Tag Archive for: games

Epic Games vs. Apple: A Battle for Control of a New Space

By: Robert Auritt and Ilana Faibish

It would be an error to view Apple’s current fight with Epic Games as a mere dust-up about commission rates or antitrust issues, though it is also surely both of those things.  This is a fight about who will be able to control, and of course profit from, new virtual spaces where an increasing amount of online activity is taking place as we move deeper into the 21st century.  In addition to offering gaming activity of various kinds (simulating war,  upgrading your house, and building stuff, for example) game titles like Fortnite, Animal Crossing, and Minecraft are increasingly using their virtual shared geographies as places for users to meet, socialize, watch movies, attend concerts, attend professional conferences and of course, make additional “in-world” purchases. 

One of the great promises of the early days of the open internet was that anyone could publish anything, anyone could build a website and have a voice. With the advent of the iPhone and the “appification” of the internet, Apple (and Google) became the main gatekeepers of online content, building the virtual highway through which most of the mobile internet flows, and charging a hefty toll to those who seek to profit from their app store infrastructure.  Now, companies like Epic Games and Mojang Studios are building entirely new worlds that can be accessed through their mobile apps (among other access points).  From a certain point of view, these worlds can be seen as another layer of the internet in that all the various kinds of commercial activities that take place in the real world, or online, can take place in these collective virtual spaces. The builders of these worlds increasingly want to be able to profit from the commercial activity taking place in them without paying the toll to Apple.

On August 13, 2020, in what clearly seems to have been a premeditated maneuver, while updating its hit game Fortnite, Epic Games attempted to circumvent Apple’s 30% commission rule for in-app payments. Within hours, as Epic surely knew would happen, Apple removed Fortnite from the App Store for violating the guidelines provided in Apple’s “Developer Program License Agreement” (“PLA”). Almost immediately Epic filed a federal lawsuit against Apple, accusing the company of violating antitrust laws by forcing developers to implement Apple’s payment systems. In the complaint, Epic described Apple’s removal of Fortnite as yet another example of Apple flexing its monopoly power over the market for in-app payments on Apple devices.  At almost the exact same time, Epic released Nineteen Eighty-Fortnite, a commercial that savagely mocks Apple by spoofing the very same imagery used by Apple in its groundbreaking 1984 commercial for the Macintosh. 

In retaliation, Apple threatened to revoke Epic’s access to developer tools and iOS support for the Unreal Engine, a game engine developed by Epic Games that provides a suite of creation tools for game development and other real-time applications. Epic describes Apple’s retaliation as overreaching and unnecessarily punitive, and Judge Yvonne Gonzalez Rogers of the United States District Court of the Northern District of California agreed. Judge Rogers stated that the ban on Unreal Engine “looks retaliatory,” but let the App Store ban on Fortnite stand. While it makes sense for Apple to impose a reasonable commission for purchases made for and within applications in the App Store, the breadth of Apple’s attempted retaliation certainly raises some serious antitrust concerns. In a world where most developers and consumers are reliant on the App Store, developers feel they are being strong-armed into forfeiting a seemingly excessive and non-negotiable 30% commission to Apple, and are often left with no choice other than to inflate game prices and in-app fees to offset the difference

Apple urged the court to deny Epic’s motion, arguing that when developers find ways to avoid its digital checkout, as Epic did, “it is the same as if a customer leaves an Apple retail store without paying for a shoplifted product: Apple does not get paid.” Tim Cook, the chief executive of Apple, argues that Apple is actually doing developers a favor. Cook suggested to Congress last month that when software was still sold in brick-and-mortar stores, 50% to 70% of the retail price went to intermediaries.  For perspective, PayPal, Square, and other electronic payment companies manage to charge merchants a more modest 3% fee, as do credit card companies like MasterCard and Visa. When tech giants such as Apple and Google, which are together worth more than $3 trillion, also make the software that backs virtually all of the world’s smartphones, and those smartphones provide businesses access to reach millions of people, those businesses are left to ask: “does Apple really need one-third of my sales?” The question is, is Apple abusing its dominance?

Epic is not alone in this battle, and nor is the fight limited to control of new virtual spaces. Recently, Facebook planned to launch a new tool in its app that lets online influencers and other businesses host paid online events as a way to recoup revenue lost during COVID-19. In an effort to maximize proceeds for small businesses, Facebook asked Apple to reduce the 30% fee that would normally be owed from in-app purchases. Apple declined. Facebook then attempted to add a disclaimer at the point of sale in an effort to inform consumers that 30% of proceeds would not actually benefit small businesses but would rather be diverted to Apple. Apple removed the disclaimer. 

In another instance, WordPress let it be known that Apple had cut off its developers from making updates to the WordPress iOS app unless WordPress enabled users to buy domain names within the app. This required WordPress to integrate Apple’s payment systems for purchases, and enabled Apple to take its 30% cut for all domain names sold in-app. WordPress agreed to the change. 

Similarly, Spotify complained to the EU last year that it was anticompetitive of Apple to impose the 30%  fee on Spotify since Apple’s own competing Apple Music service is of course not forced to reduce its profits by 30% just to gain access to the app store.

