Lawyers for Apple Inc. AAPL 1.78% and Epic Games Inc. on Monday began making their final arguments to a judge deciding whether the iPhone maker has an unfair monopoly that hurts third-party software developers.
They began debating a familiar topic: how to define the market at the center of the case. Epic would like U.S. District Judge Yvonne Gonzalez Rogers to consider the distribution of apps on iPhones as the market while Apple emphasized that there are many competing devices.
“The issue here is the monopoly that they have on the distribution of apps onto that platform,” Gary Bornstein, an Epic lawyer, said. “There is no path onto that platform, other than the one that they control that has led to decreased innovation and higher prices.”
Judge Gonzalez Rogers will rule on Epic’s claim that Apple has improperly prohibited third-party app stores on the iPhone and required app developers to use its in-app payment system that takes a commission of as much as 30%.
Apple has denied it is a monopoly, pointing to other ways Epic’s game “Fortnite” can be distributed. The company has said its rules around the app store ensure the safety and reliability of apps for users. Apple has argued its fees are similar to others and that Epic is merely trying to get out of paying its fair share.
Instead of traditional closing arguments held before a jury, the judge had asked the two sides to prepare for a debate-style end to the trial that has lasted more than three weeks in Oakland, Calif.
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She began immediately probing their arguments, suggesting that Epic’s view of the market and its substitutes could hurt consumers because they pick a particular digital ecosystem, such as Apple’s iOS operating system, knowing they are walled gardens. “Your economic substitutes destroy that consumer choice,” she said. Furthermore, she questioned why the market shouldn’t be defined as mobile games.
Before Monday, the judge gave each side a list of topics she wanted to hear more about and instructed them to be prepared to talk about potential remedies. She has already raised the idea of letting app developers provide a link or inform users in the app that they could leave to find cheaper ways to pay for purchases outside of the Apple system—something currently prohibited under the company’s App Store rules.
“I will let you all drive the conversation,” Judge Gonzalez Rogers told the lawyers on Friday. “I will push you faster through topics which are of less concern, and I will spend more time with you on things that are, you know, that I’m debating right now.”
The judge hasn’t been shy in chiming in during the proceedings with questions of her own for witnesses, including directly probing the chief executives of both Epic and Apple, Tim Sweeney and Tim Cook, respectively.
Her sharp questions to Mr. Cook on Friday surprised some close observers along with her statements that suggested she finds parts of Apple’s business uncompetitive, such as its in-app payment system. That doesn’t mean she has made up her mind.
She has told the lawyers she wants to hear more on the matter.
On Monday, Apple defended its 30% commission. “That commission rate wasn’t created by Steve Jobs, ” Dan Swanson, an Apple lawyer, said of the company’s late co-founder. The price came from what was found on a digital videogame distribution platform called Steam and was cheaper than what was found in physical stores at the time, Mr. Swanson said.
Mr. Bornstein, Epic’s lawyer, responded that there was no evidence that Apple felt pressure on pricing from competition.
“This is a dynamic market,” Judge Gonzalez Rogers said. “Things are changing rapidly. I have a snapshot. We are at a point in time in a moving stream so understanding what your perspective would be for the court’s role in that dynamic environment, that would be interesting to me.”
The judge has said it would take her several weeks to render a verdict, joking that she hoped it could be done before Aug. 13—the first anniversary of Epic launching a sophisticated campaign to challenge Apple’s power that landed both sides in her courtroom this month.
On that date a year ago, Epic introduced an in-app payment system in “Fortnite” aimed at circumventing Apple’s system and violating its rules. The game was quickly kicked out of the app store and, in turn, Epic filed its lawsuit against Apple. The case centers around themes of online platforms and digital commerce that are being hotly debated by lawmakers and regulators around the world.
A loss by Apple threatens a key part of Mr. Cook’s strategy for diversifying the company’s business after seeing the stagnation of iPhone sales in recent years.
But winning an antitrust case in the U.S. has traditionally proven hard for plaintiffs; courts in recent years have given more latitude to company practices through a more narrow reading of antitrust laws.
Epic has to convince the judge its market definition is correct. It also has to show that Apple’s policies cause antitrust harm and that the practices don’t benefit the consumer.
Apple has spent a lot of time justifying its prohibition of third-party stores by arguing it protects users and pointing to its app review process as helping ensure security and reliability.
Epic has countered that the security concerns are overblown, arguing a third-party store could provide equal protection and that the safety of the iPhone is rooted in its operating system. Both sides have presented conflicting testimony on the security of the iPhone.
During Friday’s proceedings, the judge turned to Mr. Cook and asked him about it directly. “Mr. Cook, what do you think the third-party data shows?” she asked. “You personally, the difference.”
He told the judge that the data shows 1% to 2% of malware is on iPhones. “It’s quite a difference,” he said.
Write to Tim Higgins at [email protected]
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