The case before the Federal Court is brought by Epic Games, the creator of the famous Fortnite video game. Epic wants to overthrow the so-called “walled garden” of the App Store.
SAN RAMON, Calif. — On Monday, Apple faces one of its most serious legal threats in years: a lawsuit that threatens to upend its iron-clad control over its app store, which rakes in billions of dollars every year while by feeding more than 1.6 billion iPhones, iPads and other devices.
The case before the Federal Court is brought by Epic Games, the creator of the famous Fortnite video game. Epic wants to overturn the so-called “walled garden” of the App Store, which Apple began building 13 years ago as part of a strategy orchestrated by co-founder Steve Jobs.
Epic accuses Apple of turning a once-tiny digital storefront into an illegal monopoly that squeezes mobile apps for a significant chunk of their revenue. Apple takes a 15% to 30% commission on in-app purchases, including everything from digital in-game items to subscriptions. Apple denies Epic’s accusations.
Apple’s highly successful formula has helped transform the iPhone maker into one of the most profitable companies in the world, with a market value that now exceeds $2.2 trillion.
Privately held Epic pales in comparison, with an estimated market value of $30 billion. Its aspirations to become bigger are partly based on its plan to offer an alternative app store on the iPhone. The North Carolina company also wants to free itself from Apple’s commissions. Epic says it paid Apple hundreds of millions of dollars before Fornite was kicked out of its App Store last August after Epic added a payment system that bypassed Apple.
Epic then sued Apple, sparking courtroom drama that could shed new light on Apple’s handling of its App Store. Apple CEO Tim Cook and Epic CEO Tim Sweeney will testify in a federal courtroom in Oakland, Calif., which will be set up to allow for social distancing and will require masks at all times moment.
Neither side wanted a jury trial, leaving the decision to U.S. District Judge Yvonne Gonzalez Rogers, who already seems to know her decision will likely be appealed, given the stakes in the case.
Much of the evidence will revolve around arcane but crucial arguments about market definitions.
Epic argues that the iPhone has become so entrenched in society that the device and its ecosystem have become a monopoly that Apple can exploit to enrich itself unfairly and thwart competition.
Apple says it faces significant competition from various iPhone video game alternatives. For example, he points out that about 2 billion other smartphones don’t run iPhone software or work with its App Store — mostly those that rely on Google’s Android system. Epic filed a separate lawsuit against Google, accusing it of illegally hijacking apps through its own app store for Android devices.
Apple will also paint Epic as a desperate corporation hungry for revenue streams beyond aging Fortnite. He claims that Epic just wants to freeload an iPhone ecosystem that Apple has invested over $100 billion in over the past 15 years.
Estimates of Apple’s App Store revenue range from $15 billion to $18 billion per year. Apple disputes these estimates, although it has not publicly disclosed its own figures. Instead, he pointed out that he doesn’t collect a dime from 85% of the apps on his store.
According to Apple, the commissions it pockets are a reasonable way for the company to recoup its investment while funding an app review process it considers essential to keep apps and their users safe. About 40% of the roughly 100,000 apps submitted for review each week are rejected for some sort of issue, according to Kyle Andeer, Apple’s chief compliance officer.
Epic will attempt to prove that Apple is using the security issue to disguise its true motivation – maintaining a monopoly that makes more profits for app makers who can’t afford not to be available on the iPhone.
But small business can face an uphill battle. Last fall, the judge expressed some skepticism in court before denying Epic’s request to reinstate Fortnite on Apple’s App Store pending the outcome of the trial. At that time, Gonzalez Rogers claimed that Epic’s claims were “bordering on antitrust law.”
The trial is expected to last most of May with a decision expected in the coming weeks.
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