epic games Archives - ARTAEV AT LAW PLLC

In-App Purchases No Longer Mandatory for Developers: Federal Court Issues Injunction As Part of Epic v. Apple Ruling.

There is no question about Apple’s dominance in the smartphone market. The iPhone accounts for approximately 50% of all smartphones in the United States and there are an estimated 1 billion iPhones across the globe. For developers looking to distribute their apps or games to as many customers as possible, the Apple App Store is a must. Of course, Apple tightly controls access and requires developers to comply with Apple’s terms and policies, including with respect to customer payments. For real-money skill-game developers, the App Store is even more important because it is essentially the only way to get their product onto mobile phones. In May 2021, Google banned real-money skill games from its Play store. Setting aside sideloading (risky) and progressive web apps (not familiar to all), if you want real-money skill games on a smartphone, Apple is your only option.

One of the more controversial App Store rules is the 30% commission on all transactions. In essence, whether a developer sells their app for a one-time fee, offers a reoccurring subscription, or provides an option for in-app purchases, 30% of the payment goes to Apple. In the gaming market, this model is especially profitable in so-called “freemium” games, which are free to download and play, but offer players the option to unlock additional content, levels, and other upgrades for an additional fee. The insanely popular game Fortnite is a great example of a game that’s free to download and play, but brought an estimated $5.1 billion in revenue from cosmetic and other optional items in 2020 alone. In response to increased media and regulatory pressure (including outside the United States), Apple modified its rules to allow for a reduced commission of 15% for “small” businesses that make less than $1 million in annual revenue. Recently, Apple further amended its polices to allow certain “reader” apps like Netflix or Spotify to redirect their users to outside the app for additional payment and subscription options. The out-of-app payment option was added in direct response to laws passed in South Korea and Japan.

In the United States, the recent court decision in the Epic v. Apple antitrust lawsuit unlocked the out-of-app payment options for all. In early 2020, Epic (the owner and developer behind Fortnite) decided to deliberately circumvent Apple’s rules against out-of-app payment options and offer mobile players a discounted option to purchase in-game currency directly through Epic’s website. Apple predictably responded by pulling Fortnite from the App Store, and Epic sued, alleging anti-competitive behavior and violations of various federal and state antitrust laws. Apple countersued for breach of contract, accusing Epic of deliberately breaching the terms of the App Store agreement and diverting Apple’s share of app revenue.

After a 16-day trial, the United States Court for the Northern District of California issued a 185 page decision largely in Apple’s favor and ordered Epic to pay Apple $6 million in breach of contract damages. However, the Court also found that Apple’s “steering” provisions that prohibited developers from offering alternative out-of-app payment options violated California’s antitrust laws. The Court issued a permanent injunction that precludes Apple from implementing these “steering” provisions, leaving developers free to include buttons, external links, and “other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing.” The injunction will take effect on November 10, 2021.

What does this ruling mean for real-money skill-based game developers? It certainly opens up more options to direct customers to your external website, advertise promotional pricing, and innovate your business and pricing model without direct involvement from Apple. Additionally, the Epic v. Apple ruling also frees developers to communicate directly with customers through information obtained via the in-app registration process. At the same time, developer guideline 5.3.3 already prohibits in-app purchases from being used to “purchase credit or currency for use in conjunction with real money gaming of any kind.” In other words, real money skill games were treated like casino gambling apps and excluded from the in-app purchase mechanism. The Epic ruling simply means that all app developers will have access to a flexible business model and be able to determine how to best monetize their game without Apple dictating the business terms and imposing a mandatory 15-30% commission on revenue.

Nevertheless, real-money skill-based games remain subject to heightened review and scrutiny from Apple. Advertising through Facebook, Instagram, Twitter, etc., also requires a specialized (and sometimes lengthy) approval process. Skill-based real-money gaming operates in an unregulated area, and applicable laws and regulations change frequently. For example, the IRS recently signaled that it intends to tax daily fantasy sports wagers the same as sportsbook bets. Although DraftKings and FanDuel will likely fight the IRS’s interpretation of the Internal Revenue Code, any resulting ruling may impact the skill-gaming industry as well. Stay vigilant and retain an experienced gaming attorney to guide and consult your business the right way.

Have more questions? Do you need help getting your app through the review process? Contact Dan Artaev today by emailing dan@artaevatlaw.com or by phone or text at (269) 930-0254.

Disclaimer: This guide is not intended to be and does not constitute legal advice. It is for informative and promotional purposes only. Do not take any action or refrain from taking any action based on this guide, and always consult with a qualified professional about the circumstances of your particular case. Each set of facts is unique and different circumstances apply to each individual business.

A Lesson in Licenses and Why You Own Nothing.

