AAPL Apple Inc

By Tim Higgins 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 9, 2020).

Apple Inc. swung back at Epic Games Inc. in a counter-lawsuit accusing the software developer of duplicity and greed, intensifying a legal battle over the iPhone maker's online software store that could reshape how the marketplace operates.

At the core of the dispute is how much control Apple exerts in the expansive world of smartphone apps that have changed how modern life operates and ushered in the platforms for everything from home entertainment and videogames to on-demand food ordering and ride hailing.

Epic sued Apple as well as Google last month after the tech giants yanked the popular "Fortnite" videogame from their app marketplaces, calling the power both companies hold over developers monopolistic. Apple and Google removed the game after Epic introduced an in-app payment system in violation of their rules that would cut out both companies from receiving a 30% cut of users' spending.

In court documents filed Tuesday, Apple defended its actions and went further, asking a federal judge in California to award punitive damages and restrict Epic from continuing what it describes as unfair business practices.

"Epic's lawsuit is nothing more than a basic disagreement over money," Apple said in its filing Tuesday. "Although Epic portrays itself as a modern corporate Robin Hood, in reality it is a multi-billion dollar enterprise that simply wants to pay nothing for the tremendous value it derives from the App Store."

An Epic spokesman declined to comment beyond what the company has said previously about fighting what it describes as a system that suppresses competition and inflates prices.

While Epic and Apple seek to litigate their dispute, the game maker filed a motion Friday seeking to get Fortnite back in the App Store while that fight continues. A hearing is scheduled for Sept. 28. "All Epic seeks is for the court to stop Apple from retaliating against Epic for daring to challenge Apple's misconduct," Epic said in last week's filing.

Closely held Epic is just the latest company to take issue with Apple's control of the App Store, which is part of the Cupertino, Calif.-company's evolution to expand beyond selling hardware and to generate revenue from software services. Apple's App Store in the first seven months of this year generated nearly $39 billion in global revenue from in-app purchases, subscriptions and premium apps, according to researcher Sensor Tower. After its launch in 2008, the App Store has about one billion customers from 175 countries.

Apple is facing antitrust probes from governments in the U.S. and Europe while other tech companies from Microsoft Corp. to Spotify Technology SA have joined in complaining publicly about app marketplace practices. Last month, Facebook Inc. CEO Mark Zuckerberg said in a webcast with employees that Apple has the ability to block innovation and "to charge monopoly rents," according to a person familiar with the matter.

Apple hasn't commented on Mr. Zuckerberg's remarks. In response to regulatory probes, Apple has denied hurting rivals and said it wants apps that compete with its services to thrive.

In its filing Tuesday, Apple sought to portray itself as a victim of plotting by Epic. The tech giant described all the help it had given Epic in recent years and detailed how it alleged the game company had begun laying groundwork for what Apple called a "calculated and pre-packaged campaign" against it. "Fortnite" has been downloaded almost 130 million times since being added to the App Store in 2018, according to Apple. Epic has earned more than $600 million from its relationship with Apple, according to court records.

Epic Chief Executive Tim Sweeney in late June emailed Apple executives, including CEO Tim Cook, asking for a special agreement exempting his company from existing contractual obligations, including the App Store payments, according to Apple's filing. The tech giant rejected that demand.

Then on Aug. 3, Epic sent to the App Store an update of "Fortnite" that the game company described as a "hotfix" but that Apple claimed was a Trojan horse allowing it to bypass Apple's review process and payment system.

At around 2 a.m. Aug. 3, Mr. Sweeney emailed Apple again. "Epic will no longer adhere to Apple's payment processing restrictions," he wrote, according to the filing. Mr. Sweeney declined comment on Apple's latest filing.

A few hours later, Apple said, Epic activated the external payment workaround that cut Apple out of its share of sales. "Epic sought to enjoy all of the benefits of Apple's iOS platform and related services while its "hotfix' lined Epic's pockets at Apple's expense," Apple said in its filing.

That was followed by a public relations battle and lawsuit against Apple. Epic showed a video on "Fortnite" mimicking the iPhone-maker's '1984' ad campaign.

Apple has defended its take of app purchases in the past as a way to help fund the development of its ecosystem that provides a safe and secure way to download third-party software. The company said in its filing that Apple requires every app on its system to undergo a "rigorous, human-assisted review."

It noted that Epic has its own app marketplace where it charges a commission as well, though Epic takes only a 12% cut of sales. "There is nothing anticompetitive about charging a commission for others to use one's service," Apple said in the filing.

Epic said last week that it remains committed to the legal fight but that its business has been harmed in recent weeks. The company said daily active players using Apple's mobile operating system, or iOS, of "Fortnite" -- which Epic said has more than 350 million registered users -- has plummeted since the dispute began and its reputation with consumers has been harmed.

Though "Fortnite" can be played on mobile devices as well as gaming consoles and personal computers, Epic said iOS players represented the largest segment of users.

Write to Tim Higgins at Tim.Higgins@WSJ.com

(END) Dow Jones Newswires

September 09, 2020 02:47 ET (06:47 GMT)

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