Epic Judge grills Cook

Hidden in these questions could be the key to Judge Gonzalez Rogers’ ruling.

Notes from 9to5Mac’s live blog, arranged in chronological order:

  • Judge Yvonne Gonzalez Rogers asks Apple CEO Tim Cook about his statement that Apple wants to give users a choice. Why not a choice for a cheaper option for content? Cook says that customers have a choice between iOS and Android.
  • “The gaming industry seems to be generating a disproportionate amount of money relative to the IP you have given them, and everyone else. In effect its almost as if they’re subsidizing everyone else,” the judge says. “You’re charging the gamers to subsidize Wells Fargo.”
  • Cook says Apple has to monetize its intellectual property. YGR says part of the issue is impulse based purchases.
  • Why can’t developers at least link out to their own websites for purchases? “If we allowed people to link out like that, we would in essence give up our total return on our IP,” Cook said.
  • Judge YGR says competition didn’t prompt the App Store Small Business, concerns about antitrust regulation did. Cook says COVID prompted the change, and a feeling that Apple should do something to help small businesses. Cook notes Google announced a similar program after Apple.
  • “We are creating the entire amount of commerce on the store and we are doing that by getting the largest audience there,” Cook says. “I think competition is great. We have fierce competition.”
  • Judge YGR asks Cook about a survey that showed 39% of developers are unhappy with Apple. Cook says that Apple “turns the place upside down” for developers.
  • “I understand this notion that somehow Apple’s bringing the customer to the gamers, to users. But after that first time, after that first interaction, the developers of the games are keeping their customers. Apple’s just profiting off that, it seems to me,” the judge says.
  • “I view it differently than you do. We’re creating the entire amount of commerce on the store, and we’re doing that by focusing on getting the largest audience there, we do that with a lot of free apps so those bring a lot to the table,” says Cook.

My take: Without a jury, the outcome of the case is in Judge Gonzalez Rogers’s hands (pending appeals). Care to try to read between the lines?

21 Comments

  1. David Emery said:
    The comment about “gaming disproportionate” strikes me as bizarre. Does the court believe that it should legislate “fairness” according to the court’s judgement? And it’s not clear to me how the judge can come to that opinion absent accounting details that Apple has disclaimed.

    I think Epic and their lawyers just can’t believe that Apple doesn’t run like Epic thinks it should, with detailed cost accounting on individual segment profitability.

    2
    May 21, 2021
    • David Emery said:
      Another thing just hit me; The app developers, not Apple, set the retail price. So if game developers are making N% of the store’s profit, then that implies they’re also making N% of the store’s gross revenue.

      So if I decide to sell my game at $10 and sell 100 games, that’s 1000 dollars of gross revenue, and $300 in Apple’s cut. Now if I sell my other app at $1 and sell 100 copies, that’s $100 in gross revenue and $30 in profit. So the allegedly “disproportionate percentage” of revenue for games is MUCH MORE due to the price of the game and its sales, than it is to anything that Apple has control over.

      3
      May 21, 2021
  2. Daniel Epstein said:
    Apple will have to address the issues in the judges questions in their closing. If the judge interpreted App Store as a monopoly then the questions have some weight. Haven’t seen that Epic has proved anything but the judge may think she should lean that way.

    3
    May 21, 2021
  3. Fred Stein said:
    I’m concerned about the word, “subsidizing” when applied to gaming profits.

    Apple’s gaming success is due to massive investments in chips and software for gaming (yes, I’m a broken record on this); and Apple’s loyal, trusting, well-heeled user base due to Apple’s commitment to customer safety, privacy and security.

    Apple’s only sin is high ROI investments, based on a long-term view and core principles.

    7
    May 21, 2021
  4. Gregg Thurman said:
    The success of the App Store is directly proportional to the satisfaction users derive from the iPhone. Users buy the iPhone because it gives them more satisfaction than competing smartphones and the apps that work on them.

    Apple’s business model is successful because controls the user experience (the people that provide the funds to make all happen). That experience cannot be duplicated on any other platform, even though the cost of entry on competing platforms is demonstrably less the the entry price into Apple’s environment. Users willingly pay more for the Apple experience. If they didn’t prefer it they’d move to a lesser cost competitor, of which there are many.

    Apple makes a healthy profit because it manages its business very well, and offers the public products they are willing to pay more for.

    These questions by YGR aren’t about a lack of knowledge of the technology, it’s about dotting the “i’s” and crossing the “t’s in support of her decision (whichever way it goes).

    6
    May 21, 2021
    • Bart Yee said:
      Well said Gregg. Everyone seems to forget how much time, $$$BB, engineering, manufacture, and support Apple spends on the entire iPhone/iPad/Mac hardware and software environment that make the entire mobile experience possible. Despite what anyone thinks, the iPhone / iDevices are built to maximize high definition media consumption, computer tasks, now computational photography, mapping, etc. Apple DID NOT explicitly build a mobile gaming platform (a la Nintendo Switch or all console systems) but rather a platform that, among many other things, could also handle games programs with high performance in mind.

