Apple Inc.’s chances of winning the Epic Games Inc. antitrust fight appeared less certain on Friday after the U.S. District Judge Yvonne Gonzalez Rogers put chief executive officer Tim Cook on the spot over claims that his company’s app marketplace is anticompetitive.
The judge needled Cook on why Apple won’t give consumers the option to buy lesser-priced virtual goods and content directly from developers — and only allows purchases through the iPhone maker’s own App Store, an issue at the heart of the case.
There was an intense exchange in the final minutes of Cook’s testimony when the judge voiced scepticism about Apple’s argument that the benefits of Epic’s antitrust claims do not outweigh its tight controls on how apps are vetted and marketed.
Cook answered questions for more than two hours in federal court in Oakland, California. Even after he repeatedly explained that App Store rules and restrictions aim to ensure a safe and secure platform for consumers and developers, the judge wasn’t satisfied.
“What is the problem with allowing users to have a choice, especially in the gaming context, to have a cheaper option for content?” Gonzalez Rogers asked, according to Bloomberg.
Cook said that consumers “have a choice today” of buying cheaper Android phones over iPhones.
Gonzalez Rogers pressed Cook further by asking him, “what is the problem with Apple” if users wanted an option of paying less outside the App Store to buy the in-game currency used in Epic’s blockbuster Fortnite game, called V-Bucks.
On Friday, the judge returned to the idea of a possible compromise to resolve the antitrust fight, which she had hinted at earlier in the week. Doing away with Apple rules block developers from including a link or other information in their apps to steer users away from the store to buy virtual goods elsewhere online at a discounted rate.
If Apple allowed developers to have links in their apps that point to alternative payment systems, “we would, in essence, give up our total return on our IP,” Cook responded, referring to the company’s proprietary intellectual property.
Gonzalez Rogers didn’t seem convinced and suggested that the App Store “could monetize differently.” Gaming apps seem to be making “a disproportionate amount of money relative to the IP you have given them, and everyone else,” she said. “In effect, it’s almost as if they’re subsidizing everyone else.”
Cook, a soft-spoken 60-year-old who has been CEO since 2011, pushed back against Epic’s claims that were made in August about the App Store juicing profits with unfair and self-serving policies.
Cook testified that it would be “terrible” for iPhone and iPad users if the judge favoured Epic’s demand and ordered the company to allow third-party app marketplaces, in addition to its own App Store.
“It would be a huge convenience issue, but also the fraud issues would go up” because customers would have to enter credit card information multiple times, Cook said.
Epic claims the App Store generates extraordinary margins, reflecting that Apple abuses its market power.
An attorney for the North Carolina-based game developer pressed Cook on his company’s insistence that it doesn’t break out App Store profit separately from other units in the company. One expert witness testified that internal documents obtained from the Cupertino-based tech giant revealed that its App Store had operating margins of almost 78% in the fiscal year 2019. But Cook stood his ground, saying the numbers are inaccurate.
When Apple’s attorney asked whether Cook or Epic’s expert was in a better position to fully understand the context behind the numbers, the CEO said: “I am.”
Under cross-examination by Epic’s attorney, there were multiple occasions when Cook said he couldn’t remember the answer or simply did not know. According to Bloomberg, Cook was also contradicted by evidence that Epic introduced when “Epic’s attorney played a clip of Cook’s remarks from a Berkshire Hathaway shareholder meeting in which he said iOS faces competition from Google’s Android right after he testified that the two operating systems don’t compete.”
When Gonzalez Rogers was questioning Cook, she brought up how banks don’t pay the iPhone maker a cut for transactions that take place through their apps. “You’re charging the gamers to subsidize Wells Fargo,” she said.
Cook reiterated about Apple giving the platform for game transactions for which game makers give Apple a share of their revenue.
“People are doing lots of things on your platform,” Rogers quipped. “It’s just the choice of a model.”
Cook responded that there are “clearly” other ways to make money from the App Store, but Apple “chose this one.”
“It seems to be lucrative and focused on purchases being made” impulsively by users, Gonzalez Rogers said.
Rogers also pointed to a survey submitted in the case on how some developers are dissatisfied with App Store policies. “It doesn’t seem to me you feel any pressure or competition to address the concerns of the developers,” she said.
“We turn the place upside down for developers,” he said.