The court will tackle a couple of central questions. First, is Apple a monopoly? Apple says iOS, its mobile operating system, has loads of competition, from Google’s Android and from game consoles like Nintendo, PlayStation and Xbox. But Epic says iOS is a market unto itself, and that Apple controls it and keeps customers locked in by getting them hooked on products like iMessage, Apple’s proprietary messaging service that’s not available on Android.
The other big question the court must answer is whether Apple, if it’s a monopoly, is abusing its power. The only way to distribute software on iOS is through the App Store. And the only payment processing system allowed on iOS is Apple’s, which collects a 15 to 30 percent cut. Apple says iOS is simply a great service that software developers and customers love. But Epic says Apple shouldn’t be allowed to force developers to distribute iOS apps through Apple’s App Store and simultaneously use its payment processing system, which Epic argues is a violation of an antitrust law that prohibits tying one product or service to the sale of another.
Epic Games Store is not profitable, CEO says
Epic Games Store, the company’s digital storefront for games, is not profitable, CEO Tim Sweeney said in testimony Monday.
Sweeney said the Epic Games Store is “hundreds of millions of dollars short of being profitable” because of its upfront costs and is expected to become profitable “within three or four years.”
The Epic Games Store, which is on PCs, has thrown a lot of money at game developers, creating exclusive deals and free game offers on its store to attract more users. It competes against Valve’s Steam PC games store, which has traditionally commanded the market. Epic noted that it takes a 12 percent revenue cut from developers, less than the 30 percent commission that Steam and Apple charge, which some developers argue is excessive.
That in turn hasn’t added up into a profit yet for Epic. According to a document entered into evidence, when it came to cash flow, Epic Games Store cost the company a $359 million investment in the 2018-2019 period.
Similar to the company’s big bet on esports in 2019, the Epic Games Store still isn’t contributing to the company’s bottom line. Epic actually made $2 million in revenue from the Epic Games Store in 2018 and $233 million in 2019. Epic forecast the store to make $401 million in 2020, but the evidence, which is dated January 2020, did not list actual 2020 figures.
Epic Games is trying to prove ‘Fortnite’ is more than a video game
Don’t think of “Fortnite” as just a video game, Epic Games CEO Tim Sweeney said during the trial involving Apple on Monday. It’s part of what could become the “metaverse,” a term Sweeney uses often.
He was asked to define the metaverse, which he had described to me in a December interview as a medium “coming into existence” where people can be connected in a potentially massive world.
On the stand, Sweeney described what “Fortnite” is: “It’s a phenomenon that transcends gaming. It’s a social and entertainment experience that includes a variety of gaming experiences and nongaming experiences within it.”
Epic counsel Katherine Forrest led Sweeney into an increasingly detailed line of questioning about what a player can do in “Fortnite.” It’s not just a battle royal game where 100 players fight each other to be the last survivor.
As a virtual destination, people can log on and hang out in “Fortnite,” and it hosts concerts, debuts film trailers and provides other in-game events. Epic has done dozens of partnerships with brands like Marvel and top soccer clubs, directors like Christopher Nolan and musicians like Travis Scott and Marshmello. Sweeney also mentioned a program called “We The People,” a conversation about race in America.
At first glance, the details might sound out of place in an antitrust case looking at whether Apple’s App Store practices are too restrictive. But Epic is trying to prove that “Fortnite” isn’t just a video game and that Apple’s argument — that in the gaming industry, Epic has plenty of substitutes for the iPhone, such as the Nintendo Switch or the Xbox — shouldn’t apply.
Epic Games CEO Tim Sweeney takes the stand
Epic Games CEO Tim Sweeney took the stand Monday afternoon and answered questions from Epic counsel, including when he founded Epic Games (in 1991) and his background in games (he grew up learning how to code on an Apple II computer). He also explained different games Epic has made, including “Infinity Blade,” and products it develops, such as the Unreal Engine.
But Epic is best known for “Fortnite.” Asked to explain what it is, Sweeney said it is much more than just a shooting game — it is also an entertainment system.
Sweeney elaborated on his company’s complaints against Apple and its policies that Epic finds too restrictive. He explained that Epic is not looking for Apple’s App Review to go away and is not seeking additional compensation, as prompted by questions from Cravath lawyer Katherine Forrest. He said that Apple has hurt his business by requiring developers to go through the Apple App Store and use Apple’s in-app payment processing system.
Sweeney’s statement on the stand echoed what he has said on Twitter and to the media. He said that Apple can make more money on a game from the commission it receives than the game developers themselves make.
