Apple CEO Tim Cook began his testimony Friday morning in federal court in Oakland in the civil antitrust suit brought by Epic Games Inc., developer of the popular video game Fortnite.
Epic is challenging Apple’s tight control over its App Store, and particularly the share of revenue it takes from app developers.
Cook began his testimony by declaring that consumer privacy is one of “the most important issues of the century,” central to civil liberties and freedom of expression.
He testified that the company’s control over the App Store and the apps running on the iOS system is essential to the company’s commitment to protecting customer privacy, as well as ensuring their safety and security on their mobile devices.
Cook’s highly anticipated testimony came as the trial reached its final days. The case has been tried without a jury and a decision will be made by U.S. District Judge Yvonne Gonzalez Rogers, likely followed by appeals.
At issue in the case are the ground rules of the App Store, the tightly controlled “walled garden” where users download apps for use on the iPhone. Apple collects a share of the fee paid to download apps and also a percentage of the revenues that developers earn from in-app purchases.
Epic Games argues that Apple holds a monopoly over the relevant market and challenges Apple’s cut of revenue — generally 30 percent — as an anti-competitive practice. Fortnite was one of the most popular apps in the App Store before its removal in August 2020.
A ‘behemoth seeking control’
Timothy Sweeney — CEO of Epic — has been outspoken in his criticism of Apple’s control over the App Store and the revenue Apple takes from developers.
In its complaint, Epic noted Apple’s origin as an upstart challenger to Microsoft. But now, Epic’s lawyers’ wrote, “Apple has become what it once railed against: the behemoth seeking to control markets, block competition, and stifle innovation. Apple is bigger, more powerful, more entrenched, and more pernicious than the monopolists of yesteryear.”
Cook’s testimony was central to the argument that Apple’s control over the App Store enhances the operability and security for iPhone users.
Cook testified that Apple has spent billions of dollars on research to make the App Store safe and secure for customers. As an example, he said that malware on the iOS operating system — the software used on Apple’s phones and tablets — is a small fraction of what is found on the platforms of its competitors.
Cook said that without Apple’s review over developer apps, the store would quickly become a “toxic mess.”
He also said that the App Store has been an “economic miracle” for app developers, with now more than 1.8 million apps on the platform. He said that the App Store has allowed developers to deliver innovation and enrich the lives of customers.
Epic argues that Apple’s control is but a way to hold on to the highly lucrative revenue stream from apps developed for its platform. Epic believes developers should be able to access iPhone’s customers without paying what it calls “an oppressive 30% tax.”
While the dispute between Apple and Epic had been brewing for a long time, it came to a spectacular head on Aug. 13, 2020, when Epic instituted an in-game purchasing system that bypassed Apple’s revenue share, an admitted breach of Epic’s contract with Apple.
That same day, Apple removed Fortnite from the App Store, taking the position that “developers who work to deceive Apple, as Epic has done here, are terminated.”
Epic had prepared for that response.
According to Apple’s lawyers: “The moment Fortnite was removed from the App Store, Epic launched an extensive PR smear campaign against Apple and a litigation plan was orchestrated to the minute.”
Epic’s restraining order request denied
Before the day was done, Epic had filed suit in U.S. District Court for the Northern District of California and requested a temporary restraining order to restore Fortnite to the App Store pending the outcome of the trial.
Judge Gonzalez Rogers declined that request.
In an order entered Aug. 24, 2020, she said she was not persuaded that Epic had proven a high likelihood of success on the merits of its antitrust theory. She also noted that Epic’s injury was a result of its unilateral decision to breach the contract, what she called a “self-inflicted wound.”
Nevertheless, she noted that Epic had raised serious question about Apple’s 30 percent fee.
Epic took another run at getting emergency relief, but on Oct. 10, the judge denied Epic’s request for a preliminary injunction on largely the same grounds she relied on with respect to the temporary restraining order.
“The moment Fortnite was removed from the App Store, Epic launched an extensive PR smear campaign against Apple and a litigation plan was orchestrated to the minute.”
Apple court testimony
A trial on the merits began on May 3, held in an in-person proceeding at the federal courthouse in Oakland. Because of the pandemic, the court limited attendance and imposed social distancing requirements.
Among key issues the court will need to resolve is the definition of the relevant market. For a monopolization claim to succeed, the defendant must have monopoly power over a market and therefore the definition of the market is crucial.
Apple sees the relevant market as the distribution of gaming apps to consumers, with many competitors in that space, including Google Play, Amazon and Samsung as well as gaming consoles like Xbox and PlayStation.
Epic sees the market as much narrower: the distribution of mobile apps and the processing of in-app payments that run on Apple’s iOS. Because Epic’s definition of the market is limited to the iOS platform, it nearly guarantees that Apple would have a monopoly.
The case is one of the highest-profile tech trials in recent years and comes at a time when regulators in the U.S. and abroad have demonstrated a heightened interest in the antitrust issues involving tech platforms.