July 27, 2021

Tim Sweeney’s company struggles to prove app store claims

If Epic Games hopes to dismantle the fortress surrounding Apple’s iPhone and its App Store, the video game maker will likely have to deploy heavier artillery before week two of a lawsuit threatening the $ 2 trillion empire. Apple. So far, at least, Epic has struggled to prove its claims that the iPhone maker’s 13-year-old App Store has turned into an illegal monopoly.

Epic, the creator of the popular Fortnite game, claims that Apple has conned app makers by charging commissions ranging from 15% to 30% for in-app transactions because it bans other options on its iPhone, iPad and iPod. When Epic tried to escape commissions with a alternative payment system in Fortnite Last August, Apple ousted him from the App Store to set up a legal showdown that could force it to lower its fees.

Apple maintains that the commissions are a reasonable toll paid by a minority of its store’s 1.8 million apps to help cover the more than $ 100 billion it has invested in mobile software, the Cupertino-based company, in California, also maintains absolute control over the applications authorized on its mobile devices helping to protect the security and privacy of its customers.

At times it seemed like North Carolina-based Epic was helping to pitch Apple’s case as much as his during the first week of the trial held in a courtroom in Oakland, Calif. .

For example, at some point during his two days on the witness stand, Epic CEO Tim Sweeney hailed he personally used an iPhone instead of smartphones running on Google’s Android software because he believed Apple offered better security and privacy controls.

Epic Games vs Apple lawsuit goes to court. (Image: tech2 / Nandini Yadav)

Sweeney also admitted that Apple made changes to the iPhone’s software to allow Fortnite players to compete against each other while one was on a phone and the other was on a video game console. The expansion of the so-called “multiplatform” game has helped propel Fortnite’s growth to over 400 million users.

Other internal documents showed that Epic executives thanked Apple profusely for the support Fortnite was getting in the App Store.

Other evidence has raised the question of whether Epic’s efforts to create a competing app store that charges a commission of just 12% will bear fruit. The store is expected to earn $ 15 million to $ 36 million in profit by 2024, but it will still have racked up cumulative losses of $ 654 million to $ 854 million, according to Epic’s internal projections presented during of the trial.

Apple’s store, on the other hand, quickly became very profitable not long after it opened with just 500 apps in 2008 – a year after the launch of the first iPhone. Epic has repeatedly pointed out that the late Apple co-founder Steve Jobs initially didn’t expect the App Store to be a profit center, but apparently changed his mind after racking up 2 , $ 1 billion in bills in 2010, according to a slide presentation from Apple. .

The trial has yet to reveal how profitable Apple’s App Store has become. Apple is not disclosing the store’s financial results, but it is an important part of the company’s steadily growing services division, which generated $ 57 billion in revenue last year alone. The success of these services, coupled with the continued popularity of the iPhone, is one of the main reasons Apple currently has a market value of $ 2.2 trillion – more than any other American company. In contrast, Epic, a private company, is valued at nearly $ 30 billion.

More financial details from the Apple App Store are expected to be presented during the second week of the trial. Perhaps the most revealing moments can come when one of Epic’s experts, Ned Barnes of the Berkeley Research Group, steps up to discuss his analysis of App Store earnings.

Apple tried unsuccessfully to convince U.S. District Judge Yvonne Gonzalez Rogers to shut down the courtroom during Barnes’ testimony because her financial analysis “unduly confused” investors and caused her shares to fluctuate sharply.

But even if the App Store’s profits are higher than anyone imagines, that won’t necessarily help Epic prove its claims that Apple runs a monopoly that hurts competition.

“Being successful is not in itself a violation of antitrust laws,” said Daniel Lyons, professor of law at Boston College. “The argument that your prices are much higher than your costs may well appeal to a lay audience, but it doesn’t legally hold. “

Despite all the drama, Lyons and other pundits say the judge’s final decision in this jury-less trial will come down to market definitions. Epic argues that the iPhone has become a market in its own right, while Apple argues that it should include other devices as well, including video game consoles such as Microsoft’s Xbox and Sony’s PlayStation that charge for also 30% commission on game transactions.

“If I were a gambler, I would definitely say Apple has the strongest case under existing case law,” said Larry Downes, project director at the Center for Business and Public Policy at Georgetown University. “You have to put yourself from the point of view of the consumer, and that’s what the judge really has to do. If that doesn’t hurt consumers, this is just a contract dispute between two companies, with one of them trying to resort to litigation to renegotiate the terms. “


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