OAKLAND, Calif. — Cosmetics. Digital dances called “emotes.” A currency called V-Bucks. Virtual concerts. Fortnite, the popular gaming platform, is more than just a game. It is a “metaverse,” full of virtual life, said Tim Sweeney, chief executive of Epic Games, the company that created “Fortnite.”
And Apple, he argued in federal court Monday, wants an unfair cut of the money to be made in the Fortnite metaverse.
Sweeney offered a granular explanation of Fortnite to paint an expansive portrait of his company’s world on the first day of what is expected to be a three-week trial, pitting Epic against Apple in a fight over Apple’s App Store fees and other rules that could reshape the $100 billion app economy.
Epic sued Apple in August, arguing that Apple is unfairly leaning on its control of the App Store to extract an unfair cut of the money Epic makes from selling digital goods inside Fortnite.
Epic, valued at $29 billion and based in Cary, North Carolina, is not seeking monetary damages. The company wants Apple to allow apps like Fortnite to circumvent Apple’s payment systems and even offer their own app store within Apple’s.
The outcome of the trial will have wide-reaching implications for the broader antitrust push against Big Tech companies. Apple, Amazon, Facebook and Alphabet, which owns Google, face various antitrust claims by state and federal governments in the United States and Europe. Apple is also battling two potential class-action lawsuits from consumers and developers over its App Store fees.
Fortnite, Sweeney said, “is a phenomenon that transcends gaming,” he said. “Our aim of Fortnite is to build something like a metaverse from science fiction.”
Metaverse? A court reporter needed clarification. It’s a virtual world for socializing and entertainment, Sweeney said.
The legal arguments in the case center on the boundaries of the market the two companies are fighting over. Apple’s lawyers focused their opening statements on gaming, arguing that people can get access to Fortnite in many places other than the App Store, like gaming consoles.
Epic argues that the case is about the broader app economy and that Apple has a monopoly with its App Store for iPhone users. In particular, Epic is fighting a 30% commission that Apple takes on purchases made inside iPhone apps like Fortnite.
In a mostly empty courtroom in Oakland, Katherine Forrest of the law firm Cravath, Swaine & Moore opened Epic’s case by previewing a series of emails between Apple’s top executives. The emails were evidence, Forrest argued, that the tech giant purposely created a “walled garden” that locks consumers and developers inside. That forces them to use Apple’s payment system, she said.
Once Apple lured users and developers into its walled garden, “the garden gate was closed, the lock turned,” Forrest said. She compared Apple’s fees on in-app purchases for subscription services to a car dealership that takes a commission on gas sales.
Apple’s lawyers described, in their opening statement, a thriving market for app distribution that includes gaming consoles, desktop computer gaming and the mobile web. Karen Dunn of Paul, Weiss argued that the 30% commission was in line with industry standards and that Epic’s requests, if granted, would make iPhones less secure, while unlawfully forcing Apple to do business with a competitor.
Dunn added that Epic’s case was a self-serving way to avoid paying fees it owed Apple and was on shaky legal footing. “To win this case, Epic will have to convince this court of so many things that don’t make any sense,” she concluded.
The first day of the court fight over high-tech competition included in-the-weeds terms like hotfix, sideloading and multiplatform middleware services. But the day began with a familiar experience in the pandemic: Zoom difficulties. The trial’s start was delayed by around 40 minutes because of technical issues with the hotlines set up for remote listening.
In another sign of the pandemic’s changes to trials, everyone allowed into the mostly empty room wore a mask or face shield. The judge’s bench was surrounded by Plexiglas dividers.
“It’s been an adventure — not even the year, but this case,” said Judge Yvonne Gonzales Rogers, who will decide the case. She will also provide the decision on Epic’s lawsuit against Google over the fees it charges in the Google Play Store, which is expected to go to trial later this year.
App developers have privately grumbled over the years about Apple’s tight grip on its App Store and the secretive ways it enforces its rules. But few have dared to speak publicly about it, much less mount a legal challenge. Alongside its lawsuit, Epic created a nonprofit coalition to make the case for “fairness” from app platforms like Apple’s and Google’s; several dozen smaller companies have joined.
Sweeney has been vocal about his distaste for the app stores’ control over access to apps and its effect on his metaverse vision. Apple’s level of control, he said in an interview last year, is “completely unprecedented in human history.”
But Sweeney was so soft-spoken in his testimony on Monday, a court reporter had to repeatedly ask for clarification on gaming and technology terms. He wore a suit, ditching his usual, T-shirt and cargo shorts. He also wore a clear face shield.
In his testimony, Sweeney explained Epic’s decision to pursue the lawsuit. “I wanted to show the world through actions exactly what the ramifications of Apple’s policy were,” he said.
In a cross-examination, Richard Doren of Gibson, Dunn & Crutcher hammered at Sweeney with a rapid series of yes-or-no questions to make the point that Epic also publishes Fortnite on other platforms, like gaming consoles — and that Epic is not complaining about them.
But Sweeney countered that the gaming consoles, which typically lose money on the hardware they sell and make it up on fees, have different business models from Apple’s and Google’s app stores, which are highly profitable.
Doren asked Sweeney if he knew that the actions Epic took last summer would cause Apple to kick his company’s app out of the App Store. He suggested that Sweeney had hoped Apple would cave in to the pressure because of Fortnite’s popularity.
“I hoped Apple would seriously reconsider its policy then and there,” Sweeney said. Apple did not, and Epic sued.
In the coming weeks, top Apple executives, including the chief executive, Tim Cook, and executives from Microsoft and Match Group are expected to testify.
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