In antitrust trial, Tim Cook argues Apple doesn't hurt app makers

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Apple CEO Tim Cook on Friday told a federal court that threats to iPhone security and privacy made it necessary to keep tight control of the App Store, which "Fortnite" game maker Epic Games says is a monopoly that Apple illegally abuses.

OAKLAND, CALIFORNIA (NYTIMES) - Mr Tim Cook, testifying on Friday (May 22) in a trial that could undermine Apple's efforts to fend off growing scrutiny of its power, defended his business from accusations that it hurt app makers while on the hunt to expand its profits.

Mr Cook, who took the witness stand for the first time as Apple's chief executive, answered friendly questions from an Apple lawyer and faced pointed questions from both an opposing lawyer and the federal judge who will decide the case.

The trial's outcome could maintain Apple's dominance of the US$100 billion (S$133 billion) app market or upend it.

Epic Games, creator of the popular game Fortnite, is suing Apple, claiming that the iPhone maker has created a monopoly with its App Store and uses that power to take an unfair cut from other companies that rely on the App Store to reach customers.

An Epic victory would invigorate an expanding antitrust fight against Apple. Federal and state regulators are scrutinising Apple's control over the App Store, and the European Union has recently charged Apple with violating antitrust laws over its app rules and fees.

Apple faces two other federal lawsuits about its App Store fees - one from developers and one from iPhone owners - that are seeking class-action status.

Mr Cook's testimony came towards the end of a three-week trial in an Oakland, California, federal court that has homed in on the power that Apple wields with its App Store and the 30 per cent commission it takes on sales of most digital goods and subscriptions.

Mr Cook testified that Apple faced plenty of competition, and said commissions that Apple collected from app developers helped fund better security in the App Store.

"There's a conflict between what the developer may want and what the consumer may want," he said.

He added that Apple had lowered app-store fees for many developers much smaller than Epic.

In a cross-examination, an Epic lawyer took aim at Mr Cook's credibility and questioned why Mr Cook said he did not know some details of Apple's business, including the profit margins made from the App Store, which one outside expert testifying on behalf of Epic said could be as much as 80 per cent.

Mr Cook said that was wrong. He said the App Store was profitable, but Apple had not tried to determine precisely how profitable, in part because it would be difficult based on how Apple structured its costs.

The Epic lawyer challenged that claim, showing Mr Cook internal Apple documents that suggested the company could calculate the App Store's profitability. Mr Cook countered that the documents showed incomplete figures.

The Epic lawyer then spent time on a topic tangential to the trial but appeared intended to illustrate hypocrisy at Apple: The way the company operates in China, which undercuts Apple's public enthusiasm for consumer privacy.

The New York Times reported this week that Apple had put its Chinese users' data at risk and aided the Chinese government's censorship by proactively removing apps.

While Mr Cook said Apple had to follow the laws in China, the Epic lawyer noted that other companies uncomfortable with Chinese policies had left the country.

"I know of nobody in the smartphone business who's not selling into China," Mr Cook replied.

The most concerning moment for Mr Cook and Apple came at the end of his testimony, when Judge Yvonne Gonzalez Rogers of the US District Court for the Northern District of California joined in the interrogation of Mr Cook.

Throughout the trial, Ms Gonzalez Rogers had asked pointed questions of witnesses from both Apple and Epic, and her back-and-forth with Mr Cook on Friday revealed particularly intense scrutiny of Apple's arguments.

Why couldn't Apple allow iPhone owners to have more options to purchase apps, she asked, especially if it meant lower prices for consumers?

"If you allow people to leak out like that, we would, in essence, give up our total return on our intellectual property," Mr Cook replied.

The judge asked whether Apple's decision last year to reduce its commission on app sales for developers making less than US$1 million a year was designed to deflect scrutiny of Apple's App Store policies.

Mr Cook acknowledged that scrutiny was a factor, but added that Apple mostly wanted to help small developers affected by a weak economy during the coronavirus pandemic.

Ms Gonzalez Rogers then brought up a survey that said 39 per cent of app developers were dissatisfied with how Apple managed the App Store.

"It doesn't seem to me that you feel, again, real pressure or competition to actually change the manner in which you act to address the concerns of the developers," she said.

The judge's biggest challenge in deciding the case may be defining the market that Epic and Apple are fighting over.

Epic's lawyers have argued that the case is about iPhone apps and that a game maker has to go through Apple's "walled garden" to reach the more than one billion people who use the devices.

That stifles innovation, Epic claims, and allows Apple to enforce strict rules and harm app developers by charging excessive fees. The company wants to host its own digital storefront within Apple's.

Epic Games is suing Apple, claiming that the iPhone maker has created a monopoly with its App Store and uses that power to take an unfair cut from other companies that rely on the App Store to reach customers. PHOTO: AFP

Mr Cook said on Friday that "I'm not a gamer", but argued that Epic distributes its games in a number of ways, including on Web browsers, gaming consoles and personal computers.

Many of those platforms charge a commission similar to that of the App Store. If gaming is the market, Apple has argued, then there are many competitors - like Microsoft, Sony and Nintendo - and Apple cannot have a monopoly.

Ms Gonzalez Rogers expressed frustration over the market semantics.

"One side will say it's black, the other says it's white - typically it's somewhere in the grey," she said last week.

Earlier in the trial, Mr Trystan Kosmynka, a senior director at Apple, testified that the company rejected 40 per cent of total app submissions last year. Apple could not effectively police which apps find their way onto iPhones if Epic had its own app store, Mr Kosmynka said.

Epic responded with a flurry of internal Apple e-mails showing times when harmful apps made it past Mr Kosmynka's team. One app, released during the Black Lives Matter protests over the summer, was a game that allowed users to shoot cannon at protesters.

Apple tried to show why allowing an app store within an app store could be problematic. Its lawyers criticised Epic's digital storefront for not maintaining tight enough control, saying companies had managed to use it to sell games that were "offensive and sexualised".

In an attempt to tie Epic to unsuitable content, Mr Richard Doren, a lawyer for Apple, brought up Peely, a cartoon banana in Fortnite that sometimes wears a tuxedo and sometimes goes nude.

Mr Doren implied that it would have been inappropriate to display Peely without a tuxedo in a federal court.

Mr Matthew Weissinger, vice-president of marketing at Epic, clarified that Peely, naked or suited, was not scandalous.

"It's just a banana man," he said.

The trial will wrap up on Monday, but Ms Gonzalez Rogers said a ruling would probably take months.

"Hopefully, before Aug 13," she said.

She also said her decision would probably be appealed against, meaning the trial could be just the first chapter of a longer fight.

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