Epic CEO doesn’t know how App store changes would affect others

Fortnite is the most popular video game in the world. It has its own economy in which players buy virtual currency called V-Bucks and hosts concerts and movies where players can come together on their avatars in a "metaverse," Tim Sweeney, chief executive of Fornite creator Epic Games, testified Tuesday.

He further stated in federal court in Oakland that Apple poses an "existential threat" to Fortnite by taking an unfair cut of the money circulating in the game.

But when asked by the judge overseeing the trial between the two companies if he understands how other apps would be affected if Apple is forced to change the rules that govern its digital market, Sweeney answered that he did not know.

This lack of knowledge about the potential impact of its lawsuit on other apps could hurt the credibility of Epic, whose attorneys have said it is suing the world's most valuable public company to free developers and consumers of Apple's allegedly anticompetitive restraints.

Epic sued in August, arguing that Apple is a monopolist because it's the lone distributor of apps and controls the only payment system to more than 1.5 billion iPhones. The game maker is not seeking monetary damages. It wants Apple to permit an alternative to its payment system, from which it extracts a 30% fee on all transactions, and allow companies to offer their own app marketplaces.

U.S. District Judge Yvonne Gonzalez Rogers will decide whether Apple illegally stifled competition and if so, the remedy to fix the conduct in a bench trial expected to last at least three weeks. Epic Games v. Apple Inc., 20-cv-05640 (N.D. Cal., filed Aug. 13, 2020).

One of Apple's primary defenses is that developers are able to take advantage of its innovation because they have access to Apple's software kit to build apps on its operating system.

Apple attorney Richard Doren, a Los Angeles partner at Gibson, Dunn & Crutcher LLP, showed emails from Sweeney in which he praised Apple's software for enabling Epic to quickly build a Fortnite app for the iPhone.

This prompted Rogers to question whether Sweeney understands the "economics of developers who engage in apps" related to maps, weather, dating, instant messengers, among other types, to which he responded that he did not.

"You don't have any idea that what you're asking for would impact developers who are engaged in those other categories of apps?" Rogers asked.

But Benjamin Simon, chief executive of Yoga Buddhi, offered a competing narrative on how Apple's 30% commission trumps the advantages that the company offers in its software kit. He testified that Apple's cut forces Yoga Buddhi to impose higher prices on its customers.

On the App Store, Simon sells an annual subscription for $39.99 on the Yoga Buddhi website but has to offer it for $59.99 when users sign up on the app.

"There's no ability to negotiate the terms," he said. "We can't be in business without having an iOS native app."

Fornite, unlike most other games, can be played with users across multiple different consoles, including Microsoft's Xbox, Sony's PlayStation and Nintendo's Switch. Apple has a feature in which virtual currency purchased on one platform can be used on another. This means that players who purchase V-Bucks on an Xbox through Microsoft will also have the currency available when they play the game on their iPhone even though Apple did not receive its standard 30% cut for the transaction.

But Nintendo does not offer the feature, Sweeney said on cross examination. Neither does Sony, an investor in Epic.

Asked by Doren whether consoles generally have a monopoly with respect to their own digital platforms, Sweeney replied that they do.

Much of the case will swing on the market in which Apple allegedly has a monopoly.

Epic says the market is apps on the App Store.

Apple offers a much broader view, arguing that Epic ignores all other digital gaming platforms that it competes against. It's impossible, the company says, not to be a monopolist of its own products.

Virtual currency for the game can be purchased on Epic's website, Sweeney said. The option became available after Fortnite was removed from the App Store in August for violating Apple's terms of service by secretly programming a "hot fix" into an update of the game that allowed users to bypass Apple's payment processing system.

Rogers asked "why that wasn't an option" before Epic sued Apple.

"It wasn't an attractive option to customers," Sweeney, who was wearing a clear face mask and mumbled through most of his answers, responded. He said the company could have implemented the feature but "just chose not to do it" because users prefer the convenience of in-app purchases rather than having to go to a website.

Following up again, this time during questioning by Epic's attorney, Katherine Forrest, a New York partner at Cravath Swaine and Moore LLP and former federal judge, Rogers inquired about the benefits of in-app purchases since Fortnite's user base is mostly children.

"Why is it so inconvenient that someone can't make what I would call, as a parent, an impulse purchase?" she asked.

Epic settled in July several lawsuits accusing it of targeting children into buying game items through methods that mimic gambling.

Trial continues Wednesday with testimony from Epic witness Aashish Patel, director of product management at Nvidia.