Fortnite maker says Apple is running a monopoly on apps

5 minutes
Fortnite maker says Apple is running a monopoly on apps

SAN RAMON, Calif. — If Epic Games intends to dismantle the fortress surrounding Apple's iPhone and its app store, the video game maker probably needs to roll out some heavier artillery into the second week of a trial threatening Apple's $2 trillion empire.

So far, at least, Epic has struggled in proving its allegations that the 13-year-old app store from the iPhone maker has been turned into an illegal monopoly.

Epic, the maker of the popular Fortnite game, says Apple app makers have been curdling in-app transactions by charging commissions ranging from 15% to 30% because it forbids other options on its iPhone, iPad and iPod touch.When Apple tried in Fortnite last august to deny the commissions with an alternate payment system, Epic was forced from the app store to set up a legal showdown which might force it to lower its fees.

The company asserts that commissions are a reasonable toll paid by a minority of the 1.8 million apps in its database for the more than $100 billion they have invested in mobile software, The Peertino, California business also maintains its ironclad control over apps allowed on its mobile devices helps protect its customers' security and privacy.

At times, it seemed like Epic - Cary, North Carolina was helping Apple's case as much as its own during the first week of the trial being held in an Oakland, California, courtroom.

For instance, at one point during his two days on the witness stand, Epic CEO Tim Sweeney acknowledged that he personally used an iPhone instead of Google's Android app because he thought Apple offered better security and privacy controls for iOS devices.

Sweeney also acknowledged Apple made changes to the iPhone's software to make it possible for Fortnite players to compete against each other while one was on a video game console and the other was on a mobile device.The expansion of so-called cross platform game helps ringback Fortnite's growth to more than 400 million users.

Other internal documents show Epic executives profusely thanking Apple for the support Fortnite was providing in the app store.

Other evidence raised questions about whether Epic's efforts to create a competing app store that imposes a commission of only 12% will pay off.The store is projected to post a profit of $15 million by 2024 but it will still have ramped up cumulative losses of $654 million to $854 million, according to Epic's internal projections during the trial.

By contrast, Apple's store became quickly highly profitable shortly after it opened with only 500 apps in 2008 — a year after the debut of the first iPhone.From a company slide presentation Apple remained strongly firm in apple's position that Steve Jobs did not expect the app store to be a profit center, but then apparently changed his mind after it accumulated $2.1 billion in billings during 2010.

The trial has yet to reveal just how profitable Apple's app store has become.Apple does not disclose the Financial results of store, but it is an important part of the company's growing services division, which generated $57 billion in sales last year alone.The success of these services coupled with the iPhone's ongoing popularity is a key reason why Apple currently boasts a market value of $2.2 trillion — more than any other U.S. company.In contrast, private Epic is valued at nearly $30 billion.

Additional financial details about the new iPhone app store are expected to be presented during the second week of the trial.Perhaps the most surprising moments may come when one of the Epic experts, Ned Barnes from the Berkeley Research Group, takes the stand to discuss his analysis of the app store's profits.

Barnes tried unsuccessfully to convince Apple to close the courtroom during Steve’s testimony because his financial analyses unduly confuse investors and cause wild swings in its stock.

But even if the profits from the app store are lower than anyone, that won't necessarily help Epic prove its claims that Apple is operating a monopoly that hurts competition.

In an ongoing manner, being successful is not an antitrust violation in and of itself, said Daniel Lyons, a Boston College Law Professor.The argument that your prices are much higher than your costs may hold a lay audience, but the argument doesn't stick since you don't think so.

Lyons and other experts say that for all the drama, the decision that will ultimately be made by the judge during this non-jury trial will boil down to market definitions.Sony maintains the iPhone has become a market by itself while Apple argues it should also include other devices including video game consoles such as Xbox and Microsoft's PlayStation which also charge 30% commissions on gaming transactions.

If I were a betting man, I would certainly say Apple has the stronger case under existing case law, said Larry Downes, project director at Georgetown University's Center for Business and Public Policy.You have to put yourself in the viewpoint of the consumer, and that's what the judge really has to do.If it's not harming consumers, then this is just a contract dispute between two companies. One of them wants to use litigation to renegotiate the terms.

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