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The Apple vs. Epic Games antitrust trial closed today with out closing arguments. Rather, the federal judge grilled each sides on the information of the case and competitors law.
It was a lot significantly less dramatic than other trials, but it did give a lot of insight into the thoughts of the U.S. District Court judge Yvonne Gonzalez Rogers, who asked queries that revealed either her considering or her devil’s advocacy.
Epic’s lawyer Gary Bornstein and Apple’s lawyer Dan Swanson (and quite a few other lawyers) have been on the hot seat, with the judge asking them queries and commenting on their answers in actual time — some thing that you do not anticipate to see in corporate circumstances exactly where testimony and arguments are usually heavily scripted. Both attorneys agreed that the definition of the relevant market place for antitrust purposes and the feasible treatments have been the most vital subjects for the final Q&A.
In antitrust trials, the definition of the relevant market place is crucial due to the fact it is used to measure no matter if a organization has monopoly energy or not. Since Apple has a smaller percentage of the all round game market place (versus Android, console, and Computer games), it can not be mentioned to have monopoly energy in games. But if the relevant market place is defined as iOS games, then the predicament is unique as developers are at Apple’s mercy and it is theoretically not so quick for either developers or customers to switch to other platforms.
As for treatments, the discussion was fresh. Epic Games desires Apple’s anticompetitive behavior to be curtailed but it hasn’t asked for any distinct damages. Apple desires to preserve the status quo, exactly where it has the appropriate to make crucial choices about the App Store and payment systems for in-app purchases.
Epic’s Bornstein mentioned Apple can charge for apps in its App Store but cannot structure its company in an anticompetitive way on in-app payments and restrictive app distribution practices. The proposed remedy is to place an finish to these restrictions.
As we saw with Gonzalez Rogers’ overall performance on Friday, when she quizzed Apple CEO Tim Cook pointedly for 10 minutes as 3 weeks of testimony wrapped up, the queries from the judge gave us a window into what the judge has been considering about as she listened to the witnesses. We do not know if her queries showed a bias in favor of any individual, or if she was playing devil’s advocate in the federal courtroom for the Northern District of California in Oakland. (Like most followers of the case, I listened to the get in touch with on an audio conference get in touch with).
“It seemed like the judge was somewhat uncomfortable with the amount of market power that that Apple had, or at least with the fact that they didn’t seem to have to compete on some level and in terms of price and in terms of responding to developer criticisms,” mentioned Valarie Williams, an antitrust lawyer who is not element of the case, in an interview with GamesBeat.
Williams, a companion with Alston & Bird’s Antitrust Practice group, mentioned, “I don’t know how it’s going to come out but I came away convinced that Epic had made the case that Apple has some level of market power that was not being constrained by competition. I think probably Apple was fairly confident going into this, that they were going to win based on the law. And they may still be. But I would think they’ve got to be a little bit more concerned at this point, given all the questions that she asked.”
Opening salvos for relevant markets
In its opening argument, Epic mentioned Apple no longer earns the 30% charge it has charged considering that the launch of the App Store, and that Apple need to not get a royalty each and every time somebody tends to make a obtain in a game they have currently downloaded. Epic compared this to Apple receiving a share of the obtain price tag of a car or truck and then receiving a 30% share of revenue paid for gas for the car or truck each and every time the driver refuels.
During the closing session, the judge started with a focus on the foremarket, or the competitors for smartphones, and the aftermarket, the competitors for in-app purchases. Both sides mentioned the market place was two-sided, exactly where customers have some selection more than deciding on phones and developers have a selection more than the shops they will use. Apple argues there is a lot of competitors amongst devices.
“There is no substitute for getting the Fortnite app,” mentioned Bornstein, unless there have been an option app shop readily available on the iPhone or if direct sideloading was permitted. Apple at the moment does not let other app shops and it does not let sideloading from an app. (It does let sideloading through the Safari net browser). Epic has argued that the net practical experience is restricted and there is as well significantly friction to make it quick for players.
