Tim Cook, testifying on Friday 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 $100 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 scrutinizing 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 toward the end of a three-week trial in an Oakland, Calif., federal court that has homed in on the power that Apple yields with its App Store and the 30 percent commission it takes on sales of most digital goods and subscriptions.
He entered the courthouse on Friday morning from an underground garage rather than its main entrance, which allowed him to avoid photographers gathered outside the front of the building. About 7:30 a.m., journalists spotted him going through security checks inside and shouted questions. Mr. Cook, wearing a dark gray suit, white shirt and gray tie, held up his hand in a peace sign.
For over an hour, an Apple lawyer led Mr. Cook through complaints against Apple, allowing him to explain why Apple conducted business a certain way — and why it wasn’t harming app developers.
Mr. Cook testified that Apple faced plenty of competition, and he 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 percent.
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 U.S. District Court for the Northern District of California joined in the interrogation of Mr. Cook.
Throughout the trial, Judge Gonzalez Rogers 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 who earned less than $1 million a year was designed to deflect scrutiny of Apple’s App Store policies. Mr. Cook acknowledged scrutiny was a factor, but he added that Apple mostly wanted to help small developers affected by a weak economy during the coronavirus pandemic.
Judge Gonzalez Rogers then brought up a survey that said 39 percent 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 a 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.
Mr. Cook said on Friday that he was “not a gamer,” but he argued that Epic distributed 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 — so Apple cannot have a monopoly.
Judge 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 gray,” she said last week.
Earlier in the trial, Trystan Kosmynka, a senior director at Apple, testified that the company rejected 40 percent of total app submissions in 2020. 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 emails showing times when harmful apps made it past Mr. Kosmynka’s team. One app, which was released during the Black Lives Matter protests over the summer, was a game that allowed users to shoot cannons at protesters.
Apple tried to show why allowing an app store within an app store could be problematic. Its lawyers criticized Epic’s digital storefront for not maintaining tight enough control, saying companies had managed to use it to sell games that they called “offensive and sexualized.”
In an attempt to tie Epic to unsuitable content, 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. 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 fight between the companies began in August, when Epic violated Apple’s rules by circumventing Apple’s payments system in the Fortnite app. Apple removed Fortnite from the App Store, and Epic immediately sued the company and began a promotional campaign around the suit.
On the first day of the trial, Epic’s chief executive, Tim Sweeney, testified that his company had filed suit because he wanted to show the world the consequences of Apple’s policies. Judge Gonzalez Rogers interrupted to ask whether Mr. Sweeney had known about a different developer’s lawsuit against Apple.
Mr. Sweeney said he had.
“And you just ignored that and went on your own,” the judge responded.
The trial will wrap up on Monday, but Judge Gonzalez Rogers said a ruling would probably take months. “Hopefully, before Aug. 13,” she said. She also said her decision would probably be appealed, meaning the trial could be just the first chapter of a longer fight.
Be the first to comment