US judge hears final arguments in row between Apple, Epic Games

Apple Inc.’s ally-turned-foe Epic Games Inc. made its final pitch to a federal judge to curb the market power of the App Store while the iPhone maker pleaded to leave its marketplace for 2 million apps undisturbed.

U.S. District Judge Yvonne Gonzalez Rogers heard closing arguments Monday from attorneys for the creator of the blockbuster game Fortnite and the iPhone maker in a case that threatens to upend how the $142 billion world of mobile applications is managed.

Reprising the themes of a three-week trial in Oakland, California, the lawyers debated a set of topics, including the scope of the market in which Epic claims Apple wields power and whether Apple’s tight controls on its store hurts developers and users. Gonzalez Rogers, who is deciding the case without a jury, said she hopes to deliver a ruling as soon as possible but she didn’t specify a date.

After aggressively questioning Apple Chief Executive Officer Tim Cook Friday in his first time testifying as a witness, the judge on Monday asked how Apple’s practice of taking a 30% commission from developers for in-app purchases made through its App Store has remained unchanged since the store opened in 2008.

“If there was real competition, that number would move and it hasn’t,” Gonzalez Rogers said. “If the relevant market here includes developer-side competition, so far there doesn’t seem to be anything that is in the market itself that is pressuring Apple to compete for developers.”

Apple’s lawyer Daniel Swanson said that Apple has improved its device quality even as its developer commission rate stayed the same. Games played on Apple’s iOS operating system can “hold their own” with some of the best games on consoles and PCs, Swanson said. “That is quality competition.”

Epic sued Apple in August, after the iPhone-maker removed Fortnite from its App Store because the gaming company created a workaround so it wouldn’t have to continue paying a 30% fee on customers’ in-app purchases. The case has drawn interest across Silicon Valley, with everyone from Microsoft Corp. to Nvidia Corp. weighing into the fight. In November, Apple sliced its revenue cut from 30% to 15% for developers who generate up to $1 million in revenue.

The popular video game ‘Fortnite’ is the subject of a legal battle between its creator, Epic Games, and Apple [File: Brendan McDermid/Illustration/Reuters]

A ruling in Epic’s favor would loosen Apple’s grip on its store and could upend the way millions of developers distribute apps to handheld device users the world over. It could also potentially spur action from the U.S. Justice Department and other global regulators examining the extent of Apple’s power as a gatekeeper to the digital economy.

Much time was spent by attorneys wrangling over an issue over which they have disagreed in the legal fight from the get-go: the definition of the market in which Apple is showing the alleged antitrust behavior.

Epic has argued that Apple exercises control over market for mobile-app distribution on iPads and iPhones to juice profits from commissions on payments made for virtual goods inside apps. In contrast, Apple contends that it competes in a market for digital game transactions that occur on numerous devices including video game consoles.

“There is no substitute” for accessing apps, including the Fortnite app, on iOS other than the App Store, said Epic’s lawyer Gary Bornstein. Getting the same app on an Android device or on video game consoles doesn’t amount to a substitute for Apple allowing alternative app stores on iOS, he said.

Swanson reinforced Apple’s position that the market should be broadly defined to encompass digital transactions across devices. The Fortnite maker’s argument about device substitution is a “red herring,” Swanson said.

The lawyers also sparred over Epic’s request for a ruling directing Apple to allow other app marketplaces alongside the App Store.

The problem is that “they are the only store in town” and “the only store there is to get apps out there on the iPhone,” Epic’s Bornstein said.

Apple’s lawyer Richard Doren argued that if Epic wins, it would ruin the App Store the company has painstakingly built by making it a “poor imitation” of Google’s Android that is open to alternative app stores.

Gonzalez Rogers pointed out that Epic has also filed a similar suit against Google over its Google Play app store policies. Since Epic has “sued Google on the exact model,” how would directing Apple to allow other app stores resolve the issue, she asked.

“We are not arguing that iOS should be exactly like Android,” Bornstein said. Epic’s suit against Google may broadly cover similar claims but specifically targets separate policies, he said.

The judge clarified that she was just kidding when she told the companies Friday she hoped to rule by Aug. 13. She explained Monday that date is exactly a year from when the legal battle started.

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