Antitrust battle over iPhone app store goes to appeals court

SAN FRANCISCO– Apple is heading into a courtroom standoff against the company behind the popular Fortnite video game, reviving a high-stakes cartel fight over whether the digital fortress protecting the iPhone’s App Store is illegally enriching the world’s most valuable company while also thwarting competition suffocated.

Oral hearings Monday before three judges of the Ninth Circuit Court of Appeals are the latest volley in a lawsuit centered around an app store that offers a wide range of products for more than 1 billion iPhones and as a pillar in Apple’s $2.4 trillion Empire serves.

A dispute that will probably remain unresolved for a long time. After hearing Monday’s arguments in San Francisco, the appeals court is not expected to rule for another six months to a year. The issue is so important to both companies that the losing side is likely to take the fight to the U.S. Supreme Court, a process that could take as long as 2024 or 2025.

The dispute dates back to August 2020 when Epic Games, the maker of Fortnite, filed an antitrust lawsuit to erase the walls that have given Apple exclusive control of the iPhone App Store since its inception 14 years ago.

This ironclad control of the App Store has allowed Apple to charge commissions that get it a 15% to 30% cut of purchases on digital services sold by other companies. By some estimates, those commissions pay Apple $15 billion to $20 billion annually — revenue that the Cupertino, Calif.-based company says helps defray the cost of the technology for the iPhone and a store that’s now mostly worth nearly $2 million contains free apps.

US District Judge Barbara Gonzalez Rogers sided almost entirely with Apple in a 185-page ruling issued 13 months ago. This was followed by a closely watched trial that included testimonies from Apple CEO Tim Cook and Epic CEO Tim Sweeney, as well as other top executives.

Despite stating that Apple’s exclusive control over iPhone apps isn’t a monopoly, Gonzalez Rogers opened up a loophole that Apple wants to fill. The judge ordered Apple to allow apps to provide links to payment alternatives outside of the App Store, a requirement that was deferred pending the appeals court’s decision.

Monday’s arguments are expected to start with Epic attorney Thomas Goldstein attempting to convince the trio of judges — Sidney R. Thomas, Milan D. Smith Jr. and Michael J. McShane — why Gonzalez Rogers should take the iPhone App Store and the payment should have been seen as clearly separate markets rather than merging them.

A Justice Department attorney will also have an opportunity to explain why the agency believes that Gonzalez Rogers interpreted the federal antitrust law too narrowly, jeopardizing future enforcement action against potentially anticompetitive behavior in the technology industry. While the department is technically not taking sides, its arguments are expected to help Epic make its case that the appeals court should overturn the lower court’s decision.

Another lawyer for the California Attorney General’s Office will present arguments in defense of the law, which Gonzalez Rogers cited when he asked Apple to provide links to alternative payment options outside of its app store.

Apple attorney Mark Perry will be given the opportunity to make the final arguments, giving him an opportunity to tailor a presentation aimed at answering some of the questions the judges might ask the attorneys before him.

Much of what Perry says will likely reflect the successful case Apple presented in the lower court.

During his testimony in a lower court, Cook argued that Apple would be forced to allow alternative payment systems that would weaken security and privacy controls valued by consumers who buy iPhones instead of devices running Google’s Android software. That scenario would create “a toxic mess,” Cook warned on the witness stand.

Even as he railed against Apple’s ironclad grip on the App Store, Sweeney admitted that he owns an iPhone, in part for its security and privacy features.