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Apple CEO Faces Difficult App Store Competition Questions

Apple CEO Faces Difficult App Store Competition Questions

SAN RAMON, Calif. (AP) — Apple CEO Tim Cook described the company's ironclad control over its mobile app store as the best way to serve and protect iPhone users, but he faced tough questions about competition issues from a judge Friday in response to allegations that he oversees an illegal monopoly.

The rare courtroom appearance by one of the world's most well-known executives came at the end of a three-week trial centered on an antitrust case brought by Epic Games, the creators of the popular video game Fortnite.

Epic is attempting to demolish the so-called "walled garden" for iPhone and iPad apps, which welcomes users and developers while barring competition. Created by Apple co-founder Steve Jobs a year after the iPhone's 2007 debut, the App Store has become a key revenue source for Apple, helping the company to a $57 billion profit in its most recent fiscal year.

The trial focuses on Epic's claim that Apple has turned its app store into a price-gouging machine that not only reaps a 15% to 30% commission on in-app transactions, but also prohibits apps from offering other payment options, including showing a link that would open a web page offering commission-free ways to pay for subscriptions, in-game items, and the like.

Cook delivered polished remarks that occasionally sounded like a commercial for the iPhone and other Apple products while being questioned by a company lawyer.

However, the normally unflappable CEO appeared flustered while being grilled by Epic lawyer Gary Bornstein, especially when pressed about the level of profits in a store that Jobs initially thought would be lucky to break even. He also appeared to stumble slightly when Bornstein confronted him about a deal in China that could compromise user privacy, even as the deal was still being negotiated.

Cook, on the other hand, never wavered during nearly four hours of testimony from his position that Apple's hold on the app store allows it to keep things simple for a loyal customer base that buys iPhones knowing they're getting "something that just works."

“When they buy an iPhone, they buy into an entire ecosystem,” Cook said in an Oakland, California, courtroom with limited access due to the pandemic.

The federal judge who will hear the case did not appear to be convinced by everything Cook said on the stand.

After the lawyers finished questioning, U.S. District Judge Yvonne Gonzalez Rogers asked why Apple can't allow rival stores to offer an in-app transaction option on iPhones, iPads, and iPods that might charge lower commissions, something Epic is fighting to make happen, partly because it still has an unprofitable store that charges a 12% commission.

Gonzalez Rogers was particularly troubled by a survey that found 39% of iPhone app developers are dissatisfied with the current distribution system, and she questioned the fairness of a commission system that requires video game makers to pay the majority of the commissions, while digital services offered in other industries, such as banking, pay nothing, despite the fact that they use the technology.

“The gaming industry appears to be generating a disproportionate amount of money relative to the (intellectual property) that you are giving them and everyone else? It’s almost as if they are subsidizing everybody else,” Gonzalez Rogers said.

Cook agreed on the subsidy, but insisted that there is still a fair balance because video game makers are able to reach a wider audience of consumers who become players while browsing the store for other apps, and he disputed the notion that most app makers are unhappy with the store's current setup.

Cook explained, "We flip the place upside down for developers."

Gonzalez Rogers also didn't buy Apple's explanation for lowering its commission on in-app commissions to 15% on the first $1 million in revenue last year. Although the price cut came after Epic filed its antitrust case in August, Apple said the discount was motivated by a desire to help during a pandemic-driven recession.

“At least from what I've seen so far, that wasn't the result of competition, (but) the pressure you were feeling,” Gonzalez Rogers told Cook. Apple's app store practices are being investigated by regulators and lawmakers in the United States and Europe, while Epic pursues its case.

Gonzalez Rogers is expected to elaborate on issues that are still bothering her Monday, when she plans to question lawyers on both sides as they make their final arguments before she takes the case under submission. The judge said she hopes to release her decision before Aug. 13 in a written ruling that could reshape the technology landscape.

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