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Apple and 'Fortnite' Maker Epic Games Trade Arguments Over App Store -- 2nd Update

03/05/2021 11:56pm

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By Sarah E. Needleman 

The chief of "Fortnite" maker Epic Games Inc. testified Monday in a federal antitrust trial that his company deliberately violated Apple Inc.'s app-marketplace rules to "show the world" the power that the tech giant wields and the unfair share of money it takes from software developers.

"Apple was making more profit from selling developer apps in the App Store than developers," said Tim Sweeney, whose company's global hit videogame "Fortnite" was removed from Apple's app platform last August.

The statements from Mr. Sweeney, a 50-year-old programmer who founded Epic in 1991, in an Oakland, Calif., courtroom helped kick off the first day of a planned three-week bench trial, one that could help reshape the multibillion-dollar market for distributing apps on mobile devices.

Mr. Sweeney, who donned a blue suit instead of his usual attire of cargo pants and a T-shirt, had been plotting the moment for months. His closely held company in August inserted its own, unauthorized payment system into the versions of "Fortnite" on the app stores that Apple and Alphabet Inc.'s Google control, aiming to potentially circumvent the 30% fee the companies collect from in-app purchases.

Both companies yanked the combat game from their app stores in response, as Epic expected, prompting it to file lawsuits against them, as well as launch a public-relations campaign critical of Apple to draw support from consumers and other app developers. A trial date for Epic's suit against Google hasn't been set.

Mr. Sweeney spent more than two hours on the stand, fielding questions from a range of trial participants including Epic attorney Katherine Forrest, U.S. District Judge Yvonne Gonzalez Rogers and Apple lawyer Richard Doren.

He said his company, now valued at nearly $29 billion, had been happily contributing to Apple's app ecosystem since 2010 but that relationship changed over the years as the iPhone maker's policies grew more restrictive -- a claim Apple denied. Attorneys for Apple defended its policies as critical for its App Store's viability and success.

Epic worked to cast Apple as a monopolist in how it operates the App Store, which was created in 2008. Users of Apple's iPhone and iPads can only download software from its App Store and the company requires purchases of digital goods and services in apps to be processed through its own payment system. Ms. Forrest told the court that Epic isn't seeking monetary damages, but rather aims to unlock Apple's so-called walled garden for itself and all app developers.

"The garden could've had a door. It's artificially walled in," said Ms. Forrest, an attorney with Cravath, Swaine & Moore LLP who is a former New York federal judge. In building its mobile operating system known as IOS, "Apple's plan was to lock users in and prevent users from switching away from the Apple ecosystem," she said.

Karen Dunn, an attorney for Apple, defended the iPhone maker's App Store policies and the 30% fee the company charges developers on digital sales.

"Apple did not create a secure and integrated ecosystem to keep people out," said Ms. Dunn, a partner at Paul Weiss Rifkind Wharton & Garrison LLP who also represented Apple in its lawsuit against Qualcomm Inc. over patent-licensing fees. Instead, Apple did so to "invite developers in without sacrificing the privacy and liability, security and quality that consumers wanted," she said.

Ms. Dunn also challenged Epic's definition of a competitive market, saying its perspective is too narrow because there are many platforms where consumers and developers engage in transactions, including personal computers and three major game consoles. She argued that consumers move fluidly between platforms and can purchase game currency for "Fortnite" on one platform and spend it on another.

In addition to Mr. Sweeney, Epic's witness list includes other company executives, former Apple employees and employees of companies including Microsoft Corp. Apple's witness list includes the company's CEO for the past decade, Tim Cook, and other executives such as Phil Schiller, who played a key role in the launches of the iPod, iPhone and iPad and currently holds the title of Apple Fellow.

Antitrust cases can be difficult for plaintiffs to win, legal experts say, and Epic's lawsuit may hinge on the court's definition of a market in the digital age. Epic says Apple has a monopoly in its App Store, while Apple says it is just one of many distribution channels in the larger market for videogames and other software.

Analysts say that an appeal is likely whatever the trial's outcome, a possibility the judge outlined last year in hearings.

Apple faces scrutiny from regulators elsewhere over its business practices. The European Union on Friday charged the company with violating antitrust laws for allegedly abusing its control over the distribution of music-streaming apps. The case in Europe stems from a 2019 complaint filed by Spotify Technology SA, which competes with Apple's music-streaming service. The U.K. is separately investigating whether Apple imposes anticompetitive conditions on app developers, and U.S. lawmakers have accused Apple of operating with "monopoly power."

In response to the EU charges, Apple said Spotify has been successful even after removing paid subscriptions from its app in the App Store. Apple also said Spotify's demand to be able to advertise alternative deals through its App Store is a practice that no stores allow.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

 

(END) Dow Jones Newswires

May 03, 2021 18:41 ET (22:41 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.

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