In 2019, Fortnite went offline. No one could play, stream, compete, or access their account. This was part of an in-game “event” known as the Fortnite Blackout or The End. Can Epic Games do that? What rights do you even have as a player, team owner, or competitor? It all comes down to the End User License Agreement (EULA) – so leave it to a gaming lawyer to use Fortnite to teach you about the critical role of licensing in the digital age!

By way of background, Fortnite is certainly one of the most –if not the most popular video game in the world. The game, which is available as free download on modern consoles, PCs, and even iPhones, is a hit with kids, teens, adults, professional athletes, celebrities, and even Prince Harry (the Duke of Sussex) who got so addicted that he called for the game to be banned in Britain. True story. It has also evolved into an international eSport phenomenon, with this year’s World Cup Finals winner taking home a cool $3 million check. There are hundreds, if not thousands, of professional gamers and streamers across the world that make this game their career. Epic Games, the game’s owner and creator, is estimated to have earned between $2.4 and $3 billion from the game in 2018 alone. This is particularly impressive given that the game is free to download and play, with all of the revenue coming from in-game cosmetic content, such as different character outfits.

Now imagine if one day all of that was suddenly gone. Epic shuts down the servers and Fortnite no longer exists. Well, this actually happened (at least for about 24 hours)–during the Fortnite Blackout or The End event. The hundreds of hours you spent playing, earning points, and ranking? Gone. Did you spend all of your birthday money on new outfits so you could look like a James Bond villain in the game? Gone. Even worse if you are a professional gamer who made Fortnite a career. Or a team owner who invested hundreds of thousands of dollars into building the next world champion. What can you do? Who can you sue?

The simple answer is NOTHING and NO ONE. Because you have to understand licensing. And the fact that the traditional concepts of ownership–i.e. I pay money for something therefore I own it–do not transfer to the digital world. Did you read the EULA that you have to accept before logging into Fortnite? I didn’t think so. Yet it contains important rights and obligations–especially if you play professionally. The reality is, by playing Fortnite and even paying real money to “buy” in-game characters, weapons, etc., you own nothing. In simple terms, Epic Games grants you a license to play the game at its sole discretion, but Epic Games owns and controls everything and anything within the game, even the content that you paid real money for.

The Fortnite EULA is a license, which is a right to do something, or access something. Think of it like a ticket to go see a football game or a concert, but in this case it is a ticket that gives you access to a video game. In legal terms, what distinguishes a license is the fact that it is a “revocable” right, meaning the licensor (the owner of the license) can terminate the licensee’s rights of access at any time, subject to any conditions of the license. So what terms do you agree to when playing Fortnite?

Epic grants you a “personal, non-exclusive…limited right and license to install and use the Software…for you personal entertainment use.” Also, ” The Software is licensed, not sold, to you under the License. The License does not grant you any title or ownership in the Software. ” Ok, but can Epic just shut down the game? Yes–read on–” You also acknowledge that any character data, game progress, game customization or other data related to your use of the Software or Services may cease to be available to you at any time without notice from Epic….”

What about all the real money you paid for skins, custom characters, etc.? You get that back, right? Nope. Read on–” Epic, in its sole discretion, has the absolute right to manage, modify, substitute, replace, suspend, cancel or eliminate Game Currency or Content, including your ability to access or use Game Currency or Content, without notice or liability to you.” Meaning, you do not really own any “game currency” or the “content” that you bought–in fact, all you are acquiring when you are “purchasing in-game content” is another license to use the currency or the content that you purchase with the currency for as long as Epic wants.

It’s not really so confusing. When you downloaded and played Fortnite, you agreed that Epic owns everything and you own nothing. If you paid any money to Epic for skin or custom parachute, Epic gave you a license to use that particular skin or parachute. You paid for the “experience”–not a tangible item itself. That’s licensing.

Of course, this reality creates a whole host of follow-up questions. What happens to content I create using Fortnite’s creative mode? Does Epic own that too? Short answer is YES. What about streamers who make a living playing Fortnite? Professional gamers? Team owners? Fortnite World Cup sponsors? There is no easy answer there, as each situation is fact-specific and depends on the various terms of the license agreements, any sponsorship agreements, intellectual property law, etc.

The Fortnite Blackout was a lesson in “ownership” in the digital age. Traditional concepts of ownership do not apply or transfer to to the digital realm. Music, video, games, and even photos that you upload or post on social media–are not “yours” in the traditional sense. Rather, there is an increasingly complex web of rights that becomes even more complex when gaming is a business.

So, like any business owner, if you are investing time, money, and effort into a game–with the idea to play professionally, make streaming revenue, or to otherwise make it in the gaming business–engage and consult with an eSports attorney. Understanding your rights and obligations will help you craft an effective business strategy going forward, and plan for contingencies and er…singularities.

Have more questions? Contact Dan Artaev at dan@artaevatlaw.com or 269-930-0254 to set up your free initial consultation.