In Oakland, California, a closely-watched trial is now underway over Apple’s practices with respect to its App Store. The case is being pursued by Epic Games, which produces Fortnite. Last August, Apple booted the mega-hit game from its app distribution platform upon Epic’s attempt to bypass the 30 percent commission that Apple takes on in-app purchases. In response, Epic quickly unleashed a public campaign to #freefortnite from Apple’s closed system.
The major antitrust showdown could have an outsized impact on streaming’s future by providing guidance about what those who control “walled gardens” online can and can’t do under the nation’s primary federal law regulating competition. Both sides agree that Apple’s App Store has become an important part of the world’s economy since the rise of the iPhone in the mid-aughts, but the disagreement lies in whether Apple is abusing control of a market.
“The evidence will show as a technical matter, [Apple’s 30 percent tax] is not about security but about profits,” said Katherine Forrest, the Cravath attorney representing Epic, in her opening statement.
Karen Dunn, Apple’s lawyer at Paul Weiss, had a different perspective.
“Ever since the launch of the iPhone , consumers have relied on Apple to provide a safe and secure environment,” said Dunn, later adding, “Epic, a $28 billion company, has decided it doesn’t want to pay for Apple’s innovations anymore.”
Because of the COVID-19 pandemic, there’s limited seating capacity in the courtroom of U.S. District Court Judge Yvonne Gonzalez Rogers. Just one member of the media is being allowed to attend at a time, and the judge decided against providing a video stream of the proceeding. Instead, audio-only dial-in access is available, but the court was plagued with problems at the start of the trial. The media-only line went silent soon after the court was called into session while the line for the public was taken over for a brief time by pro-Epic gamers.
Nevertheless, despite the inauspicious start, both sides were able to craft and convey their respective narratives during fast-pace opening statements.
Forrest, a former federal judge, said there was really no reason why open distribution couldn’t exist for apps, and that when the App Store was launched in 2008, Steve Jobs stated that it wouldn’t be a money-maker.
Now?
Apple generates a billion dollars annually from the App Store, says Epic, adding the computer giant now tacks on extra charges for subscriptions, premium search placement, and even technical help. “The margins are far, far higher than any other comparable company in this sphere,” says Forrest.
Epic’s lawyer says developers now find themselves “in a trap of Apple’s making,” with users locked into an ecosystem. And the penalties for not obeying Apple’s rules are harsh. “The evidence will show that Apple wields its [termination] provision as a sword,” she says, also arguing, “Apple argues all its conduct is covered by IP rights but the evidence will show that IP rights don’t override competition law.”
Is there any pro-competitive purpose to how Apple keeps such a tight leash on app distribution?
Yes, says Apple, repeatedly emphasizing security, privacy, and reliability.
“Apple did not create a secure and integrated ecosystem to keep people out; it did that so it could invite developers in, without compromising the privacy, reliability and quality consumers wanted,” says Dunn.
Other business have relied on Apple here. And that’s led to a decade of technological progress and economic growth, she argues. Epic’s claims represent a “fundamental assault on what made the growth possible,” says Dunn, adding, “Epic is here demanding that this court force Apple to let in untested and untrusted apps.”
Anticipating this argument, Forrest says the evidence doesn’t show that absolute control over the app distribution system is needed to create a safe environment. Certainly not any 30 percent “tax” on in-app purchases, she says, pointing out how the App Store has allowed a lot of harmful apps through Apple’s review process including a school shooting game just weeks after a gunman killed 17 people at a high school in Parkland, Florida.
Meanwhile, Dunn attempted to undercut the notion that Epic is as benevolent as it portrays itself to be in the press, on social media, and in this case. Specifically, Apple’s attorney said that Epic had pursued a side deal that would have allowed a special carve-out for the game giant from the App Store rules.
While the first of its breed, this platform antitrust fight will hardly be the last. The trial comes just as Europe gets tough on digital gatekeepers and as Roku and Google square off about over the distribution of YouTube TV. The proceeding will last roughly three weeks with testimony expected from Epic CEO Tim Sweeney, Apple CEO Tim Cook, other industry executives, and experts as well. Jude Rogers, who has told the parties she agrees the antitrust issues are cutting edge, will then review the testimony and issue a decision, likely sometime later this summer.
This article was originally published by The Hollywood Reporter.