      Apple Managing the ENTIRE App Store experience is key to providing the superior user experience which users have paid for and bought into, at a price they willingly pay for more benefits, real or perceived. There has always been “cheaper” alternatives out there as Cook pointed out and Android has a major majority in IB, market share, and to developers, similar to exactly the same fees/rules. Both users and developers have choices in the marketplace for their apps and how much they will pay/charge, plus gamers have major external console platform options for much larger and high powered gaming at home.

      IMO, why should Apple be penalized for running a very transparent profitable business model built on the foundation of all of Apple’s hardware investments and subsequent user base?

      3
      May 21, 2021
  5. Michael Goldfeder said:
    A judge in any decision, especially a bench trial, will pose tough questions to all parties in order to maintain the appearance of being fair and impartial.

    Trying to discern how she will ultimately rule based on her asking various questions is like reading the tea leaves.

    From the snippets I read regarding testimony, Epic fell well short of the mark necessary in making a legally cogent antitrust presentation. They complained and presented information as to how much money Apple derives from the App Store. So what! That’s not an antitrust claim.

    I’ll look forward to her ruling once it’s released in the next month.

    7
    May 21, 2021
  6. Bart Yee said:
    “ “The gaming industry seems to be generating a disproportionate amount of money relative to the IP you have given them, and everyone else. In effect its almost as if they’re subsidizing everyone else,” the judge says. “You’re charging the gamers to subsidize Wells Fargo.” “

    IMO, this is entirely incorrect. Every developer / company on the App Store can (or not) charge whatever they want for their app, and offer (or not) in App purchases, fees, or other charges, or ads vs subscriptions to monetize their app. Wells Fargo (and banking apps in general) provide a service to their customers/account holders in exchange for the monetary compensation of holding/using the account holders money, plus outside services the customer may use. Hence, “free” apps and why all banking apps are “free”.

    If anyone is subsidizing “free” apps, it is Apple because Apple provides the platform, cultivated the users, created a superior user experience, and essentially receives no direct compensation for it other than continued and future hardware purchases.

    3
    May 21, 2021
    • Bart Yee said:
      As for the gaming industry generating “disproportionate” revenue relative to the IP” IMO it isn’t just the IP, it’s literally the entire platform. There is healthy competition in the game apps offered and users have gazillions of choices and price/in-app purchases to choose from within the iOS ecosystem. They can migrate over to Android/Google, game consoles, or PC’s if they want other choices and options.

      It is not Apple’s fault or problem if it’s USERS have made gaming the most popular downloaded and revenue generating app category, it is what it is. IMO, there should be no reason why Apple cannot monetize its App Store under the rules and conditions it sets forth, apparently users have no problems with that in general. For users, if they prefer a cheaper experience and costs, they can move over to Android at any time or have a secondary cheaper Android alternative. Same for developers.

      1
      May 21, 2021
  7. Daniel Epstein said:
    The game developers are not subsidizing others. They are trying to make money by interacting with the IOS customers and in Epic’s case think they can get a better deal by breaking the rules they agreed to to get in the door. Having their cake and eating it too. Could Apple charge different developers different deals and keep everybody happy? Doubtful. Probably still would be legal.

    0
    May 21, 2021
  8. Michael Goldfeder said:
    What Epic is asking this Judge to do is to allow them to tell Apple’s customers they can pay less buying from them directly. Essentially, what would happen if every manufacturer was allowed to go into Wal Mart, Target, Costco, all grocery stores and any other retail business and post on every shelf where their products are sold a permanent sign directing customers to their very own web site to buy these products directly from them and save money.

    Why would anyone ever build a store anywhere if that is allowed to happen in the name of a nonsensical antitrust lawsuit?

    4
    May 21, 2021
  9. David Emery said:
    Again, IANAL, but I’m not sure what the range of remedies the judge can actually order as a matter of law. For instance, can she order Apple to cut the rate for game developers? (And that would beg the question, ‘what is a game?’) I believe equity courts have a fairly wide range of non-financial options, but that is not unlimited. And if the judge orders something that is away from normal equity court practice, that of course becomes the basis for an appeal in its own right.

    (Conversely, the court’s finding of what the market is would be a ‘conclusion of fact’, and that’s a lot less appeal-able than a ‘conclusion of law’.)

    If I had to guess at a result, it would be a narrow legal ruling on the basis of ‘definition of market’, but with a lot of criticism of Apple.

    0
    May 22, 2021
  10. Those who play an MMO know they risk being kicked off the platform if they attempt to introduce malicious code in order to gain advantage by circumventing the rules. Epic creates MMOs. They’ll need to remove the malicious code to get Fortnite back in the App store. Epic did not prove a game platform enforcing a unique set of self-serving or community-serving rules is illegal. Judge will try to allow outside payment systems in her decision but Apple must still receive their commission if iPhone is the platform. Stores, food trucks and honey buyers pay me and let me pay them with Paypal, Venmo, Apple Pay or cash these days. I’ll accept any method but Bitcoin.

    0
    May 22, 2021

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