By Jon Swartz
Silicon Valley’s highest-profile court case in a decade begins next week, and it could lead to a decision that would change the landscape for app developers, consumers and U.S. law.
When Apple Inc. /zigman2/quotes/202934861/composite AAPL +1.26% and “Fortnite” maker Epic Games Inc. square off in federal court in Oakland, Calif., on Monday, this much is at stake: the livelihood of thousands of app developers and the very definition of antitrust law. The eyes of Washington, D.C., not just the San Francisco Bay Area, will be riveted as Epic attempts to make the case that Apple’s App Store rules unfairly leverage the tech giant’s dominance.
Familiar battle lines have hardened since Epic sued Apple in August and attempted to bypass Apple’s 30% commission fee via a server software update that skirted the App Store payments system. Apple countersued in September , and removed “Fortnite” from its App Store, preventing iPhone users from playing the popular game.
The case “will help decide key issues about control of an ecosystem and if a third party can charge their customers on their own terms,” Tim Bajarin, president of market researcher Creative Strategies Inc., told MarketWatch.
Bajarin and others believe Apple has the stronger case if it “provides a huge audience to Epic and gives [it] still the lion’s share of the profit,” he added.
“Apple did not force them to sell on their site. It was Epic’s choice,” Bajarin said.
In a trial that is expected to last three weeks, Apple executives, including CEO Tim Cook, software head Craig Federighi and former top marketing executive Phil Schiller are scheduled to testify, according to a court filing by Apple on April 14. Live audio of the day’s proceedings will be available for up to 500 journalists, two of whom will be designated as pool reporters and report live from the courtroom daily. Exhibits will be posted online. The presiding judge is Yvonne Gonzalez Rogers .
Day 1 in court could shape up as a digital shoot-’em-up. After Epic and Apple present opening statements, Epic CEO Tim Sweeney is expected to take the stand. Later in the trial, Schiller is scheduled to be Apple’s first witness, and, after more expert testimony, Cook is slated to be the iPhone maker’s final witness, during the week of May 17.
The 12-year-old App Store is an ecosystem with 28 million members in 227 countries and regions, and it houses 1.8 million apps for more than 1.5 billion iPhone owners. Apple Services, in which the App Store is the crown jewel, hauled in $15.76 billion in the December quarter, up from $12.72 billion in the year-earlier quarter. Cook has repeatedly highlighted the services business as a formidable engine of growth the past few years.
That revenue is based on the large chunk of app developers’ revenue that Apple keeps, which Epic has challenged. The onus is on Epic to both show that its contract with Apple is illegal, and that Epic did not breach that contract when it bypassed the App Store with its own store, according to Adam Kerpelman, director of strategy for business-to-business company NetWise.
“This is a tough fight for Epic,” Kerpelman, who has a legal background, told MarketWatch.
Ultimately, the outcome of the momentous case hinges on the success of each company’s legal team in selling a narrative. While Apple intends to prove Epic plotted to disrupt the App Store to maximize profits, Epic will insist it was forced to confront Apple after years of unsuccessful negotiations to put an end to what it and others call Apple’s history of using its platform to unfairly limit competition to its products.
That power has already gotten the attention of the European Union, who on Friday levied antitrust charges against Apple for abusing its dominant position in the music-streaming market on the App Store.
Consumer harm vs. developer harm
The influence of the case extends well beyond Silicon Valley and could help redefine antitrust law — something lawmakers have been unable to do, despite frequent saber rattling over the influence of Big Tech on the economy and on American culture.
“This is not just about Apple being a monopolist, but a new way of interpreting antitrust law,” Valarie Williams, an antitrust attorney based in San Francisco who is closely following the case, told MarketWatch.