Apple Attacked for ‘Walled Garden’ Store as Epic Trial Begins

Epic Games Inc. said Apple Inc.’s App Store has left users and developers “trapped” in an anticompetitive marketplace, as the maker of Fortnite kicked off its highly anticipated trial against the world’s most valuable company.

Epic Chief Executive Officer Tim Sweeney is expected to finish his time on the witness stand Tuesday, before the company plans to call other employees who will support its case against Apple. The two companies, once close allies, came out swinging at each other on Monday, the first day of a trial in which a federal judge must decide whether Apple is monopolizing the marketplace for applications that run on its ubiquitous phones.

In opening statements, the iPhone maker accused Epic of a “fundamental assault” on a business model that has enriched millions of developers. The trial taking place in Oakland, California, is the first test of a broader backlash Apple is facing -- with billions of dollars in revenue on the line -- from global regulators and some app developers who say its standard App Store fee of 30% and others policies are unfair and self-serving. The fight with Epic blew up in August when the game maker told customers it would begin offering a discounted direct purchase plan for items in Fortnite, and Apple then removed the game app, cutting off access for more than a billion customers.

WATCH: Apple Inc.’s App Store has left users and developers “trapped” in an anticompetitive marketplace, Epic Games Inc. attorneys said in an antitrust trial.

Source: Bloomberg)

Epic sought to stake out the moral high ground Monday, saying it’s fighting Apple on behalf of all developers. The game maker’s CEO denied allegations that the lawsuit is a publicity stunt to boost flagging sales of Fortnite, Epic’s marquee battle-royale game that generated $5.1 billion in revenue last year.

Katherine Forrest, a lawyer for Epic, referred to the App Store in her opening argument as a “walled garden,” saying users are locked in by costs and developers by “onerous” contractual obligations with Apple.

In a gotcha moment, Forrest, a former federal judge, resurrected a comment she said Apple co-founder Steve Jobs made in 2008 to a colleague that the App Store licensing agreement is designed to “avoid competitors.” Separately, Epic dredged up a 2011 email from Apple’s top executive in charge of the App Store, Phil Schiller, floating the idea of cutting its fees when the store reached $1 billion in profitability.

Read More: Apple’s Schiller Floated Cutting App Store Fees a Decade Ago

Apple’s lawyer, Karen Dunn, shot back that Epic’s legal gambit threatens to upend a marketplace that has been a huge benefit to developers and consumers alike.

“Epic is here, demanding that this court force Apple to let into its App Store untested and untrusted apps and app stores, which is something Apple has never done,” Dunn told U.S. District Judge Yvonne Gonzalez Rogers, who is hearing the case without a jury. “Apple’s unwavering commitment to safety, security, reliability and quality does not allow that, and the antitrust laws do not require it.”

Phil Schiller arrives at U.S. district court in Oakland, California, on May, 3.

Photographer: David Paul Morris/Bloomberg

How Apple’s App Store Sparked an Epic Trial: QuickTake

Tim Sweeney, chief executive officer of Epic Games Inc., arrives at U.S. district court in Oakland, California.

Photographer: David Paul Morris/Bloomberg

During Sweeney’s time on the stand, he acknowledged that Epic deliberately violated App Store terms and conditions when it set up its own direct-payment system on iOS to bypass Apple’s fees. But he defended his company’s actions.

“The world should see that Apple exercises total control over availability of all software on iOS,” he said.

Through Sweeney’s cross-examination, Apple’s lawyers tried to show that the 30% App Store commission is a gaming industry standard. Sweeney said he was opposed to Apple’s policy of blocking users from downloading other app marketplaces on iOS mobile devices so they would spend their money on purchases beyond the App Store.

Gonzalez Rogers asked Sweeney if he had reached out to lawyers representing developers who filed a class-action lawsuit over the same issues before he sued Apple. Sweeney said he was aware of the case but Epic went ahead and sued Apple on its own.

Later in the trial, which is expected to last three weeks, Apple will call on CEO Tim Cook, Schiller and another top executive, Craig Federighi, to explain how they designed the App Store, Dunn said.

The case is Epic Games Inc. v. Apple Inc., 20-cv-05640, U.S. District Court, Northern District of California (Oakland).

--With assistance from Olga Kharif and Mark Gurman.

To contact the reporter on this story:
Malathi Nayak in San Francisco at mnayak21@bloomberg.net

To contact the editors responsible for this story:
David Glovin at dglovin@bloomberg.net

Peter Blumberg

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