Apple, in its opening, blasts Epic as deceptive and disingenuous
Apple laid out its defense Monday in the trial versus Epic Games. Apple painted Epic as a company bent on lowering its costs. “Epic has decided it doesn’t want to pay for Apple’s innovations anymore,” Apple’s lawyers said. “Epic is here, demanding that this court force Apple to let into its App Store untested and untrusted apps.” That’s something the law doesn’t allow, Apple said.
Apple said emails uncovered during the discovery process show Epic’s chief executive, Tim Sweeney, was disingenuous. The lawsuit stems from Epic’s decision to offer “Fortnite” gamers an alternative payment method, bypassing Apple’s payment processing service and its 30 percent commission. Sweeney discussed its intentions with Microsoft ahead of time, Apple said. “While Epic is deceiving Apple, it’s giving Microsoft a heads-up.”
Apple focused much of its opening arguments on the video game industry. For instance, it said the majority of “Fortnite” revenue came from other platforms other than iOS. Apple’s point is that consumers have many choices if they don’t want to use an iPhone. Not only could they switch to an Android device, but they could use an Xbox, a PlayStation or a Nintendo.
Apple defended Epic’s allegation that it doesn’t police its platform, saying the system is getting better all the time. Apple said that if Epic wins, it will mean a less secure operating system and more danger for consumers.
Apple’s lawyers criticized Google’s Android operating system as lacking in security and warned that iOS would be less secure if it didn’t have control of the ecosystem.
Apple just cited a Qualcomm decision. That’s bad news for Epic.
In opening statements Monday, Apple cited Federal Trade Commission v. Qualcomm Inc., an antitrust case that was decided in 2020 in a federal appeals court.
“Anticompetitive behavior is illegal under federal antitrust law. Hypercompetitive behavior is not,” reads a now widely-cited portion of the federal appeals court’s decision.
The decision points to the uphill battle Epic will face in its grand ambitions of reshaping the closed iPhone ecosystem. Proving that Apple’s refusal to open iOS to competing stores and in-app payment systems is anticompetitive — as opposed to merely hypercompetitive or sharp-elbowed — will require vaulting an extraordinarily high bar.
In 2017, the FTC alleged that Qualcomm, which owns patents essential to the creation of mobile phones, was using its dominant position in the industry to extract unreasonable fees from companies that rely on its tech. Two years later, in May 2019, U.S. District Court judge Lucy Koh agreed. In a 233-page decision, she sided with the FTC, stating that Qualcomm had abused its monopoly power. But in 2020, two days before Epic filed its suit against Apple, a federal appeals court reversed Koh’s decision.
“The company has asserted its economic muscle ‘with vigor, imagination, devotion, and ingenuity.’ … It has also ‘acted with sharp elbows — as businesses often do,’” the ruling says. The FTC had to prove that Qualcomm was destroying competition. But it had failed to do so, in the view of the appeals court.
“If Apple can persuade the court that this is just about … Apple’s control of its own store and the prices it wants to charge, then Qualcomm says not quite ‘Do whatever you want, we don’t care,’ but something pretty close to that,” Mark Lemley, director of the Stanford Program in Law, Science and Technology, told The Washington Post in August.
The impact of a federal court overturning a vigorous antitrust ruling could have serious ramifications, including on the rulings of district court judge Yvonne Gonzalez Rogers, who is overseeing Epic v. Apple, alongside two other Apple-related cases.
“[Gonzalez Rogers’] colleague on the northern district of California wrote a 233 page, very detailed, fact-finding opinion, and it was just summarily thrown out root and branch,” said Lemley. “I think that’s got to affect how far the judge is willing to stick her neck out on this issue.”
Technical difficulties in Epic vs. Apple trial highlights debate about technology in court
A technical issue has interrupted Apple’s opening argument and has now led federal judge Yvonne Gonzalez Rogers to call for a 20-minute recess.
Because of the pandemic, the courtroom is closed to the press, save for one “pool reporter” representing all media outlets. In pretrial hearings, the court used Zoom to broadcast the public hearings. But for the trial, the court opted for an old school method: a conference call.
On Monday, as the trial was set to begin at 8:15 a.m. PST, the conference call line was a bust. Court officials spent about a half-hour trying to get the line up and running. Eventually, the proceedings could be heard on a public conference line, but the conference line for reporters was silent.
You might be asking: Why, in 2021, would the court be so hesitant when it comes to technology in the courtroom? Despite decades of televised court hearings from state courts, the federal court system has been slow to allow the broadcasting of court proceedings. One point of view is that when proceedings are broadcast to the public, it affects the privacy of the parties and distracts from the process, which might affect a fair trial. Another point of view: The courts belong to the public and all citizens should have the ability to see what happens in them.
