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Trial:
Epic v. Apple

Week two of Epic v. Apple is coming to a close, and while it provided far fewer fireworks than last week, it's been much more focused on the actual antitrust substance at the center of the App Store dispute.

Last week featured some of the biggest names from both Apple and Epic's executive leadership, including Epic CEO Tim Sweeney, App Store VP Matt Fischer and Epic Game Store chief Steve Allison. It also contained a flurry of sloppy document dumps and corporate secrets spilling onto the internet, making for plenty of courtroom drama as third parties scrambled to have their competitive dealmaking sealed and away from the prying eyes of the public.

This week has been pretty much the opposite, with almost no executive testimony and a lot of attention paid to the arguments of both sides' expert witnesses. Here are the main takeaways from Epic v. Apple week two, what big questions are left unanswered and which courtroom highlights are on the horizon.

1. Whether Fortnite is a game or something more is a crucial point

Lawyers on both sides and plenty of witnesses have all at various points of this trial spent time trying to argue their own definitions of what Fortnite is and, more broadly, what constitutes a video game. This line of argument felt muddy and at times meandering last week, but it's become more clear throughout expert testimony in week two that both Apple and Epic are intent on trying to define the market in ways that advantage their respective arguments.

Epic is hoping for a ruling that covers the entire iOS app ecosystem, and Apple is hoping for a narrower scope that positions the App Store as just one player in a much larger digital game market full of plenty of other competitors. Depending on which interpretation Judge Yvonne Gonzalez Rogers finds more convincing, the outcome of the case could result in a big win for all developers eager for App Store changes or just minor changes or compromises that benefit a select few major game and app makers, but keeps control in Apple's court. This is precisely why so much of the testimony so far has focused on consumers' ability to move Fortnite purchases across platforms, whether some platforms (like Sony's) restrict how one can purchase in-game currency, and whether Fortnite is in fact more than just a video game, as Epic CEO Tim Sweeney has argued.

No one expert this past week made an especially convincing case one way or the other. Epic's experts think the App Store is a monopoly because, among other reasons, it's hard to switch to Android and very few App Store purchases can be migrated to other platforms. Meanwhile, Apple's experts disagree, naturally, and said the App Store competes on an even playing field with the digital stores available on game consoles and computers. Apple's lawyers and experts have also sown doubt about the distinction between game consoles and phones, arguing there's no reason why platforms like Xbox, PlayStation and Nintendo Switch are exempt from Epic's line of reasoning, in effect trying to imply they could be next if Epic wins in this case.

2. Bypassing the App Store using web browsers offers a route for a split decision

At a few points, Gonzalez Rogers interrupted lawyers' questioning to interrogate witnesses herself about Apple's so-called anti-steering provisions — the restrictions on apps telling users that they can make purchases for cheaper, without Apple's fee, on the web and elsewhere.

"What's so bad about it anyway, for consumers to have choice?" Gonzalez Rogers asked economist Richard Schmalensee, a Massachusetts Institute of Technology professor and one of Apple's key expert witnesses. (Schmalensee also happened to testify in favor of Microsoft during its landmark '90s antitrust case.) Earlier in the week, Epic witness and economist David Evans, an occasional collaborator of Schmalensee with whom he disagrees on this case, was on the stand. Gonzalez Rogers asked him whether removing the anti-steering rules in the App Store could offer some remedy. "That wouldn't eliminate the market power Apple has here, but it would certainly diminish it," Evans replied.

Gonzalez Rogers mostly didn't tip her hand about whether she would or even could rule along these lines, or if she was just satisfying intellectual curiosity. At one point, however, she explicitly rejected the notion that the App Store's restrictions had a lot in common with a 2018 Supreme Court case that upheld anti-steering provisions in credit card markets. Nominally, a ruling banning the anti-steering provisions would be a win for Epic, but it would fall short of many of its bigger demands, including being allowed to bypass the App Store commission directly and to install sideload apps and alternative app stores onto the iPhone. It would also be appealable and could come with guardrails that restrict how much developers could inform their customers about alternative purchase options with potentially lower prices.

3. Game console comparisons are the cause of plenty of courtroom drama

A big focus in week one of the trial was whether iOS is comparable to a game console platform, and to what extent that should play a factor in this case. Apple thinks it does because, again, it wants the market defined here to be the digital game transaction market, of which it is one of many competitors that all seemingly followed Valve and its Steam store in establishing a 30% cut. But Epic's counter to that has been to draw a distinction between phones and game consoles, and between Apple's business model and the business model of console makers to hammer home the point that the App Store should be treated as a distinct market, one Apple monopolizes.

