By Jon Swartz
Before Epic Games Inc. put the finishing touches on its historic antitrust case against Apple Inc. on Friday, the iPhone maker offered a preview of what should be a vigorous defense next week.
In a strongly worded letter to a Senate Judiciary subcommittee Friday, Apple /zigman2/quotes/202934861/composite AAPL +0.21% Chief Compliance Officer Kyle Andeer, who testified last month to the Senate on the influence of app stores, pushed back hard on anticompetitive claims.
“The developers who testified at the hearing were among some of the largest and most successful on the App Store, and their testimony was focused more on grievances related to business disputes with Apple than on competition concerns with the App Store,” wrote Andeer. “Rather than demonstrating a problem with competition, these witnesses—representing companies that have thrived in Apple’s ecosystem—showcased how Apple and the iOS ecosystem foster competition.”
The letter, which pointedly called out the testimony of executives from Spotify Technology /zigman2/quotes/207488629/composite SPOT +1.59% , Match Group Inc. /zigman2/quotes/207178501/composite MTCH -2.27% , and Tile, could just as well included Epic Games, which is suing Apple in federal court in Oakland, Calif.
Epic has spent the better part of two weeks making its case that Apple and its ultra-successful App Store gouges developers with an onerous 30% commission fee and it suppresses competition from rival apps.
Through witnesses that included its chief executive Tim Sweeney, executives from Microsoft Corp. /zigman2/quotes/207732364/composite MSFT -0.61% and Nvidia Corp. /zigman2/quotes/200467500/composite NVDA -0.91% , and a string of economic experts, Epic sought to establish three primary goals.
Defining a relevant market. The crux of the bench trial, which will be decided by federal Judge Yvonne Gonzalez Rogers, rests on whether Epic can establish Apple leveraged a monopoly in the smartphone operating system via its iOS app distribution market.
Read more: Epic takes aim at Apple’s financial advantage in App Store model
“Apple has substantial market power” in smartphone operating systems, Epic’s main economic expert, David Evans, chairman of Global Economics Group, said. Apple and Google’s /zigman2/quotes/202490156/composite GOOGL -0.82% /zigman2/quotes/205453964/composite GOOG -0.96% Android, he asserted, are a duopoly that have controlled 100% of the smartphone OS since 2013. Globally, excluding China, the split is 60%-40% Android; in the U.S., it’s about even, he said.
“Developers need to be where customers are,” Evans said. “They have to create iOS apps to reach iOS users and have to have an Android app to reach Android users.”
“My opinion is Apple has monopoly power in the iOS app distribution market” based on “high and persistent profit margins,” Evans said. (Those numbers, calculated by Evans based on data Apple provided in the lawsuit, were only shown to Gonzalez Rogers.)
“Apple’s restrictions harm competition” for app developers and consumers, leading to higher prices, poorer distribution and slower innovation, Evans concluded.
Apple has consistently countered that the App Store is piece of a constellation of digital-distribution platforms — Sony Group Corp. /zigman2/quotes/208567357/composite SONY -1.52% , Samsung Electronics Co. Ltd. /zigman2/quotes/209800866/delayed KR:005930 -0.63% , Nintendo Co. Ltd. /zigman2/quotes/208063194/delayed JP:7974 -3.93% , and Google Play are among other options — that charge an industry-standard 30% commission fee for most developers.
Restricting the cloud-gaming market. Microsoft and Nvidia officials buttressed Epic’s contention that App Store restrictions created a lopsided competitive landscape for Apple Arcade, a videogame subscription service available on iOS.
Lori Wright, vice president of business development at Microsoft, revealed the software giant spent four months discussing with Apple how to launch xCloud as a native app, only to claim Apple demanded Microsoft, Nvidia, and others list cloud games as separate apps.
Submitting Xbox games one-by-one was burdensome, forcing Microsoft to resort to making a web app, Wright testified. This not only represented a technological hurdle for Microsoft, she said, but also inconvenienced consumers. Users aren’t used to installing apps from the web on their iPhones.