Apple defense challenges Microsoft witness over app competition

An attorney for Apple on Wednesday challenged a Microsoft gaming executive's testimony that Apple abuses its power as the gatekeeper of the App Store by prohibiting certain types of apps that it views as competition and a circumvention of its payment processing system.

The attorney emphasized that Microsoft imposes the same restrictions.

The defense strategy aimed to impugn the credibility of Xbox Game Studio's parent company, which failed to secure approval from Apple Inc. of an app that offers a library of games for a subscription fee. Microsoft Corp. has clashed with Apple over the rules that govern the App Store and agreed to serve as a witness for Fortnite creator Epic Games in its antitrust court battle that could potentially overhaul the digital market economy.

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 that started on Monday.

Epic has alleged that Apple extracts monopoly fees of up to 30% on all in-app transactions and illegally blocks software developers from offering alternative marketplaces for apps. The game maker does not seek monetary damages. It wants Apple to permit apps to use their own payment systems and offer their own app stores where they are not restricted by Apple's policies.

The case has reinforced battle lines between Apple and those that say it unfairly implements rules that prevent other companies from distributing apps to over 1.5 billion iPhone users. The outcome of the trial will have widespread implications on other efforts to rein in big tech companies in court and state and federal governments. Epic Games v. Apple Inc., 20-cv-05640 (N.D. Cal., filed Aug. 13, 2020).

Lori Wright, Microsoft vice president of business development for gaming media, detailed attempts to get a game streaming app called xCloud onto the App Store. She said she was told to "follow the Netflix model or the Audible model," both of which offer a library of different titles for a subscription fee.

"Then we were told that was not the right model for us," she said, wearing a clear face shield.

If it wanted to pass Apple's app review guidelines, Microsoft was advised to break every game in the xCloud catalogue into separate apps, Wright said. Microsoft abandoned the project, she testified, after concluding that the logistics would not work. If one game needed to be updated, for instance, every game would have to be updated.

"[Apple] allows Netflix to do what Netflix does, but it does not allow us to do what Netflix does," she said.

Apple offers an identical app called Apple Arcade in which users pay a subscription fee for access to a curated selection of games.

On cross examination, defense attorney Jay P. Srinivasan questioned Wright about policies that govern the marketplace for Xbox apps. She acknowledged that Microsoft similarly requires developers to use its payment processing system, from which it takes a 30% cut of all transactions, and prohibits alternative marketplaces from apps.

"You don't believe it's an antitrust violation?" for Microsoft to bar the distribution of games directly to consumers, Srinivasan, a partner at Gibson, Dunn & Crutcher LLP, asked.

"I'm not an antitrust expert," Wright replied.

Following up on Apple's app review process, Andrew Grant, Epic's engineering director, testified that the amount of time for an update to be approved ranged from under an hour to multiple business days. He said that delays are especially problematic for Fortnite because it requires all users to run the same version of the app, meaning that users playing on the iPhone have to wait compared to those playing it on other consoles.

"Why do you want to use Apple if it's so terrible?" Rogers interjected. "If it's so bad, why use it?"

Grant responded that others, such as Android, are "very comparable."

Much of the testimony on Wednesday was directed at reinforcing Epic's claims that the case should focus on the app economy, in which Apple has a monopoly through the App Store.

While Microsoft considers Sony and Nintendo competitors because they sell gaming consoles, Wright said, "We certainly don't view the iPhone as a competing device." She noted that Xbox games are more complex, arguing the "vast majority of those games cannot be downloaded onto the iPhone."

Apple offers a much broader view of the market. It says that Epic ignores all of the other gaming platforms that it competes against.

Matt Fischer, vice president of the App Store for Apple, is expected to testify Thursday in addition to Thomas Ko, Epic's head of business and strategy for online services, and Trystan Kosmynka, an Apple employee who will discuss the app review process.