Gonzalez Rogers mentioned in reply, “Your formulation seems to ignore the reality that customers choose an ecosystem, right? If you buy the Xbox or you buy into a variety of these particular walled-off gardens, you know that that’s what you’re buying into and you choose to make that decision.”
The judge mentioned there appears to be competitors and that is a dynamic region now, as competitors is very good and people today are figuring out approaches to access customer possibilities. But she noted your “economic substitutes destroy that consumer choice.”
Bornstein elaborated on that considering by saying people today are not conscious of the sort of charges they incur inside the app shop, as they are conscious they may well be paying $1,000 for an iPhone but may well not be conscious that they are paying 30% of their in-app purchases to Apple for life.
But the judge butted in once again and mentioned she hasn’t seen proof that people today are creating uninformed possibilities.
“They’re two different ecosystems that they’re moving into,” she mentioned, and customers know this. But Bornstein disagreed and mentioned prospects are not terribly conscious of these “downstream costs.” The judge mentioned they wouldn’t assume about it due to the fact the charges are all the similar in between iOS and Android relating to the 30% commission.
But Bornstein mentioned that if one platform changed its commission from 30% to some thing reduce, there is tiny explanation to think this would trigger somebody to switch platforms. And Apple’s Swanson weighed in that it didn’t matter as the proof shows that iPhone owners all have a “boatload of devices.”
As if to reduce down the Apple lawyer, the judge mentioned, “The 30% number has been there since the inception. And if there was real competition, that number would move. And it hasn’t.”
She added, “If the relevant market here includes developer-side competition, so far there doesn’t seem to be anything that is in the market itself that is pressuring Apple to compete for developers.”
Competition or not?
Swanson mentioned the rates have changed. Subscriptions in the second year have commissions that go down from 30% to 15%, and as of this year smaller enterprises are charged 15% alternatively of 30%. But the judge noted that Apple made that modify just after it got into antitrust problems. Swanson noted that the rates for commissions have in no way gone up, as can occur when a firm has a monopoly.
He also noted that Apple innovated. It enabled new types of games (like Fortnite) to run on the iPhone as it raised the excellent of the hardware, creating iOS games competitive with console and Computer games, Swanson mentioned.
Last Friday, though questioning Cook, the judge noted that it appears that Apple is placing the burden of paying for the charges of the shop and other investments on the backs of the game developers in a disproportionate way.
“It’s almost as if they’re subsidizing everybody else,” Gonzalez Rogers mentioned.
Replying to that argument, Apple’s Swanson mentioned, that it may well not look fair that some people today are paying more than other people in terms of a royalty charge, but he mentioned that does not imply an absence of competitors in the market place. The judge noted that Apple is getting sued by lots of developers, not just Epic. Swanson noted that Apple is creating the similar 30% charge that other people shops like Steam make.
Of course, we do not know if Apple is creating “monopoly profits” in its app shop, as Cook and other Apple executives testified that they did not know how significantly revenue the App Store tends to make. Epic’s legal specialist estimated that Apple’s profit margin on the App Store was 78%. Apple mentioned that was incorrect, but provided no quantity.
“The numbers are the numbers, and the numbers don’t lie,” Bornstein mentioned.
Epic’s Bornstein mentioned that Apple does not really feel the competitors, as there was only one occasion back in 2011 when executive Phil Schiller brought up the possibility of lowering the App Store commission.
The judge shot back, “But you can’t ignore the quality issue.” She noted Epic CEO Tim Sweeney acknowledged that the iPhone supports lots of more games now than it could just before, based on that excellent of the hardware. Bornstein mentioned that though Apple may well innovate with the iPhone to sell more iPhones, it does not innovate on the App Store itself.
Mobile gaming market place
But the judge noted that the iPhone market place assists developers with items (like featuring games and offering access to application programming interfaces (APIs).
The judge asked Apple what would occur if she defined the relevant market place as the mobile game market place.
“That would make me very sad,” mentioned Apple lawyer Swanson.
Epic’s Bornstein preferred that definition, but he didn’t want the Nintendo Switch to be incorporated in the definition of mobile games, as the games on the Switch are extremely unique and it does not have a cellular connection all the time. The judge noted that the iPad usually does not have a cellular connection.
