Consider This from NPR - Fortnite Trial Tests Apple's 'Good Guy' Reputation

Episode Date: May 26, 2021

Apple has always wanted to be one of the good guys in tech. But now a high-stakes lawsuit with Epic Games, the creator of the hit video game Fortnite, isn't just challenging Apple's reputation. It's raising questions about whether the most valuable company in the world has grown into an illegal monopoly.NPR's Bobby Allyn reports on the federal trial that led to Apple CEO Tim Cook taking the stand last week to defend his company. And Sally Hubbard, who researches monopolies, explains how Apple's control over its app store reminds her of past antitrust violations from Microsoft and AT&T. In participating regions, you'll also hear a local news segment that will help you make sense of what's going on in your community.Email us at [e-mail] more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Last spring, in the early days of the pandemic, Jared Gay started a new kind of weekly ritual. I would settle into my couch. I'd pull up my iPad. I'd FaceTime them. Jared was working from his apartment in Brooklyn. Like many of us, he was feeling extremely stir-crazy. And so he figured out a way to hang out with some friends in L.A. You know, we'd just be sitting there having a conversation while I'm playing Fortnite on my iPad. Fortnite, the wildly popular online video game where players land on an island, fight it out, and the last one standing wins. When you're playing a game like that consistently enough, it does start to actually feel kind of appealing to like, you know, change up your look. This is an important part of what we're going to talk about today.

Fortnite is free for anyone who has a console or software to download it. So one way they make money is by selling outfits or skins as they're called. You can play as Thor from Avengers or a giant banana wearing a suit named Agent Peely. There are a lot of these skins. And you can buy other accessories, even dance moves called emotes. Like Drake's Toosie Slide. Unknown to players like Jared, because he was playing on an iPad, Apple would have taken a 30% cut of any skin or emote he purchased. But before he could change up his look, he and everyone else playing on an Apple device got a message last August.

Fortnite would no longer be updating their software. And then slowly you notice that like, you know, you're just playing the same map over and over and over. Fortnite's parent company, Epic Games, said they wouldn't pay what they call the Apple tax anymore. So Apple pulled the game from the App Store. And then Epic took them to federal court. Consider this. Apple has always wanted to be one of the good guys in tech. But now a high-stakes lawsuit over dance moves and superhero outfits

isn't just challenging Apple's reputation. It's raising questions about whether the most valuable company in the world has grown into an illegal monopoly. From NPR, I'm Adi Oracle. The bigger your company grows, the faster you sync with outdated software. Right now, NetSuite is offering a one-of-a-kind special financing program. Go to netsuite.com slash consider to learn more. This message comes from NPR sponsor Deloitte, offering sector-specific perspectives for financial, manufacturing, and other industries to help businesses reopen and recover confidently. Available at Deloitte.com slash U.S. slash COVID-19. An officer pins a 16-year-old to the ground and punches out his

teeth. But are there any consequences for the cop? For the first time, we take you inside the secret investigations that show how police protections in California shield officers from accountability. Listen to On Our Watch, a podcast from NPR and KQED. It's Consider This from NPR. There's a famous commercial that Apple released back in the 80s. It was directed by Ridley Scott and inspired by the dystopian novel 1984. So picture it. You see rows and rows of people with shaved heads, drab clothing. They're watching a giant screen. And the man on that screen, Big Brother, is

barking propaganda. And then a blonde woman in a white tank top and red running shorts charges up the center aisle right up to the screen and hurls a giant sledgehammer through it. On January 24th, Apple Computer will introduce Macintosh. And you'll see why 1984 won't be like 1984. It is now 1984. At the time, Apple creator Steve Jobs explained the symbolism this way. It appears IBM wants it all. Painting IBM as a controlling, Big Brother-style monopoly. Apple is perceived to be the only hope to offer IBM a run for its money.

Now it's Apple's turn, with Epic Games last year publicizing their version of that 1984 commercial. This time, the talking head was a giant talking apple. Our profits, our control. giant talking Apple. Text on the screen reads, Epic Games has defied the App Store monopoly. In retaliation, Apple is blocking Fortnite from a billion devices. Hashtag free Fortnite. These stores are making a lot more money from creative works than the creators. Epic Games CEO Tim Sweeney says there could be terrible consequences if the power of big tech companies goes unchecked. It's going to be one of the worst dystopias you can imagine from the science fiction literature with a few corporations

controlling not just digital items and games, but everything. When it comes to the war against Apple, I mean, he wants to go all out. NPR reporter Bobby Allen has been covering this trial, and he spent some one-on-one time with Epic's CEO last year. Tim Sweeney, yes, wants gamers to be able to process payments through his system, not Apple's. But he says he's taking this fight on on behalf of lots and lots of small developers who feel like they don't have the wherewithal and they don't, frankly, have the courage to take on Apple. Last week in an Oakland courtroom, Apple CEO Tim Cook, yes, another Tim, had a chance to defend himself and his company's app store from the witness stand. Bobby Allen was listening in, and I spoke with him right after.

