ECONOMY

Apple Trial Delivers an Epic Surprise

Epic Games Inc., the maker of Fortnite, may pull out a surprising last-minute victory in its court battle against Apple Inc. with potential wide-ranging ramifications for how millions of iOS app developers make money.

First, a brief recap: The conflict that spawned the trial began last August when Epic deliberately broke Apple’s App Store rules by updating its Fortnite video game to circumvent the tech giant’s in-app payment system and its 30% commission structure to avoid paying fees. After Apple removed the title from its store, Epic sued, contending the smartphone maker violated antitrust laws that led to this month’s proceedings. The game publisher is asking the court for the right to run its own app store on the iOS platform, enabling users to install apps and use payment services from third-party sources that charge less.

For most of the trial, Apple appeared to have the upper hand. The tech giant had effectively argued that its policies were similar to other digital stores, including for some of Epic’s biggest financial partners — Sony Playstation, Microsoft Xbox and Nintendo Switch. And court filings showed Apple iOS devices accounted for just 7% of Fortnite’s revenue from March 2018 to July 2020, putting a wrench in Epic’s argument that the fee structure was a big threat to its business.

Things took an interesting turn Friday, though, when Apple Chief Executive Officer Tim Cook took the stand. U.S. District Judge Yvonne Gonzalez Rogers peppered him with questions about Apple’s restrictive App Store guidelines, which forbid links or descriptions to cheaper purchasing options on developer websites. Rogers said Apple doesn’t seem to be feeling any pressure or competition for its in-app payment system, adding the gaming apps industry seemed to be subsidizing the rest of the iOS app economy. The tone of her questions raised the possibility of a split ruling, in which the judge turns down Epic’s main requests but also gives developers the ability to advertise cheaper digital content prices on their external websites inside their apps.

If the judge rules to allow links to less expensive external options, it would be a big defeat for Apple and mean a loss of revenue for those purchases. Perhaps more important, it would represent an important legal setback just as it faces rising antitrust scrutiny over its App Store from global regulators, including the European Commission, and criticism over its practices from Congress.

All isn’t lost for Apple. The company made a strong case, based on security, for why it shouldn’t allow third-party digital stores or unvetted apps on its mobile platform. Earlier this week, the company’s senior software engineering executive, Craig Federighi, testified the Apple App Store review process was the platform’s single most important defense against malicious actors, adding that its main competitor, Android, had a much larger problem with malware infections.

But a partial victory against a $2 trillion company would still be quite an accomplishment and a potentially bad portent as Apple prepares its antitrust defenses. It appears that Epic’s move, considered an overreach when it first launched its salvos, had some merit after all.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron’s, following an earlier career as an equity analyst.

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