One explanation for Apple’s answer is that Epic Games showed that when it comes to Fortnite, most of its $631 million in income came from iOS, though only $47 million came from Android for a related quantity of downloads, about 80 million. That represents a monopoly market place share in Epic’s view. The judge indicated she was pleased with the relevant market place getting mobile gaming.
As for anticompetitive conduct, Gonzalez Rogers mentioned that California had a case that was a feasible legal precedent, as it noted that violating the “spirit of the antitrust laws” can be a difficulty even with out a strict definition of a classic monopoly beneath the U.S. Sherman Antitrust Act. In that case, Apple could possibly be discovered violating the spirit of antitrust laws in California.
They also discussed the Federal Trade Commission versus Qualcomm, a case exactly where an appeals court reversed a victory for the FTC. The appeals court discovered that the FTC didn’t prove that Qualcomm’s policies didn’t outcome in a unfavorable impact on customers in the relevant market place.
The query is no matter if a significantly less restrictive option behavior would have made the outcomes Apple wanted though getting significantly less anticompetitive. And the judge noted antitrust law focuses on aggregate markets, not person providers.
As for Apple’s conduct that hurts competitors, Bornstein raised complaints that developers of totally free apps do not have to spend commissions, even if they reap ad revenues. Rogers herself brought this up on Friday though grilling Cook.
Apple’s second lawyer, Veronica Moye, provided a rebuttal to a 2017 survey the judge brought up on Friday exactly where she saw that 39% of Apple’s developers on iOS have been unhappy with Apple. Swanson made a study that showed the quantity was significantly reduce at 22%. Swanson mentioned devs have been nevertheless pleased with the App Store. Williams mentioned that the judge may well see this vital as Apple’s conduct is not constrained by competitors and the developer unhappiness is a sign of Apple throwing about its weight.
Moye noted how Apple changed commissions on its personal, leaving out the truth that Epic sued and then Apple gave the discount to smaller enterprises.
“Does that mean that we have to wait for people to sue Apple?” the judge asked. “How can you reasonably say that should be a competitive driver?”
The judge noted that Epic has complained about the lack of a price tag reduce for the Apple commission on the App Store, but Epic had ignored other elements like the enhancing excellent of the hardware. He noted the outcomes need to be reduce rates and greater excellent collectively. Apple and Epic also argued about no matter if Apple’s developer tools need to be viewed as element of the App Store. Apple argues it invests heavily in them.
“These tools are provided to developers so they can have apps on the store,” Moye mentioned. She mentioned that customers acquire an iOS device due to the fact of the brand guarantee of security, safety, and reliability. If they do not want it, they can get an Android device.
The attorneys also discussed Apple’s “anti-steering” policies exactly where it mentioned developers cannot promote a reduce price tag for in-app purchases off the device, like on a internet site, as Epic advertised with Fortnite just before it got booted off the App Store. The U.S. Supreme Court ruled in a case in between the state of Ohio and American Express that the organization did not violate antitrust law due to a failure to show harm to each sides of a two-sided market place, which means customers on one side and other merchants on the other.
In this element of the case, the judge mentioned that Apple “hiding” option payment possibilities could be anticompetitive based on the ruling in that American Express case. Moye mentioned that the guidelines have been completed for efficiency, and Gonzalez Rogers pointed out that Cook mentioned the explanation had to do with defending Apple’s intellectual home.
“We believe it’s a legitimate business justification to not have people have links on the App Store,” Moye mentioned, which means you cannot hyperlink to discounted rates off the App Store.
The judge mentioned that there could be a message saying there are more pricing possibilities on the internet. Moye mentioned that would be like possessing a sign at Nordstrom’s directing people today to acquire at Macy’s. The judge noted shops often promote unique approaches to spend with credit cards or money, though Apple does not let option payment processing.
