AAPL Apple Inc

By Sarah E. Needleman 

Lawyers for Epic Games Inc., the maker of the popular videogame "Fortnite," and Apple Inc. presented opening arguments Monday in a federal trial that could help reshape the multibillion-dollar market for distributing apps on mobile devices.

U.S. District Judge Yvonne Gonzalez Rogers is presiding over the planned three-week bench trial in Oakland, Calif., which is slated to feature testimony from the chief executives of both companies as well as officials from Microsoft Corp., Nvidia Corp., Match Group Inc. among others.

Katherine Forrest, a lawyer for Epic, said the videogame company sued Apple over its App Store policies, describing the iPhone maker's enforcement of them as monopolistic. She reminded the court that Epic isn't seeking monetary damages, but rather aims to unlock Apple's so-called walled garden for itself and all app developers.

"The garden could've had a door. It's artificially walled in," said Ms. Forrest, an attorney with Cravath, Swaine & Moore LLP who is a former New York federal judge. In building its mobile operating system known as IOS, "Apple's plan was to lock users in and prevent users from switching away from the Apple ecosystem," she said.

Karen Dunn, an attorney for Apple, defended the iPhone maker's App Store policies and the 30% fee the company charges developers on digital sales.

"Apple did not create a secure and integrated ecosystem to keep people out," said Ms. Dunn, a partner at Paul Weiss Rifkind Wharton & Garrison LLP who also represented Apple in its lawsuit against Qualcomm Inc. over patent-licensing fees. Instead, Apple did so to "invite developers in without sacrificing the privacy and liability, security and quality that consumers wanted," she said.

Ms. Dunn also challenged Epic's definition of a competitive market, saying its perspective is too narrow because there are many platforms where consumers and developers engage in transactions, including personal computers and three major game consoles. She argued that consumers move fluidly between platforms and can purchase "Fortnite" and other game currency on one platform and spend it on another.

Epic sued both Apple and Alphabet Inc.'s Google in August after the companies removed "Fortnite" from their mobile app stores. They say their moves were justified because Epic broke their rules by inserting its own system for processing payments made inside the game, a move that would potentially circumvent the 30% slice of revenue that Apple and Google collect from in-app purchases.

Epic, a closely held company valued at nearly $29 billion as of last month, has asserted that Apple charges exorbitant fees to mobile software developers and runs the App Store in a way that stifles smaller businesses and prohibits fair competition. A trial date hasn't been set in Epic's lawsuit against Google.

Apple has said that Epic's actions were a breach of contract and that the game company has engaged in a smear campaign. Apple also said that there are many platforms in which "Fortnite" is available, asserting that the market is mature and that it doesn't hold anything close to a monopoly against developers.

Among those expected to take the stand Monday on Epic's behalf is its co-founder and chief executive, Tim Sweeney, who spent months plotting his company's attack on Apple with a team of around 200 Epic staffers, outside lawyers and public-relations advisers. He appeared in the courtroom in a gray-blue suit and wearing a black mask.

Mr. Sweeney, 50 years old, is a seasoned programmer who prefers an office uniform of cargo pants and T-shirts. A Maryland native with a net worth exceeding $9 billion, according to the Bloomberg Billionaires Index, he has testified in court before and spoken in front of crowds at events such as Mobile World Congress and the Game Developers Conference.

Epic's witness list also includes other company executives, former Apple employees and employees of other companies including Microsoft. Apple's witness list includes the company's CEO for the past decade, Tim Cook, and other executives such as Phil Schiller, who played a key role in the launches of the iPod, iPhone and iPad and currently holds the title of Apple Fellow.

Antitrust cases can be difficult for plaintiffs to win, legal experts say, and Epic's lawsuit may hinge on the court's definition of a market in the digital age. Epic says Apple has a monopoly in its App Store, while Apple says it is just one of many distribution channels in the larger market for videogames and other software.

Analysts say that an appeal is likely regardless of the trial's outcome, a possibility the judge outlined last year in hearings.

Apple faces scrutiny from regulators elsewhere over its business practices. The European Union on Friday charged the company with violating antitrust laws for allegedly abusing its control over the distribution of music-streaming apps. The case in Europe stems from a 2019 complaint filed by Spotify Technology SA, which competes with Apple's music-streaming service. The U.K. is separately investigating whether Apple imposes anticompetitive conditions on app developers, and U.S. lawmakers have accused Apple of operating with "monopoly power."

In response to the EU charges, Apple said Spotify has been successful even after removing paid subscriptions from its app in the App Store. Apple also said Spotify's demand to be able to advertise alternative deals through its App Store is a practice that no stores allow.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

(END) Dow Jones Newswires

May 03, 2021 14:43 ET (18:43 GMT)

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