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Apple chief executive to appear in court in defence of app store

Apple chief executive Tim Cook (Apple/PA)
Michael Liedtke, Associated Press

Apple chief executive Tim Cook will appear in court today to defend the company’s iPhone app store against charges that it has grown into an illegal monopoly – one far more profitable than his predecessor Steve Jobs envisioned when it opened up 13 years ago.

The technology company is counting on Mr Cook’s appearance to put the finishing touches to Apple’s defence against a case brought by Epic Games, maker of the popular video game Fortnite.

Epic is trying to topple the so-called “walled garden” for iPhone and iPad apps that welcomes users and developers while keeping competition out.

Created by Mr Jobs a year after the iPhone’s 2007 debut, the App Store has become a key revenue source for Apple, a money-making machine that helped power the company to a 57 billion dollar (£40 billion) profit in its last fiscal year.

Epic is trying to prove that the store has morphed into a price-gouging vehicle that not only reaps a 15% to 30% commission from in-app transactions, but blocks apps from offering other payment alternatives.

That extends to just showing a link that would open a web page offering commission-free ways to pay for things like subscriptions and in-game items.

Apple fiercely defends the commissions as a fair way for app makers to help pay for innovations and security controls that have benefited both iPhone users and app developers, including Epic.

Apple says it has invested more than 100 billion dollars (£70 billion) in such features.

It also argues that App Store commissions mirror fees charged by major video game consoles – Sony’s PlayStation, Microsoft’s Xbox and Nintendo’s Switch – as well as a similar app store run by Google for more than three billion mobile Android devices.

That is roughly twice the number of active iPhones, iPads and iPods that rely on Apple’s store for apps.

Apple’s ironclad control over the App Store is already under investigation by regulators in Europe and the US.

Epic lawyers are expected to spend several hours grilling Mr Cook. The questioning is likely to dissect the strategies he has drawn up since taking the chief executive job nearly a decade ago, just a few months before Mr Jobs died of cancer in October 2011.

The App Store ranks among Apple’s biggest successes during Mr Cook’s reign.

Since beginning with just 500 apps in 2008 the store has ballooned to 1.8 million apps, most of which are free.

Apple has drawn upon its commissions and exclusive in-app payment system to help more than double the annual revenue of its services division from 24 billion dollars (£17 billion) in fiscal 2016 to 54 billion dollars (£38 billion) last year.

This boom was not something Mr Jobs foresaw. Shortly after the store opened, he publicly said Apple did not expect the App Store to be very lucrative.

Epic’s lawyers have repeatedly cited those comments as evidence that Apple reshaped the store to fuel its earnings growth once the popularity of mobile apps became clear.

Exactly how profitable the App Store is has been a point of contention throughout the three-week trial.

An accounting expert hired by Epic estimated that its profit margins range from 70% to 80%, based on a review of confidential Apple documents.

But Apple has insisted those numbers are not accurate because they do not reflect expenses spread throughout the company’s operations.

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