Apple also mentioned that developers can e-mail customers with promotional bargains off the App Store. But that is an additional point of friction. The judge will have to make a decision no matter if matters of market place friction are unlawful barriers set up by a monopoly to safeguard its position. Bornstein mentioned the approach for acquiring e-mail addresses is burdensome and that Apple is seriously attempting to limit competitors. Moye mentioned there was no proof that Apple was harmed by the anti-steering guidelines and she mentioned the extremely existence of these guidelines proves Apple has competitors.
Bornstein referred to as that “economic nonsense.”
The judge asked about what sort of treatments Epic wanted for the alleged anticompetitive behavior. Epic’s Bornstein mentioned Apple does not require to give away access to the App Store for totally free. But he mentioned they need to be barred from structuring charges in a way that is anti-competitors.
But the judge mentioned the impact of barring such moves would imply Epic would spend Apple absolutely nothing. Bornstein mentioned Apple could come up with a unique way of charging enterprises that does not have anti-competitive effects.
He mentioned Apple need to be “driven by the market rather than being driven by the monopoly.”
Apple lawyer Richard Doren mentioned that Epic successfully wanted a “compulsory license of all Apple’s intellectual property, where Apple would be paid nothing for the intellectual property that is part of its platform.” If forced to admit third-party app shops on the iPhone, Apple would be prevented from carrying out a meaningful overview of these shops when it comes to items like safety and security. This is what Cook mentioned in his testimony would be a “terrible” outcome. Gonzalez Rogers mentioned that Google has lots of shops but Epic “sued them anyway.”
But Bornstein mentioned that defending IP is vital but need to not safeguard Apple from antitrust scrutiny. Doren mentioned such scrutiny need to only kick in when warranted, like when somebody is deemed to be a monopolist. Bornstein mentioned it was “shocking” that Apple’s lawyer wanted Apple to be in a position to do what ever it wanted.
“Mr. Bornstein, I don’t hear him saying that,” the judge mentioned.
Doren added, “Apple does not claim that IP is a global immunization, a vaccine, one might say, from liability.” But he mentioned it nevertheless matters.
The judge seemed to recommend she wanted more guidance on treatments, driven by the law.
“Courts do not run businesses,” she mentioned. “In the cases where courts have found antitrust conduct, how have the courts fashioned remedies to deal with the antitrust conduct?” Should the court order a trillion-dollar organization to modify its company model, she asked.
Bornstein noted the U.S. government managed to win treatments against Microsoft in its antitrust case with out taking more than Microsoft. He mentioned the difficulty was that Apple runs the shop that matters. Boren mentioned Epic would turn Apple’s shop into a poor imitation of Android with lots of shops.
“Pretty consistently, the courts have tried to stay away from the kind of remedies where they have to monitor the contracts or ongoing business,” Williams mentioned. “So they like structural remedies better where you can do something like divest that business and be done with it. The markets change very quickly in this space.”
Regarding motives, the judge mentioned, “Be clear, right? Epic is here because if relief is granted, they go from a multibillion-dollar company to a maybe-trillion-dollar company, who knows. But they won’t do it out of the kindness of their heart.”
But Bornstein mentioned that Sweeney and Epic have a commitment to assisting other developers as well, not acting solely in self-interest.
Apple’s Doren brought up safety threats once again as a explanation why Epic shouldn’t be permitted to bring its shop to the iPhone and that Apple was carrying out a very good job as the “benevolent overlord of this ecosystem.” But Bornstein mentioned that wasn’t a defense in an antitrust case.
The judge thanked the lawyers and mentioned “you can be fierce advocates and still be professional.” She mentioned she wasn’t sure if she could get the case completed by August 13, which was the day that Epic sued Apple in 2020. But she wanted to overview the case though the memory of the testimony was fresh. She pointed out she had thousands of pages of testimony to overview and that her choice would be in writing.
It’s going to be a difficult choice, Williams mentioned. The judge has to make a decision what the relevant market place is and if Apple has monopoly energy. Then she has to look at the anticompetitive acts and if there are pro-competitive advantages in the behavior, and then she has to discover a remedy.
“She’s got a job on her hands,” Williams mentioned.