Apple chief executive Tim Cook described the company’s ironclad control over its mobile App Store as the best way to serve and protect iPhone users, but he faced tough questions about competition issues from a judge Friday about allegations he oversees an illegal monopoly.
The rare courtroom appearance by one of the world's best-known executives came during the closing phase of a three-week trial in an antitrust case brought by Epic Games, maker of the popular video game Fortnite.
Epic is trying to topple the so-called walled garden for iPhone and iPad apps that welcomes users and developers while locking out competition.
Created by Apple co-founder Steve Jobs a year after the iPhone’s 2007 debut, the Apple App Store has become a key revenue source for the company, a moneymaking machine that helped power the company to a $57 billion profit in its last fiscal year.
Epic is trying to prove that the store has morphed into a price-gouging vehicle that not only reaps a 15 to 30 per cent commission from in-app transactions, but blocks apps from offering other payment alternatives. That extends to just showing a link that would open a web page offering commission-free ways to pay for subscriptions, in-game items and the like.
Guided by friendly questioning from an Apple lawyer, Mr Cook’s evidence often sounded like a commercial for the iPhone and other products that he hailed as the best in the world.
Besides counting on Mr Cook to help win the case against Epic, Apple viewed his closely watched courtroom appearance as an opportunity to tell its story while the App Store is also under scrutiny by regulators in the US and Europe.
But the normally unflappable chief executive occasionally seemed flustered while being grilled by Epic lawyer Gary Bornstein.
His unease was particularly evident when pressed about the level of profits in a store that Jobs initially thought would be lucky to break even.
He seemed to stumble slightly again when when Mr Bornstein confronted him about a deal in China that could compromise user privacy, even as the company maintains that protecting its customers’ personal information is a top priority.
Mr Cook, though, never wavered during nearly four hours of testimony from his position that Apple’s grip on the App Store helps it keep things simple for a loyal customer base that buys iPhones knowing they getting “something that just works".
“They buy into an entire ecosystem when they buy an iPhone,” said Mr Cook, who wore a face shield, but no mask in an Oakland, California, courtroom that has limited access because of the pandemic.
It wasn’t at all clear that the federal judge who will decide the case was buying everything Mr Cook said on the stand.
After the lawyers were done with their questioning, US District Judge Yvonne Gonzalez Rogers asked why Apple can’t allow rival stores to offer an in-app transaction option on iPhones, iPads and iPods that might charge lower commissions. That is something Epic is fighting to make it happen, partly because it has a still unprofitable store that imposes a 12 per cent commission.
Judge Gonzalez Rogers seemed particularly troubled by a survey indicating 39 per cent of iPhone app developers aren’t happy with the current distribution system. She also wondered about the fairness of a commission system requiring the makers of video games pay the bulk of the commissions, while digital services offered in other industries such as banking don’t pay anything, even though they are using the technology that powers iPhones.
Apple fiercely defends the commissions as a fair way for app makers to help pay for innovations and security controls achieve those goals while also providing benefits for app developers, including Epic. Apple says it has invested more than $100bn in such features.
It also argues that Apple App Store commissions mirror fees charged by major video game consoles – Sony’s PlayStation, Microsoft’s Xbox and Nintendo’s Switch – as well as a similar app store run by Google for more than 3 billion mobile Android devices. That is roughly twice the number of active iPhones, iPads and iPods that rely on Apple’s store for apps.
“The gaming industry seems to be generating a disproportionate amount of money relative to the (intellectual property) that you are giving them and everybody else? In a sense it’s almost as if they are subsidizing everybody else,” Judge Gonzalez Rogers said.
Mr Cook agreed about the subsidy, but insisted there is still a fair balance because video-game makers are able to reach a wider audience of consumers who become players while visiting the store looking at other apps. He took issue with the notion that most app makers are unhappy with the store’s current setup.
“We turn the place upside down for developers,” Mr Cook said.
Judge Gonzalez Rogers also didn’t seem to buy Apple’s explanation for a move it made last year when it lowered its commission on in-app commissions to 15 per cent on the first $1 million in revenue. Although the price cut came after Epic filed its antitrust case in August, Apple said the discount was driven by desire to provide a helping hand during a pandemic-driven recession.
“At least what I’ve seen so far, that really wasn’t the result of competition, [but] the pressure you were feeling,” Judge Gonzalez Rogers told Mr Cook.
Judge Gonzalez Rogers is expected to elaborate issues still weighing on her mind Monday when she plans to pose questions to lawyers on both sides while they make their final points before she takes the matter under submission. The judge said she hopes to release her decision before August 13 in a written ruling that could reshape the technology landscape.
