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Epic Games Takes Apple On In Court: Who Will Win and Who Should Win?

Summary:
Bench Trial UnderwayIn a US court bench trial, Epic Accuses Apple of Monopolistic Practices.“Fortnite” maker Epic Games Inc. deliberately violated Apple Inc.’s AAPL app-marketplace rules to show the power that Apple wields and how the tech giant takes an unfair share of money from software developers, the videogame company’s chief executive testified in a trial Monday. “Apple was making more profit from selling developer apps in the App Store than developers,” said Tim Sweeney, whose company’s global hit videogame “Fortnite” was removed from Apple’s app platform last August.The statements from Mr. Sweeney, a 50-year-old programmer who founded Epic in 1991, in an Oakland, Calif., courtroom came on the first day of a planned three-week bench trial, one that could help reshape the

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Bench Trial Underway

In a US court bench trial, Epic Accuses Apple of Monopolistic Practices.

“Fortnite” maker Epic Games Inc. deliberately violated Apple Inc.’s AAPL app-marketplace rules to show the power that Apple wields and how the tech giant takes an unfair share of money from software developers, the videogame company’s chief executive testified in a trial Monday. 

“Apple was making more profit from selling developer apps in the App Store than developers,” said Tim Sweeney, whose company’s global hit videogame “Fortnite” was removed from Apple’s app platform last August.

The statements from Mr. Sweeney, a 50-year-old programmer who founded Epic in 1991, in an Oakland, Calif., courtroom came on the first day of a planned three-week bench trial, one that could help reshape the multibillion-dollar market for distributing apps on mobile devices.

Mr. Sweeney, who donned a blue suit instead of his usual attire of cargo pants and a T-shirt, had been plotting the moment for months. His closely held company in August inserted its own, unauthorized payment system into the versions of “Fortnite” on the app stores that Apple and Alphabet Inc.’s Google control, as a way to circumvent the 30% fee the companies collect from in-app purchases.

EU Goes After Apple 

Epic isn’t Apple’s only problem when it comes to defending its App Store business model. The EU Charged Apple with Antitrust Violations last Friday.

The iPhone maker was charged Friday by the European Union with antitrust violations for allegedly abusing its control over the distribution of music-streaming apps. Apple still has a chance to argue its case before the EU’s regulatory commission before it renders its decision.

Both the Epic Case and EU probe are targeting elements key to the App Store model, such as the company’s tight control of which apps can be installed on its devices, and its requirement that transactions on those apps run through its own system. Lawmakers and regulators on this side of the pond also have their eye on the issue.

Epic Battle 

Politico reports the Fight to Dethrone Apple Debuts in a California Courtroom.

Epic Games, the maker of the popular video game Fortnite, has captured the attention of regulators in Washington and Brussels with an antitrust lawsuit that could upend how the iPhone-maker does business. The federal civil trial in Oakland, Calif., focuses on Apple’s control over its App Store — the only way app developers can reach the world’s 1.5 billion iPhone or iPad users.

In an opening statement, Epic lawyer Katherine Forrest argued that Apple wanted to make sure its App Store was more closed-off than, for instance, computer software, where users can easily download programs onto PCs and Macs.

“If Epic is able to score a victory, then that will also majorly liberate the internet economy,” said Andy Yen, CEO of Protonmail, an email app that has tangled with Apple over its App Store rules and is backing Epic. “It will make it possible for a lot more companies to innovate and grow in the space. You’re basically taking the entire mobile space and making it competitive again.”

Filings in the case have already generated some embarrassing revelations for Apple — such as sworn testimony from Phillip Shoemaker, its former director of App Store review, where he said the company “used the App Store ‘as a weapon against competitors’ and ‘has rejected or delayed competing apps on pretextual grounds.’” Utah Sen. Mike Lee, the top Republican on the Senate Judiciary antitrust panel, quoted from that document during the April hearing while asking Apple about its policies.

Who Should Win?

A reader who wishes to remain anonymous emailed what a compelling line of thought (emphasis mine).

I tend to take the hard line view that unless a company’s dominance is materially bad for the public good that the free market should be left to do its thing. The government shouldn't be regulating speech on digital platforms like Facebook. They shouldn’t be trying to break up retailers like Amazon.

Google and Apple have dominant digital ecosystems not because they are the only game in town, but because of decades of expertly cultivating the customer experience. Microsoft and others have had the chance to compete on the mobile front with all the resources you could ask for, and failed because they didn't create a competitive experience.

Most of the revenue these other companies are complaining about with the 30% cut wouldn't even exist if Google and Apple hadn't pioneered the mobile experience. No one is forcing them to be on those platforms or to have transaction options in their apps.

It's like complaining that a physical retailer is making money by selling your products in its store. They built it, they've got the customers and give your app visibility. 

If I were a developer I'd likely think 30% is a steep cut. But I don't think that rises to the level of justifying federal involvement.

Who Will Win?

In the US it's difficult to say. 

I have no particular insight other than antitrust cases are very difficult to win, and the result, no matter what, will be contested.

The EU nannycrats are more likely than US courts to rule against Apple. 

In Praise of Google, Apple, Amazon

The EU would have killed Google, Apple, and Amazon long ago. 

Excellent companies thrive in the US and not the EU for that reason. Google which started as a search engine has compelling phone technology, amazing navigation aids, Google Earth, and it led the charge on self-driving cars.

The EU would have busted them apart before they even got going.

I like my reader's line of thought: Microsoft and others have had the chance to compete on the mobile front with all the resources you could ask for, and failed because they didn't create a competitive experience. .... It's like complaining that a physical retailer is making money by selling your products in its store.

Consumers immensely benefitted from technology by Apple, Google, and Amazon.  Anyone who says otherwise is mistaken.

Meanwhile, France still wants to save the family bookstore from the alleged predatory practices of Amazon.

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Mish

Mike Shedlock
Mike Shedlock (Mish) is a registered investment advisor representative for SitkaPacific Capital Management (http://www.sitkapacific.com/). Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

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