Indeed, the Epic Games suit is not even the only antitrust action currently pending against Apple.  In 2019, the Supreme Court allowed another antitrust lawsuit against Apple to proceed. That case concerns a group of iPhone users who accused Apple of driving up the price of apps by charging third-party app developers a 30% commission. However, the case is likely to end in a settlement before the district court has an opportunity to rule on whether Apple violated antitrust laws. 

As for this preliminary battle between Epic and Apple for control of increasingly vital virtual spaces, we will have to wait and see. Judge Rogers seemed uncertain as to which party would prevail on the merits, noting that “this is not something that is a slam dunk for Apple or for Epic Games.”  Whoever wins is likely to come out well-positioned for the future as digital life increasingly migrates into virtual worlds.

Smart Creatives Use Loan-Out Companies

By: Steve Masur and Danika Johnson

Artists, performers, celebrities, and freelancers in the know use loan-out companies. A loan-out company is a personal LLC or corporation formed to do business on your behalf. Instead of signing agreements yourself and risking getting sued personally, the loan-out company signs, and “loans out” your services. 


As the saying goes, if you want your life to be a certain way, live as if it were.  Just like an animal developing plumage to make itself look more intimidating, a loan-out company can make you look more professional, better organized, and more important.  It is a subtle indication that you have a lot going on, that you are probably well represented by lawyers and accountants, and that you want real money for your services.  In other words, that you’re one of the real players of what you do, and that you probably won’t accept being low-balled on your fees. Also, for many well-paying gigs, the hiring companies require that you have your own company for their own liability protection, and so they can pay you as an independent contractor instead of as an employee. So for certain opportunities, you need the loan-out company to even be considered for the role.

A loan-out company also makes it contractually easier for you to delegate work to third parties.  You can engage agents, managers, lawyers, accountants, roadies, and social media managers to get more done more quickly in order to build your creative business faster.  Engaging these people allows you to focus on your core product; you and your creative output. A loan-out company allows you to take advantage of itemized tax deductions, protects your personal assets against third-party lawsuits as well as lawsuits brought against you by your own employees or agents. Finally, having a loan-out company allows you or your agents to sue others who owe you money without fear that you might be sued back, or brought in personally through counterclaims. A loan-out company can pay you a regular salary exempt from self-employment tax, which allows you to pay a regular rent or mortgage and your living expenses, and write your business expenses off against your total income, while the rest of your money is wisely invested.  

How it Works

Since the loan-out company enters into any contracts for income or services on your behalf, the loan-out company receives payment and/or gives payment to those that are due. If an issue arises with any third party, the loan-out company’s assets are on the line, but your personal assets are protected from liability.  Still, it is important to look out for inducement agreements. These provisions, strategically placed in contracts for your services, state that if anything happens to the loan-out company, you must still provide the services agreed in the contract.  But if you have enough leverage under the circumstances, you can negotiate around these provisions. 


All good things come with responsibilities. There are costs required, sometimes substantial, in order to set up a well-organized loan-out company, and annual costs thereafter to keep it in good standing with the state of incorporation. You also have to file tax returns for it every year, so you might find yourself getting an accountant to do it for you. As a result, it makes sense to wait until your career is generating good money before setting up a loan-out company.  Also, after you have delegated as many of the ancillary roles for your career as you can afford, it is important for you to demand good reporting, and to maintain oversight and ultimate control over what the loan-out company does.  It is literally your career on the line, and almost everyone has heard the stories of artists who lost control of the money, and their career. But if you maintain good oversight of your agents and employees, and you are not afraid to let go of dishonest, controlling, or unreliable people, this will not happen to you.

Other Things to Keep in Mind

Recently, the New York District Court decided that loan-out companies are not authors of an artists’ work and therefore cannot exercise termination rights in accordance with Section 203 of the U.S. Copyright Act. Under Section 203, only the actual artist may terminate the rights that the artist themselves granted. Therefore, a loan-out company must take caution when determining which legal entity, whether the artist or the loan-out company, will be signing agreements granting rights to third parties. 

You should also consider purchasing worker’s compensation insurance and medical coverage. If something happens to you, the loan-out corporation needs to be able to cover the costs, not only of your injuries but also the costs related to unwinding any gigs to which the loan-out company contractually committed. The loan-out company must also play by the rules of any other company and pay quarterly payroll taxes, and other costs related to any employees.  As a result, if you form one, you should seek assistance from a good tax advisor.  The more successful you are, the more likely you will be audited. If the IRS believes that the loan-out company is a sham set up solely to avoid taxes, it may attempt to reallocate income between owners and those controlling the corporation, charge the higher personal tax rate, and hit you with fees and penalties related to years of nonpayment.  Luckily, you can engage a PEO (professional employer organization) like TriNet, ADP, or Paychex to manage all of this for you. 

With proper preparation and continued diligence, a loan-out company can provide you with liability protection, peace of mind, and substantial tax write-offs, as well as credibility that will strike directly to your bottom line.  If you are interested in setting one up, let us know, and we’ll help you get it done!