In defending itself against potentially the most consequential antitrust action in more than 20 years, Apple Inc. will attempt to paint courtroom opponent Epic Games Inc. as a company that grew into a videogame titan on the back of the iPhone maker’s App Store and is now picking on Apple while making money on multiple platforms.

Apple
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takes a legal sledgehammer to Epic’s case in a 323-page filing, which underlines the notion that the “Fortnite” maker’s actions amounted to a breach of contract and PR stunt in pursuit of an antitrust lawsuit. Epic grew into a multibillion-dollar company on the strength of the App Store, it concludes, yet investigated various ways it could surreptitiously bypass its rules, including obfuscating the code and encrypting relevant features.

Don’t miss: Apple v. Epic: What to expect from a trial that could change antitrust law and the mobile-app ecosystem

Epic’s “hot fix” was a clear attempt to sidestep fees and maximize profits — all under the guise of presenting itself as a “caped crusader for all developers,” according to those familiar with Apple’s legal strategy. Ultimately, Epic is attempting to stretch the definition of antitrust law, they said.

At the core of the suit, Apple argues, is Epic’s “Project Liberty,” what Apple calls a “carefully planned plot against Apple and Google.” Epic earned less than 7% of “Fortnite” revenue through Apple’s platform, yet it conveniently chose to overlook similar commission fees charged by Samsung Electronics Co.
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Sony Group Corp.
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Nintendo Co. Ltd.
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and Microsoft Corp.
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Apple states.

Apple also downplays Epic’s assertion that it is greatly reliant on iOS, from which it earned $700 million in the two years leading up to its eviction by Apple. Court documents filed by Apple reveal the Sony PlayStation 4 generated 46.8% of “Fortnite” total revenue from March 2018 through July 2020. Xbox One, Microsoft’s console, was the No. 2 platform, at 27.5%, and Apple’s iOS ranked fifth, at 7%.

Epic Chief Executive Tim Sweeney’s argument “is that he’s OK with Xbox, PlayStation, and Nintendo requiring a 70/30 revenue split because they deserve it,” Apple says in its filing.

In a separate filing Friday, Apple outlined how three Epic execs — Nicholas Penwarden, vice president of engineering, co-founder Mark Rein, and Joe Kreiner, vice president of business development — lauded their company’s relationship with Apple in depositions. “I feel like they generate significant user acquisition and revenue for us, that they’re a primary venue for us to generate revenue, and that they earn their 30%,” Kreiner said.

Sweeney, who discussed the Project Liberty strategy with CNN in January, has been vocal in his criticism of Apple since 2016 and pursued changes to the App Store. When those talks fizzled, the company said it decided to explore litigation.

Meantime, Apple counterclaimed in an April 7 filing that its commission is roughly the same as online software stores like Alphabet Inc.’s
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Google Play and stores for videogame consoles. On the eve of the trial, Microsoft on Thursday said it would slash its fees to 12% from 30% beginning Aug. 1. “Game developers are at the heart of bringing great games to our players, and we want them to find success on our platforms,” Matt Booty, head of Xbox Game Studios at Microsoft, said in a blog post. “A clear, no-strings-attached revenue share means developers can bring more games to more players and find greater commercial success from doing so.”

According to written testimony Apple has submitted on behalf of economist Lorin Hitt of the University of Pennsylvania’s Wharton School, Apple “does not have market or monopoly power in a properly defined market. Apple’s share of the digital game transaction market lies between 23.3% and 37.5%.”

What is more, according to Apple, its App Store policies have led to a boom in software sales, and greater safety and security for customers like Epic. Epic, Apple argues, became a billion-dollar company through its use of the App Store, alongside technical tools, business support and marketing provided by Apple.

Apple doesn’t stop there. It asserts Epic’s own data showing that users who play “Fortnite” on multiple devices typically spend the most on Epic’s platform within the game on a console or PC, countering the claim that Apple’s App Store monopolizes Epic contact with customers. Additionally, it points out, Epic collected a 60% commission to distribute games in the 1990s, and Epic refers to its relationship with Apple as “mutually beneficial” while trying to dismantle it.

Epic is attempting to use the federal court system to disrupt Apple’s business model, but an unintended consequence will we damage done to consumers and developers, an Apple representative told MarketWatch.

James Malackowski, an expert in finance and intellectual property, estimates that Apple’s annual research-and-development spending on the App Store mushroomed from about $500 million in fiscal 2005 to nearly $18.8 billion in fiscal 2020, or more than $101 billion in aggregate over that period. The resulting iOS ecosystem’s innovations, he concludes, are protected by patents, trademarks, copyrights and trade secrets.

Apple signaled that it intends to take the testimony of at least two Epic expert witnesses — David Evans, chairman of Global Economics Group, and Susan Athey, a professor of tech economics at Stanford University — and use their comments against Epic.



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