By Tim Higgins and Sarah E. Needleman
Epic Games Inc.'s courtroom battle against Apple Inc. is expected to end Monday with a debate-style format in which the judge will drill each side with questions about their cases.
The trial's outcome will reverberate far outside the Oakland, Calif., courtroom as Apple faces scrutiny from lawmakers, regulators and software developers who say the company exercises too much control and restricts competition within its App Store. Apple has pushed back against those claims, pointing to the competition it faces from other app stores and devices and the company's desire to provide a seamless experience for users.
The judge is expected to rule in the coming months.
During the three-week trial, Epic has argued Apple is improperly blocking third-party app stores on its mobile devices and forcing developers to use its in-app payment system for all digital transactions, allowing it to collect a commission as high as 30%.
In response, Apple has said there are many ways for users to access Epic's "Fortnite" videogame and that its commission is in line with what other platforms take. Apple has argued that Epic is merely trying to take advantage of Apple's investment and store without paying its fair share.
Monday's final arguments follow Apple's putting its top executives, including Chief Executive Tim Cook, on the witness stand last week to make the case that the company isn't a monopoly and that it prohibits third-party app stores to protect users.
Below is what we learned last week. Click to see recaps for week one and week two of the trial.
How did Apple CEO Tim Cook address questions about the competitiveness of its App Store?
Mr. Cook faced pointed questions from U.S. District Judge Yvonne Gonzalez Rogers, who suggested Apple's in-app payment system didn't face enough competition and noted that game developers bring in a sizable amount of revenue the company collects from the App Store.
"I understand this notion that somehow Apple brings the customer to the gamers, the users, but after that first time, after that first interaction...the developers are keeping their customers, Apple is just profiting off that," she said.
Mr. Cook disagreed, arguing that while many of the apps in the store are free to users, their existence helps generate traffic to the store that benefits the game developers.
"If we allowed people to link out like that we would in essence give up our total return on" intellectual property, Mr. Cook said.
She further asked what problem Apple had with allowing users to have choices, especially the ability to have cheaper options in gaming.
"I think they have a choice today," he responded. "They have a choice between many different Android models of a smartphone, or an iPhone, and that iPhone has a certain set of principles behind it in safety, security and privacy."
How has iPhone security been an issue at the trial?
Epic has argued that Apple's claim that it must tightly control its App Store for security reasons is overblown and is an attempt to justify keeping third-party app stores off the iPhone. To help make the case, Epic has relied on testimony that says the operating system is the key to the phone's security and suggested a system similar to Apple's laptops and desktops would be equally secure.
Apple's top software executive, Craig Federighi, attempted to counter that during his time on the stand Wednesday, explaining why security for the company's Mac computers, which supports third-party app distribution, isn't robust enough for the iPhone.
"Today we have a level of malware on the Mac that we don't find acceptable, and it is much worse than iOS," he testified. "Put that same situation in place for iOS, and it would be a very, very bad situation for our customers."
He said that Google's Android operating system was plagued with even more problems. A spokesman for Google pointed to the company's latest quarterly transparency report that shows less than 0.2% of both consumer and enterprise Android devices have installed a malicious app from Google Play. The judge noted that one of Epic's expert witnesses had testified there was no real difference between attacks on Android and iPhones. "So what quantitative analysis do you have that would suggest otherwise?" the judge asked.
Mr. Federighi noted a report from Nokia that said infections on Android devices were "something like 30 times that of iOS" and said other reports had shown something even more skewed.
When Epic's lawyer, Yonatan Even, got a chance to question Mr. Federighi, he tried to chip away at his statements. Mr. Even questioned his claims about security, and Mr. Federighi said he wasn't involved in the Nokia study.
The two sparred repeatedly over related questions until the judge finally cut them off. "Stop arguing with him," she said. "Let's move on."
How did Apple handle questions about the App Store's profitability?
Phil Schiller, who spent about 20 years as one of Apple's most senior executives, talked about how much Apple does to help developers succeed at building and growing apps within its marketplace. He said Apple has spent roughly $100 billion on research and development since 2005, including roughly $18 billion in 2020.
But Mr. Schiller said he didn't know if the App Store was profitable on its own, because Apple doesn't treat it as a stand-alone unit, though he acknowledged that it likely is. Epic's counsel estimated that the App Store had made at least $20 billion in commissions by 2017 based on data Apple publicly disclosed. Mr. Schiller didn't dispute that figure.
Mr. Cook also echoed testimony of other executives that the company doesn't break out individual profitability metrics for the store. He generally avoided most discussion about its profitability.
When questioned about Apple's deal that makes Google the default search engine on iPhones, for which the company is paid billions of dollars annually, Mr. Cook said he didn't know the exact figure.
How did the trial address Apple's process for reviewing apps?
Another part of Epic's attack on the security of the App Store revolved around the hundreds of workers Apple has reviewing apps before they are made available. In an effort to illustrate that Apple's processes are porous, Katherine Forrest, an Epic lawyer, told Mr. Schiller that she had done some searches on the App Store.
"And I'm now concerned about the algorithm that will be associated with my name forever," she said as she began going through a binder of pages from her searches that included terms such as "BDSM," escorts and pornography, and subsequent results of apps ranging from "Sex Position 3D" to one that claimed "pure hookup anonymous."
The questioning came near a break for lunch. Upon returning, Apple's lawyer, Richard Doren, had a chance to question Mr. Schiller. "Sir, over lunch I became the proud owner of `Sex Positions 3D,' " Mr. Doren said. "Do you know whether, in fact, the figures in the app are fully clothed?"
Mr. Schiller, now an Apple fellow, said he didn't know. "I would assume by our store rules, they are."
The app, offered by Weewoo Mobile SL, boasted it could help users "become the best hot lover," though it came with mixed reviews.
Last month, it had an estimated 100,000 downloads and generated $30,000, according to Sensor Tower. The app developer didn't respond to requests for comment.
What did the trial reveal about how Epic named 'Fortnite'?
With the trial now having surpassed a fortnight, Judge Gonzalez Rogers took a moment to ask Epic's founder and chief executive, Tim Sweeney, what the name "Fortnite" means.
Mr. Sweeney said in the original version of the game players must create forts during the day to hide from zombies that come out at night.
"So fort-related, as opposed to fortnight, two-week related?" Judge Gonzalez Rogers said. Mr. Sweeney replied that she was correct.
"I had to ask," she said. "I figured I had you here, wasn't going to have any other real opportunity to ask, so why not."
Write to Tim Higgins at Tim.Higgins@WSJ.com and Sarah E. Needleman at sarah.needleman@wsj.com
(END) Dow Jones Newswires
05-23-21 0714ET
