Accused of wielding too much power through its App Store, Apple says Fortnite maker Epic is trying to get out of paying for access to iPhone users.
OAKLAND, Calif (CN) — Epic Games and Apple squared off for the last time Monday before U.S. District Judge Yvonne Gonzalez Rogers, with Apple predicting “absolute mayhem” if the judge orders it to open up its App Store.
Apple stands accused of abusing its power over developers who rely on its App Store by extracting a 30% cut of all purchases of digital content, and forcing them to only use its in-app payment system for those transactions.
In an act simultaneously portrayed as both deception and protest, Fortnite maker Epic Games decided to bypass those rules last summer by launching its own digital storefront on the App Store that allowed users to pay Epic directly for in-app purchases.
The move got Epic booted from the store, and Epic quickly responded with an antitrust lawsuit that could upend Apple’s business model.
Epic seeks an order requiring Apple to lift its restrictions on third-party storefronts and allow iOS apps that were not downloaded through the App Store on its platform.
Gonzalez Rogers, who has presided over the closely watched antitrust case for the last three weeks, told Epic’s attorney Gary Bornstein that his client seems to want free access to Apple’s intellectual property.
“One of the issues that has concerned me throughout this trial is that your client does not seem to be interested in paying for the access to customers who use iOS,” she said. “And even if he is interested, it’s hard to see how we get there because he’s attacking the fundamental way in which Apple is generating revenue. I still don’t understand where you expect this to go.”
Bornstein said Apple could continue to charge developers a commission, but in a “nondiscriminatory” way.
“There’s no effort there to say Apple must give away all of its stuff for free. But what they are prohibited from doing under antitrust law is structuring their charges in a way that has anticompetitive effects. There are anticompetitive affects in app distribution because that’s the only way to get on iPhone, and anticompetitive effects in in-app payments,” he said. “As a remedy we believe the right thing to do is to get rid of those particular anticompetitive restrictions.”
Bornstein said Apple would be forced to improve its service if compelled to open its App Store to third parties. Customers could then choose whether they want to download an app from the App Store, or from Epic Games directly. Those who value Apple’s offerings would continue to buy from the App Store, but the competition would ultimately lead to a better experience for both developers and consumers — both of which Epic considers to be customers in their proposed two-sided market for app distribution.
But Apple’s attorney Richard Doren painted a vastly different picture of what an App Store would be like without Apple’s tight controls protecting customers from scams, pornography, and malicious apps that encourage teens to kill themselves or commit mass shootings.
“There is no predicting how the network effects work when the iOS environment is polluted by a variety of unpoliced apps from unknown sources,” he said. “It’s up to this court to determine where we end up — between absolute mayhem where anything goes and the current business model.”
Gonzalez Rogers remarked that Android seems to do quite well with this model and that its operating system actually enjoys a larger market share than Apple’s. Doren said It comes down to consumer choice.
“Apple’s brand and trade is security and privacy. It is niche, if you will,” Doren said. If Apple’s model were to change, “It will be turned into an equivalent or perhaps poor imitation of Android,” and customers would be left without an alternative.
He added: “The one thing we know is that there are many threats today and tomorrow there will be just as many, and what Epic wants to do is for Apple to drop its gloves in the middle of the arena and take what comes without any meaningful defense,.”
Bornstein accused Apple of trying to scare Gonzalez Rogers by portraying the case as more complicated than it is. He said Apple already allows third-party app distribution on Mac computers, and still touts macOS as incredibly safe.
This prompted the judge to raise Epic’s second case against Google, which is currently pending before one of her colleagues.
“On Google’s platform there are many stores and yet Epic sued them anyway,” she said. “How does that address anything given hat Epic has also sued Google on the exact model you are arguing should be the result in this case?”
Bornstein said the cases have similar elements, but aren’t precisely the same. “Google has a set of anticompetitive restrictions of its own that it applies on the Android ecosystem that has similar but not same anticompetitive effects,” he said.
“OK,” said the judge, sounding exasperated.
She also said Epic had not shown her a single antitrust case that has survived on appeal where a court has ordered a billion-dollar company to fundamentally change the business model by which it operates.
Bornstein offered United States v. Microsoft Corp., where a federal judge ruled Microsoft harmed both competitors and consumers by bundling the Windows operating system software with its web browser, Internet Explorer. The judge was reversed on appeal, and Microsoft eventually reached a settlement with the government for a far less restrictive set of remedies.
He also cited U.S. District Judge Lucy Koh’s ruling in FTC v. Qualcomm which found the chipmaker had violated antitrust law with exorbitant licensing fees.
Gonzalez Rogers said both cases were not helpful since they had not survived appeal. “That’s not binding authority,” she said, also noting that neither involved a private plaintiff “who may or may not have ulterior motives.”
“Mr. Sweeney’s testimony made clear that he would not be here today if a side deal had been cut,” she said, referring to Epic CEO Tim Sweeney.
Bornstein said he didn’t have a precise example of a case involving a private plaintiff. “We’re dealing with a pretty unique situation,” he said, emphasizing that Sweeney wanted Apple to offer a deal that would benefit all developers, not just Epic.
“There’s nothing to stop the U.S. government from engaging in these topics if it wants. But Epic is here because if relief is granted they go from a multibillion-dollar company to a multitrillion-dollar company, who knows. But they are not doing this out of the kindness of their hearts,” Gonzalez Rogers said.
“I won’t say that it won’t be in the financial interest of Epic not to be subject to any anticompetitive consequences,” Bornstein said.
Closing arguments wrapped after five hours. Analogizing the case to the picture on a puzzle box cover, Rogers said it will take weeks — if not months — for her to piece it together. She said more than three weeks of trial have yielded some 4,500 pages of testimony.
“In this case it’s up to the court to figure out how the pieces come together and what the cover actually looks like based on those pieces. So it will take me a while to do that,” she said. “It’s been tiring but a real pleasure.”