The pandemic, which prevents the public from appearing in the courtroom at all, puts the courtroom broadcast debate under the microscope in a new way.
This trial is between two large companies, and the case is being decided by an experienced federal judge in Gonzalez Rogers. There are already many eyeballs on this trial, and it’s difficult to see how making the trial more accessible would hurt either side.
Epic Games paid billions in commissions to third-party platforms. A small fraction of that went to Apple.
Epic Games has paid billions in commissions to third-party companies hosting “Fortnite,” such as Microsoft, Sony, Nintendo and Apple, according to evidence filed this morning.
A Microsoft Excel file, shared as an exhibit, lists commissions paid between January 2017 and October 2020. The vast majority of these payments relate to “Fortnite,” with a smaller percentage accounted for by “Rocket League” and a handful of other Epic properties.
In the tracked time span, Epic Games paid $237,175,521 in commissions to Apple for “Fortnite.” By comparison, in 2020 alone, payments to Microsoft ($245,992,576) and Sony ($451,405,240) exceeded Epic’s total commission payments to Apple.
Crucially, though, Epic’s case is not about the costs imposed by Apple. Epic’s case revolves around antitrust questions — namely, whether Apple is a monopolist and whether it abuses that monopoly in its dealings with app developers. Epic will argue that Apple can charge the commissions it wants because it has monopoly power; the prices are just a symptom, and Epic’s case concerns itself with the cause.
“Antitrust doesn’t really set prices,” Randy Picker, a professor of law at the University of Chicago, told The Post in August 2020. “Antitrust regulates, as it were, mechanisms. And those mechanisms generate what prices they generate. But [antitrust is] not in the price-setting business.”
Epic’s opening arguments focus on Apple’s ‘walled garden,’ and customer lock-in
Epic is done with its opening statements. The arguments homed in on the metaphor that Apple’s mobile operating system, iOS, is a “walled garden” that prohibits competition, stifles innovation and makes it difficult for consumers to switch to competing smartphone operating systems.
Epic tried to frame the trial as broader than just Epic vs. Apple. “Epic is suing for change,” Epic’s lawyer said in the company’s opening statement. “Not just for itself but for all developers.”
Epic painted the construction of iOS as a nefarious “plan” concocted to lock consumers in and hold developers hostage. “Once they committed themselves to the iOS ecosystem, individual app developers were in a tenuous position,” Epic said, because Apple “could terminate developers at any time for any reason at all.” Epic called it “take it or leave it contractual language” that is emblematic of a monopoly abusing its power.
Epic’s argument: Apple should be forced to open its operating system up and allow developers to freely use iOS, just like they would any other computer.
Uploaded evidence includes info on esports losses around Fortnite World Cup
We’ve combed through a few of the 100-plus files Apple and Epic Games have uploaded as evidence and found some intriguing information around Epic’s esports aspirations and the Fortnite World Cup, a world championship event for players of “Fortnite.”
One of the documents uploaded relates to Epic Games’ revenue from 2018 to 2019. It gives insights into Epic’s financials that were previously unavailable since Epic isn’t a publicly traded company. Epic Games notes it “overestimated” how much money it could make off esports in 2019 by $154 million. In 2019, its gross revenue of $4.2 billion fell below its planned revenue ($4.59 billion), partly because of its investment in esports.
In 2019, Epic Games staged the Fortnite World Cup event in New York that featured a prize pool of $30 million, in addition to millions in other cash prizes it handed out that year. Back then, Epic drew questions of how it was able to afford the event and whether the event was even profitable, as the stadium wasn’t full and the event didn’t appear to have many sponsors.
Among emails from 2019 entered into evidence, Epic employees discussed partnering with Apple and making the tech giant the “presenting sponsor” for the Fortnite World Cup, which could “give us some more leverage with Apple.”
New documents revealed at trial bolster Epic’s argument that the Apple App Store isn’t well policed
With the trial underway, new documents are being entered into evidence and some of those documents go to one of Epic’s key arguments: That the App Store isn’t really “curated,” as Apple claims in its marketing. This is important because one of Apple’s defenses for its restrictive “walled garden” approach to iOS is that it’s necessary to keep iOS secure and safe.
The documents show a behind-the-scenes struggle at Apple to achieve successful content moderation on its own platform. This internal struggle contrasts greatly with what Apple has said publicly — that it is in complete control of the App Store and that it is successful in policing it for bad actors. Here’s a new email from Phil Schiller, a long time Apple executive who has overseen the App Store:
“What the hell is this????
Remember our talking about finding bad apps with low ratings?
Remember our talk about becoming the ‘Nordstroms’ of stores in quality of service?
