What you need to know
- Day 1 of the Apple vs Epic Games trial is in the books.
- Both parties gave their opening statements and Epic CEO Tim Sweeney took to the stand.
- The first day also saw the court's listen-in line hijacked by callers and some big revelations about the gaming business.
Epic Games trial against Apple over Fortnite, the App Store, iOS, and everything in between got underway yesterday.
As you might expect, day one was very much about setting the scene, with lawyers for both Apple and Epic taking turns to give their opening statements, laying out the arguments they hope to make in favor of their respective positions.
In attendance was Judge Yvonne Gonzalez Rogers (obviously), lead counsel for both Apple and Epic Games, and Epic Games CEO Tim Sweeney, who was first to take the stand. Apple fellow Phil Schiller was also in attendance and is expected to sit through the trial in its entirety.
The trial got off to a bumpy start when the court's listen-in line (which is open to the public) was hijacked by hundreds of people asking the judge to bring back Fortnite on mobile. The line was supposed to be listen-only, so it sounds like someone got their conference call settings wrong:
Start of the Epic v Apple trial appears to be delayed bc no one can figure out how to mute the hundreds of people asking the judge to bring back Fortnite Mobile on the public teleconference line pic.twitter.com/0Rj4Qu5ivHStart of the Epic v Apple trial appears to be delayed bc no one can figure out how to mute the hundreds of people asking the judge to bring back Fortnite Mobile on the public teleconference line pic.twitter.com/0Rj4Qu5ivH— Nicolás Rivero (@NicolasFuRivero) May 3, 2021May 3, 2021
Callers shouted "free Fortnite" and "bring back Fortnite on mobile please judge", with some even playing Travis Scott songs down the line.
Epic Games gave its opening statement first, with attorney Katherine Forrest laying out the basis for Epic's beef with Apple. Forrest talked at length about the iOS App Store and Apple's mobile ecosystem, stating that Apple seeks to lock in users and stop them from switching away from the Apple ecosystem, and that a 30 percent tax was imposed on users every time they made an in-app purchase. She also talked about how Apple had created a "walled garden" that Epic simply wanted access to in order to provide innovation, lower prices, and better customer service.
How much does the App Store make?
One point of contention we got an early glimpse of is the App Store's profitability, Apple says it does not know how much money it makes from its App Store, and that it doesn't track this specific metric. Epic Games says it does know, and that Apple's App Store profit margins were about 75 percent in 2018 and about 77.8 percent in 2019, figures which will be scrutinized both inside and outside the court:
Epic's expert claims the App Store had 78% *operating* margin in 2019.
Epic would say the App Store had 100% operating margins if it came across as believable. Apple's Services business had 64% *gross* margins in '19 and App Store likely one of the least profitable in that mix.Epic's expert claims the App Store had 78% *operating* margin in 2019.
Epic would say the App Store had 100% operating margins if it came across as believable. Apple's Services business had 64% *gross* margins in '19 and App Store likely one of the least profitable in that mix.— Neil Cybart (@neilcybart) May 2, 2021May 2, 2021
Another big issue at stake is the definition of the market. Epic Games argues (and will argue throughout the trial) that iPhone and the iOS ecosystem is in itself a market and as such that Apple has 100 percent monopoly control over that market. Apple will argue that it competes with Android for control of the mobile operating system space, as well as with other gaming platforms like PlayStation and Xbox, Nintendo Switch, and more.
In her opening statement, Forrest touched on this saying that without iOS the iPhone "is glass and metal and nothing else". She further stated consoles were not substitutes for the iPhone, as they (mostly) weren't portable, need Wi-Fi, and need an electrical outlet.
In response, counsel for Apple stated that Epic Games was in court "demanding" the court force Apple to let Epic Games into its App Store, but that its "unwavering commitment to safety, security, reliability, and quality does not allow that" and that antitrust laws don't require it. In a fairly hard-hitting statement Karen Dunn said "Rather than investing in innovation, Epic invested in lawyers, PR and policy consultants all in an effort to get all of the benefits Apple provides for free", further stating that its 30% cut was an industry-standard set by Steam in 2003. Dunn also stated on behalf of Apple that other ecosystems including Sony's PlayStation, Nintendo, and Microsoft would also fail if Epic prevailed in its trial.
Apple also stated "Epic wants us to be Android, but we don't want to be".
The statements of both Apple and Epic reflect arguments both have made for months in the run-up to the trial.
Mid-morning, Epic Games' CEO Tim Sweeney took the stand to give testimony. Questioned by one of Epic's own lawyers, the questions gave Sweeney the chance to lay out his own thoughts on Epic, the App Store, and the dispute at stake in the trial.
Sweeney told the court that Epic had worked with Apple on iOS since 2010 and that they loved it in the early days. However, he said Apple's policies have become more and more restrictive, increasing prices and offering less choice to the point that Apple "was making more profit from selling developer apps in the App Store than developers".
Sweeney laid out some key metrics of Epic and Fortnite's business, stating it had about 400 million users and that iOS was a "vital" platform for its business. He also said that the Epic Games Store, the company's answer to Steam on PC, was expected to become profitable in the next 3-4 years. Court documents recently revealed Epic has poured $444 million into the store and is projected to make a loss of $139 million in 2021.
He also touched on the issue of web apps, and how he believes they are "not nearly powerful enough" to run a game like Fortnite. This touches on an argument of Apple's that developers do have the option not to use its App Store to distribute apps by making web apps instead.
Sweeney also talked about Project Liberty and how the idea began in 2019 stating "We were challenging the two most powerful companies in the world. It would have been foolish to do anything less". On Epic Games' decision to introduce its payment system to the App Store via a hotfix he stated:
Then came the start of Tim Sweeney's cross-examination. Counsel for Apple asked Sweeney a series of questions. For instance, Sweeney was asked if the decision to lower the price of V-bucks when it made the Fortnite payment hotfix change was a PR stunt. Sweeney replied that Epic wanted to demonstrate how removing platform fees would save users money.
He also said that Epic did indeed intentionally choose to breach its contract with Apple, but that he was not certain Fortnite and other games from Epic would be removed from the App Store as a result. Sweeney said he "was aware of the possibility" but hoped Apple "would seriously reconsider its policy then and there".
On the financial success of Fortnite, Sweeney said he attributed a lot of the game's success to the fact that it was free. Epic Games reportedly made $5.1 billion in gross revenue last year and has made $13.1 billion in total revenue from Fortnite alone since its launch in 2017. According to Sweeney, PlayStation is the game's largest revenue generator with about $6 billion of the aforementioned $13.1 billion, then Xbox ($3.5bn) and Nintendo Switch ($1.1bn). Sweeney was also asked how often users switched platforms, and an email was presented as evidence stating Fortnite players who play on mobile were the most likely to play on other platforms as well.
The court closed to allow private discussion of Epic Games' contract with Samsung, finishing up shortly after 3 PM PT.
On Tuesday, Sweeney's cross-examination will continue, before Epic Games engineer Andrew Grant is called to testify.
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Stephen Warwick has written about Apple for five years at iMore and previously elsewhere. He covers all of iMore's latest breaking news regarding all of Apple's products and services, both hardware and software. Stephen has interviewed industry experts in a range of fields including finance, litigation, security, and more. He also specializes in curating and reviewing audio hardware and has experience beyond journalism in sound engineering, production, and design.
Before becoming a writer Stephen studied Ancient History at University and also worked at Apple for more than two years. Stephen is also a host on the iMore show, a weekly podcast recorded live that discusses the latest in breaking Apple news, as well as featuring fun trivia about all things Apple. Follow him on Twitter @stephenwarwick9
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