By Sarah E. Needleman
"Fortnite" maker Epic Games Inc. deliberately violated Apple
Inc.'s app-marketplace rules to show the power that Apple wields
and that the tech giant takes an unfair share of money from
software developers, the videogame company's chief executive
testified in a trial Monday.
"Apple was making more profit from selling developer apps in the
App Store than developers," said Tim Sweeney, whose company's
global hit "Fortnite" was removed from Apple's mobile app platform
last August.
The statements from Mr. Sweeney, a 50-year-old programmer who
founded Epic in 1991, in an Oakland, Calif., courtroom came on 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, as a way
to 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 about three hours on the stand, fielding
questions from a range of trial participants including Epic
attorney Katherine Forrest, Apple lawyer Richard Doren and U.S.
District Judge Yvonne Gonzalez Rogers, who will decide the
case.
The trial started about 15 minutes late because of technical
issues that ended up persisting throughout the day, making it
difficult for the hundreds of journalists and others listening in
to hear the speakers clearly. Early in the day Judge Gonzalez
Rogers complimented the lawyers on their professionalism and work
to ensure things go smoothly.
In his testimony, Mr. Sweeney said his company, now valued at
nearly $29 billion, had been happily contributing to Apple's app
ecosystem since 2010 but the 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 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 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 consumers move fluidly between platforms and can purchase
game currency for "Fortnite" on one platform and spend it on
another.
Apple's attorneys further argued that Epic was motivated to
break Apple's rules because "Fortnite" was waning in popularity.
Epic has denied that accusation. A document was filed Monday with
the court showing "Fortnite" revenue declined significantly in 2019
from 2018. Epic has generated about $13.1 billion of revenue from
"Fortnite" between the game's introduction in 2017 and the end of
last year, said Mr. Sweeney, confirming data shared by Mr.
Doren.
The Epic CEO is expected to return to the witness stand Tuesday
as cross-examination continues.
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 nearly a
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 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 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 20:44 ET (00:44 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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