Editor’s note: Jim Verdonik and Benji Jones are cofounders of Innovate Capital Law and veterans of legal cases involving technology and innovation. They are frequent contributors to WRAL TechWire.
RALEIGH – Crime, politics and protests tend to grab media headlines. But sometimes more complex cases are more important. Take the current case where local hero Epic Games – publisher of the global hit Fortnite – has sued Apple. The trial begins today in a federal court in California.
Apple is the most valuable company in the world judged by public market capitalization. Apple can afford to pay a billion dollars in legal fees.
Benji Jones, left, and Jim Verdonik. (Photo courtesy Innovate Capital Law)
Why would Epic Games, which is privately held and even though valued at more than $28 billion after a recent raise of $1 billion in capital but remains a fraction the size of the $2 trillion-plus company, take on Apple?
Why would Epic founder and CEO Tim Sweeney – North Carolina’s richest individual with a fortune estimated to top $8 billion according to media reports – risk his company?
The financial issues are complex. But the anti-trust and other legal issues are even more complicated.
Let’s try to boil the issues down to things ordinary people are used to dealing with.
Then, we can decide what is true and fair.
Picture this.
You and your family buy a nice house in a convenient neighborhood.
A private road passes by your dream home. This road is the only way to get to your dream home.
After you move in, the real estate developer erects a gate at your neighborhood’s entrance and starts charging people security fees to visit your family. Then the developer charges delivery people 30% of the value of everything you buy online and have delivered.
Related Epic Games-Apple headlines:
Apple CEO ‘confident’ entering anti-trust showdown with Epic Games
European Union accuses Apple of violating antitrust laws through App Store rules
Epic Games accuses Apple of ‘kneecapping’ competition in new complaint
When you complain, the developer says: It’s my road. I’ll charge what I want for anyone or anything that comes in or out.
When a Federal Express driver refuses to pay the toll, the developer bans all Federal Express trucks from your neighborhood.
You and Federal Express sue the real estate toll gatekeeper.
Does that sound crazy?
Couldn’t really happen?
Right?
WRONG!
Stay tuned as a trial in a VERY similar case opens in the Federal District Court in Northern California.
Last year we wrote several articles for WRAL Techwire about how Big Tech (including Apple and Google) are using monopoly power to squeeze profits from their customers and other companies (like EPIC).
The legal system moves slowly, but the opening round of the main event is at hand.
Epic’s basic allegations boil down to that Apple’s 30% commission for sales to Apple customers cannot be explained by anything other than that Apple is using monopoly power to make consumers pay more than they should and to drain profits from software developers like EPIC by:
- Using technology to block sales to Apple device owners outside Apple ‘s App store
- Banning from Apple’s devices all products of developers who work around the technical roadblocks
- Charging an unjustifiable 30% commission for sales through Apple’s App Store
Apple defends by saying that its competitor (Google) charges the same 30% price. So 30% must be the market rate. But, if together Apple and Google control access to 90% of the cell phones in the country, and many other types of devices, does the 30% fee signify market rate or collusion?
Report: Epic Games CEO now North Carolina’s richest person, passing Jim Goodnight
Apple also alleges that it needs to be a gatekeeper to protect Apple customers from hackers and malware. Of course, the real estate developer in my example at the beginning of this article could also claim that it’s gate provides security.
Apple’s primary legal arguments are that anti-trust laws exist to protect consumers, not to protect businesses like apps developers and that Apple knows what is best for consumers, because consumers choose to buy Apple products.
The question about security is whether the security is being sold for free market process or at process dictated by a monopoly.
The old saying is “Keep the eye on the bouncing ball.”
In this case, the bouncing ball is:
- The combined market share of Apple and Google
- The same pricing and device customer access rules
- The other important relationships between Apple and Google that might signal that they cooperate more than they compete.
Google pays Apple over $10 billion each year in exchange for Apple giving Google’s search business priority access to Apple cell phone and other device customers. Does that sound like a competitor? Or does it sound like Google bowing to Apple’s monopoly power?
In seeking answers to these questions, I note that:
- Securities analysts say that revenue from Google is a major revenue source with extremely high margins for Apple that is likely to grow more important in the future as Apple’s device profits decrease. https://www.washingtonpost.com/technology/2020/10/29/apple-google-search-lawsuit/
- Many app developers have testified before Congress that they are scared of the monopoly power of Apple and Google. A few days ago, they testified that they have received threats. Apple and Google deny making threats. https://www.cnbc.com/2021/04/21/google-and-apple-scare-us-app-makers-tell-congress.html
This raises important questions:
- Is Apple really a device manufacturer located primarily in China?
- Or is Apple a hostage taker that sells access to hostage American consumers?
- If you develop a great app, should Apple be able to grab 30% of your revenue, because Apple has erected walls around device owners?
That is the heart of this legal battle.
The essence of justice and good journalism is to search for the truth. But truth is often a scarce commodity that is blurred by conflicting stories (or spin).
CEOs and other executives of companies often explain to the media why they and their companies are innocent, but there are no real penalties for anyone lying to the media and readers.
But courts have more powers than the media:
- Subpoenaing documents
- Witness testimony under oath
- Cross examination
In this case, Tim Cook and other Apple executives will be called to testify under oath, where untruths can cause criminal penalties.
Let’s all watch to see if what they say under oath is exactly what they say to the media.
That will help our search for truth and justice.
This is what makes Epic Games v Apple the Superbowl of court cases.
You decide what is true and just.
As always, WRAL Techwire will provide extensive coverage to help you – a front row seat to the Super Bowl of court cases.
We might even add our opinions from time to time.
Editor’s note: Jim Verdonik and Benji Jones are cofounders of Innovate Capital Law.
