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    AAPL   US0378331005

APPLE INC.

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Apple's Tim Cook Takes Witness Stand in Antitrust Fight -- 5th Update

05/21/2021 | 01:17pm EDT

By Tim Higgins

Apple Inc. Chief Executive Tim Cook took the witness stand Friday in a court battle that could decide a key pillar of his growth strategy for the company, arguing that opening up the iPhone to rival app stores would hinder users.

He came to rebut claims by "Fortnite" creator Epic Games Inc. that the tech giant is a monopolist, in a closely watched case that could reverberate around the world as lawmakers and regulators question the might of the world's most valuable company.

"We're not thinking about the money at all, we're thinking about the user," Mr. Cook said.

With the bench trial in Oakland, Calif., nearing its expected end on Monday, Mr. Cook followed other Apple executives this week who tried to counter arguments by Epic that Apple improperly prohibits competing app stores on the iPhone and forces in-app purchases for digital payments through its own system that takes as much as a 30% cut.

Mr. Cook began testifying around 8:15 a.m. local time by discussing Apple's commitment to security and privacy -- a familiar theme for the CEO -- and his belief that third-party developers with their own app stores aren't motivated to match the level of user protection that Apple provides with its App Store.

He noted that Apple reviews about 100,000 apps a week and rejects about 40,000 for various reasons.

"You can imagine if you turned the review off how long that it would take the App Store to just become a toxic kind of mess," Mr. Cook said. "It would be terrible for the user, but it also would be terrible for the developer because the developer depends on the store being a safe and trusted place where customers want to come and feel good about transacting."

Apple's case that it isn't a monopoly has relied on citing Android phones, personal computers and videogame consoles as examples of how it isn't the only way for Epic to distribute its "Fortnite" game, and underscoring that other platforms collect a similar commission.

Mr. Cook said that Apple faced "fierce" competition from Alphabet Inc.'s Google, Samsung Electronics Co. and others and emphasized how much economic value his company's investment in the app economy has created for developers -- an assertion fitting claims from Apple's lawyers that the company's fees are fair.

"It's been an economic miracle," he said.

Mr. Cook's testimony will be scrutinized well beyond the courtroom as Apple faces increasing threats from lawmakers and regulators around the world examining the power it has over third-party software developers.

Approaching his 10th anniversary as CEO, Mr. Cook's strategy for Apple involves expanding its digital offerings to offset past slow iPhone sales. A topic that arose during Mr. Cook's testimony and that of others deals with the profit Apple makes from the App Store.

Epic court records refer to internal emails to Mr. Cook estimating the profit margin for Apple's App Store at almost 80%, figures that the games company supplemented with its own expert analysis.

Apple has disputed the figures and said it doesn't separate out the store's profitability or account for its business operations in that way.

Epic lawyers have latched on to the figure as part of an effort to bolster its claim that Apple is making outsize profits on the backs of developers.

During his testimony, Mr. Cook described how Apple has focused on a companywide calculation for profitability rather than by individual product since the days when the late Steve Jobs returned as CEO. He also disputed claims that the document referred to by Epic showed fully burdened operating margin for the App Store.

Mr. Cook defended the company's in-app payment system, saying its use is important for billing developers. Without it, he said, "It would be a mess."

During the cross-examination by Epic lawyer Gary Bornstein, Mr. Cook faced question after question about the financials of the App Store and company.

He insisted Apple's decisions aren't about money and avoided most discussion about its profitability. Asked about Apple's multibillion-dollar deal that makes Google the default search engine on iPhones, he insisted: "It's still in the best interest of the user."

"Sir, it's a very lucrative arrangement for Apple," Mr. Bornstein said. "Am I right about that?"

Said Mr. Cook: "They pay us money."

Mr. Bornstein then turned to what he called public information that the government said Google paid Apple upward of $10 billion. In October, the Department of Justice filed an antitrust lawsuit against Google that, in part, claimed the search engine was paying between $8 billion and $12 billion annually for the arrangement. Apple wasn't accused of wrongdoing in that case.

"I don't remember the exact number," Mr. Cook responded. Asked if it was upward of $10 billion, Mr. Cook said he didn't know.

Mr. Cook's comments about security addressed an ongoing dispute between the two sides deals with the security of the iPhone. Epic is arguing that Apple has exaggerated the extent to which the app-review process makes iPhones safer for users, and that it instead is a pretense for blocking third-party app stores. Apple has countered that the app-store review is but one layer of security that gives its system laudable safety and reliability.

Over the years, Mr. Cook has often spoken publicly about the security and privacy of Apple's iPhones. Apple's decision to put its CEO on the witness stand, in what was his first time testifying in a trial, underscored the company's confidence in his ability to deliver a message to the judge, who will be deciding the case.

His testimony put Mr. Cook in the same courtroom as rival Tim Sweeney, the co-founder and CEO of Epic, who has attended the trial each day

Mr. Sweeney took the witness stand during the trial's first week, describing how Epic violated Apple's app-store rules in order to show the power the iPhone maker wields. "Apple was making more profit from selling developer apps in the App Store than developers," Mr. Sweeney testified on the trial's opening day.

Epic filed its lawsuit against Apple in August after the iPhone maker kicked "Fortnite" out of the App Store for violating its rules. Epic's team had created an in-app payment system aimed at circumventing Apple's and sneaked it into "Fortnite" that month.

On the stand Friday, Mr. Cook said the return of "Fortnite" to the App Store would benefit the user -- if Epic followed Apple's rules. "The user is caught between two companies," he said. "It's not the right thing to do with the user."

Write to Tim Higgins at Tim.Higgins@WSJ.com

(END) Dow Jones Newswires

05-21-21 1517ET

Stocks mentioned in the article
ChangeLast1st jan.
ALPHABET INC. -1.96% 2816 Delayed Quote.60.67%
APPLE INC. -1.83% 146.06 Delayed Quote.10.08%
DJ INDUSTRIAL -0.48% 34584.88 Delayed Quote.13.54%
SAMSUNG ELECTRONICS CO., LTD. 1.45% 77200 End-of-day quote.-4.69%
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Analyst Recommendations on APPLE INC.
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Financials (USD)
Sales 2021 366 B - -
Net income 2021 93 853 M - -
Net cash 2021 78 438 M - -
P/E ratio 2021 26,2x
Yield 2021 0,59%
Capitalization 2 414 B 2 414 B -
EV / Sales 2021 6,38x
EV / Sales 2022 6,17x
Nbr of Employees 147 000
Free-Float 99,0%
Chart APPLE INC.
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Apple Inc. Technical Analysis Chart | AAPL | US0378331005 | MarketScreener
Technical analysis trends APPLE INC.
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TrendsNeutralBullishBullish
Income Statement Evolution
Consensus
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Mean consensus BUY
Number of Analysts 44
Last Close Price 146,06 $
Average target price 165,36 $
Spread / Average Target 13,2%
EPS Revisions
Managers and Directors
Timothy Donald Cook Chief Executive Officer & Director
Luca Maestri Chief Financial Officer & Senior Vice President
Arthur D. Levinson Independent Chairman
Kevin M. Lynch Vice President-Technology
Jeffrey E. Williams Chief Operating Officer
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