Yeah, Cook defended these fees. He says, you ever notice when you're on an iPhone that it's just less buggy and has less malware than maybe some other devices? He says that is because Apple has a very rigorous review process, and it's paid for by these fees. Cook says it's all about maintaining Apple's high bar for data privacy and for safety. One thing that we are hearing from Tim Cook, from Apple's defense, is like, look, what we charge for the App Store, our commission, that 30% number is industry standard. It's going to happen to you if you have products with Microsoft or Nintendo or Sony. They are saying they're being singled out. Exactly. And, you know, the iPhone is just a very distinct

product. The amount of control that Apple has over every single part of the iPhone just pales in comparison to a console. So he's sticking by going after Apple, singling out Apple. What kind of fear is there out there that Apple might retaliate or somehow go against app developers because the silence is deafening around Epic in this battle. They seem to be kind of going it alone. That's right. Now, developers have whispered, you know, for more than a decade about negotiating with Apple over this fee and often trying and failing. And the fear of retaliation is real. Now, Tim Cook was asked when he sat as a witness in a Senate congressional hearing whether or not Apple bullies developers, whether or not Apple does retaliate if a developer speaks out. And of course, he said,

no, we don't do that. We would never do that. But it's just not worth the risk. I mean, think about it. If you're a small developer and you want to get your app into the hands of consumers and you want to get it on iPhones, what is in it for you to criticize Apple publicly? Bobby, it seems like this kind of gets at Apple's overall image. Like they've always tried to protect this reputation as the good guy in big tech. Can you talk more about that part? Yeah. So out here in Silicon Valley, you know, there's lots of bad publicity around Google and Facebook over a host of practices. Apple is seen as sort of the more idealistic counterpart. I mean,

they are enormous. They're a $2 trillion company, the most valuable company in the world. But for the most part, they avoid the sort of drubbing in the press that some of their big tech peers are subject to. But this trial has come amid government scrutiny around the world, from Japan to the European Commission to Australia, looking at Apple as a possible monopoly. And this is really indicating that the walls are sort of closing in on Apple. Now, whether or not this is going to result in the judge, you know, making Apple really shake up its business practices, that remains to be seen. But without a doubt, Adi, I mean, this trial, this whole process that happened inside of the courtroom has given Apple a bit of a PR crisis.

NPR business reporter Bobby Allen. This lawsuit has already had a ripple effect. Last fall, Apple announced that app developers making less than a million dollars a year will be charged a 15% fee, half the normal rate. But when this came up at the end of Tim Cook's testimony, the judge in the trial, Yvonne Gonzalez-Rogers, she didn't seem impressed. She said this was clearly a response to the lawsuit, and this is important, said it did nothing to introduce real competition into the app store. The judge's verdict will come sometime in the next few months. Apple clearly controls everything about its App Store. But if you own a smartphone made by another company, you don't use the Apple App Store at all. So if there are other app stores out there,

does Apple really have a monopoly? A monopoly is not just the only company doing something, which is kind of the common understanding. Sally Hubbard is director of enforcement strategy at Open Markets Institute. And to give you a sense of her position on this is the author of a book called Monopolies Suck. Under the law, actually, a monopoly is any company that has the power to control prices or exclude competition. When it comes to established antitrust laws in the U.S., Hubbard thinks Epic Games has a solid argument. She thinks these app store fees that Apple charges are evidence of monopoly power. She told us why. If you're a developer of apps or a small business or any business that wants to have an app, you have no choice but to go through Apple because Apple is responsible for two thirds of all app store revenue worldwide.

If you had a lot of different phones, a lot of different app stores, and you could make living by, you know, offering your app through, you know, competitive app stores, then it would be less of a problem. So how does this compare to big tech companies in the past, say Microsoft, right, during the 90s with its operating system for desktop computers? Yeah, it's very similar to what Microsoft did. It was the only operating system that makers of PC computers could use. So it had like a 95% market share. And it did the same thing that Apple did. It said, okay, we control the operating system. So we're not going to allow there to be competition in the market for browsers. We are going to squash the Netscape Navigator browser by telling the computer makers that they cannot install that browser.

They can only install Internet Explorer. And so what we see there is they're not competing against Netscape Navigator to be the best by offering consumers the best browser and the most innovation. They're just using their muscle as the monopolist of the operating system to squash any competition. And that's exactly what Apple is doing. Is this a little different in that in that case, they were trying to, they use their muscle to tell someone else in the market what to do. Whereas at the end of the day, it's Apple's store. You know, that's a slight difference. You know, you might want to think also about the AT&T case, which was very similar. And that was from the 1980s. You know, AT&T had a monopoly on phone service. And so it said that anything that connects to our phone service must be AT&T. You have to use an AT&T phone because you're using the AT&T phone service.

And it was the Department of Justice and the FCC that intervened and said, no, any phone maker can come in and interconnect with the AT&T phone network. And what we saw as a result of that government intervention was a tremendous burst of innovation. And I often think that if we hadn't had that kind of intervention, maybe we'd still be all talking on phones attached to our walls, right? Sally Hubbard, Director of Enforcement Strategy at Open Markets Institute.

You're listening to Consider This from NPR. I'm Adi Cornish.