘No practical alternatives’
Walter Daniels, a veteran attorney at Daniels & Daniels who has worked with IP and tech startups for three decades, says Epic vs. Apple as well as Google is about market power and abuse.
“The ultimate problem is that presently there are no practical alternatives for software developers,” he says. “There is no real opportunity for choice of how to download your apps. The two companies dominate the cell phone industry.
“Stated differently, they have dominant market power and they are arguably abusing it.
“This is why we have antitrust laws.”
Competition is good
Economist Walden takes a stricly business/competition approach in analyzying the case and its importance.
“Competition is at the core of an economic system that works for the average person. Competition keeps prices lower and motivates continuous innovation. Competition also limits the market power of companies – in short – it prevents monopolies which charge higher prices and limit choice,” he says.
“The question in the Epic-Apple dispute in whether public policy can dictate a private company’s policies in the name of promoting competition. Adding to the issue is the fact Apple has achieved a large degree of market power through their success in providing services and products consumers highly value and use.
“The case is similar to one two decades ago over whether Microsoft could refuse to preload competitive browsers on their pc’s.”
More fights to come
Looking ahead, Verdonik says ongoing concerns about ‘BIG TECH” dominance could lead to the creation of a formal alliance to fight back.
“I note that Apple has a long history of aggressive legal actions – especially in patent litigation,” Verdonik says. “Google, on the other hand, has taken a less aggressive approach in defending against Epic Games. Google may seek to reach a settlement with Epic.
“Of course, Google is a more diversified company than Apple and has less to lose if it compromises with developers over app store access and pricing issues.
“A business alliance between Google and a broad coalition of major app developers might be the thing that brings Apple to its knees.
“Stay tuned for further developments in the coming story about the world battling monopolistic practices by BIG TECH.”
Note: We’ll be featuring comments from Verdonik, Daniels, Gardner and Snyder in separate posts coming later.