How does an obvious rip off of the super popular Temple Run, with no screenshots, garbage marketing text, and almost all 1-star ratings become the #1 free app on the store?
Can anyone see a rip off of a top selling game? Any anyone see an app that is cheating the system?
Is no one reviewing these apps? Is no one minding the store?
This is insane!!!!!!!"
Epic’s opening courtroom slide deck depicts Apple’s ‘walled garden’ being slowly built over time
In Epic’s opening statements, Epic’s lawyers showed a presentation to the court, highlighting several documents they allege reveal Apple’s “plan” to create a “walled garden,” or a highly restrictive operating system that attracts users and then “locks them in” by making it difficult to switch to a competing one.
The first slide included an illustration of a partially built brick wall in front of a gray background that says “iOS.” With each subsequent slide, more bricks were added to the wall.
The slides also included new documents. For instance, a former Apple executive named Ian Rogers emailed Eddy Cue, Apple’s vice president of Internet software and services, telling him “The #1 most difficult to leave the Apple universe app is iMessage. Moving to Android my family was forced to move to Facebook to message me, I used WeChat, WhatsApp and Slack for work, but I missed a ton of message from friends and family who all use iMessage and kept messaging me at my old address. iMessage amounts to serious lock-in.”
What is Epic Games CEO Tim Sweeney’s endgame?
In its opening statement, Epic said it is suing for change — not just for itself but for all developers. Here’s what that actually means.
The chief executive of Epic Games, Tim Sweeney, has long been a happy warrior in service of the ideal of open platforms. Apple is just his latest target. In Sweeney’s view, closed platforms betray the ideals of the Internet and computing. That view is probably shared with many programmers who witnessed the early days of computing and the legal and corporate battles involving the government, IBM, Microsoft and Apple. Apple, iOS and the App Store in particular exemplify the closed model Sweeney so often rails against.
The iPhone, Epic argues, is basically just a small computer. But because of how the original iPhone was designed, there are restrictions taken for granted on the device that would be unacceptable on a PC. Users cannot download software that hasn’t been approved by Apple and can download software only via a storefront owned and operated exclusively by Apple.
“Imagine everyone starts using PCs in the 1980s, but it turns out that if you use an IBM PC, you can only use IBM-approved software. If you use an Apple PC, you can only use Apple-approved software,” Mark Lemley, director of the Stanford Program in Law, Science and Technology, told The Washington Post in August. “The fact that that was not true, I think, is actually the thing that made the PC such a transformative invention.”
In the best-case scenario for Epic, a win in this trial will make phones look a lot more like contemporary PCs. The benefits for the “Fortnite”-maker will be profound, but the change will also affect every other developer creating software for iOS devices.
Today could be the Tim Sweeney show at the Epic v. Apple trial
According to our eagle-eyed photo department here at The Washington Post, Epic’s CEO, Tim Sweeney, has been photographed walking into the federal courthouse where the Epic v. Apple trial begins today. We’re expecting Sweeney could take the stand today as the star witness for Epic. Because Epic brought the suit, it will try its case first and will be calling the witnesses for this first segment of the trial.
It’s telling that Sweeney, according to court records, is expected to spend about three hours on the stand. That’s the longest estimated time for any Epic witness except for one of its economic experts, who is scheduled to spend four hours on the stand.
The court record says Sweeney will discuss “Epic’s history and business; Epic’s business discussions with Apple and Google; Epic Direct Payment on iOS; App Store policies and practices; Epic’s marketing and promotional activities; Epic’s efforts to compete in app distribution and in-app payment processing.”
In essence, Epic probably will try to use Sweeney to humanize Epic’s case. Apple has tried to paint Epic as an opportunistic corporation trying to eek out more profits by swindling Apple out of its share of App Store revenue. Sweeney, the ultimate computer geek, will get to tell Epic’s origin story in his own words and speak to Epic’s motivation in bringing the lawsuit, which he could color as more of an altruistic, David vs. Goliath battle. When Epic is done with its direct examination, Apple’s lawyers will get their chance to cross-examine him. In other words, poke holes in his story.
This should be one of the most interesting portions (up to six hours) of the trial.
Epic v. Apple is off to a rough start
The trial between Epic and Apple was set to start at 11:15 a.m. Eastern, but it ran into technical difficulties. People on the dial-in were unmuting themselves and talking over each other on the public line, leaving U.S. District Judge Yvonne Gonzalez Rogers asking for a solution.
On the general line for public access, people were speaking over one another, insulting each other and playing Travis Scott music, according to Jacob Wolf, chief reporter at Dot Esports. After 15 minutes, the public line was muted.
When the trial got off to a late start, Rogers mentioned the conference call line problems.
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