To do that, Epic called Xbox executive Lori Wright to testify both that Apple blocked Microsoft's cloud gaming app using onerous App Store restrictions and that the Xbox business model is to sell hardware at a loss and make up for it in software and services. The logic is that game consoles are not phones, they're special purpose devices that compete primarily with one another, justify their 30% cut through their business models, and that the companies that make them have to earn developer goodwill.

Apple's legal team took an aggressive approach to trying to undermine Wright's testimony by filing a motion in the court declaring she had not produced relevant evidence to support her claims. Epic has opposed the motion and filed a proposed order to deny Apple's motion, along with documents from Microsoft that back up Wright's claims. Microsoft now has until Monday to file its own response, while Apple will then have until May 24 to reply. It seems like a petty back-and-forth, but Wright's testimony could go a long way in helping build Epic's arguments that this goes beyond just the gaming market and that Apple is unique in the way it operates its platform.

4. Nobody seems to agree on what the App Store is

At the heart of the lawsuit is the App Store and whether it's an illegal monopoly. To debate that, lawyers and experts delved deep into the structure of the store and, at a high level, what kind of marketplace it even qualifies as. Like all good debates of this nature, that means metaphors, tortured ones included.

Epic's version of the question is that the App Store is a way to sell and supply mobile apps. There are only really two ways in Epic's scheme — the other being Android. Because users don't tend to switch, Apple's store can act like a monopoly. In-app purchases in the App Store is a separate pure monopoly, Epic contends, and the devices and hardware are distinct as well.

Apple says it's all one thing: a way to get games, dating apps, maps and more, on whatever device you want them, and that the payment processing, privacy and security of the store and the iOS platform itself are all inseparable. For the purposes of the case, Apple focuses on providing those games, especially those with transactions. It says the App Store distinguishes itself as a safe and reliable environment as it competes with a whole lot of ways of getting digital goods and services, from apps on desktop computers to consoles and Epic's own game store.

Neither seems to quite capture how users themselves think about the App Store, but it all matters very much because the monopoly cases hinge on the presence or absence of monopoly. The court and experts have groped for metaphors to explain this all — from supermarkets that sell all kinds of goods (as an Apple expert suggested) to railroads that control access to bridges (as the judge proposed) to car dealerships that shouldn't get a cut of gas station sales (Epic's lawyer). Cows, somehow, came up, too, when Schmalensee waved away allegations that Apple makes monopoly profits by saying it's hard to determine whether the cost of feeding a cow goes more to selling meat or leather, so estimating profit on the store is tough.

What to expect for next week

Higher-up Apple executives (and some Epic ones) will take the stand.

Arguably the most consequential testimony in Epic v. Apple has yet to occur, as many members of the company's executive leadership haven't taken the stand. That's expected to change next week, when executives like Apple fellow and former marketing chief Phil Schiller and Eddy Cue, head of internet software and services, are slated for hours upon hours of testimony related to their roles as architects of the early App Store. We're also expecting to hear from former exec Scott Forstall, who was head of iOS software, about his early role in helping shape the iOS platform and other products and services responsible for creating the iPhone ecosystem as we know it.

We're also going to hear from some members of Epic's executive leadership, including co-founder and President Mark Rein and Chief Operating Officer Dave Vogel. Both Rein and Vogel have featured prominently in emails and other documents discussing Epic's "Project Liberty," the company's plan to bypass the App Store and launch antitrust lawsuits against Apple and Google, and many other critical parts of Epic's business and its dealings with partners.

Apple will start laying out its defense.

So far, Epic has been the one taking the lead in the trial as the plaintiff, and the structure of these proceedings has meant that Epic's lawyers have been laying out their case first, though with plenty of room for Apple to get its own in. Starting next week, Apple will begin laying out its official defense, a process expected to last through the end of the trial and culminating with CEO Tim Cook taking the stand.

Cook, who interestingly was only called to testify by Apple and not Epic, will discuss "Apple's corporate values, Apple's business and operations, development and launch of the App Store, and competition faced by Apple'' for one hour and an additional 30 minutes of cross-examination. Far more important we expect will be Schiller's testimony, which will last six hours with an additional three of cross-examinations.

However, don't expect Epic to "rest its case," so to speak. The company told Protocol that the unique structure of the trial means both sides will continue to build their arguments through direct and cross-examination of witnesses all the way through to the final day of testimony.

Unanswered questions

What does Gonzalez Rogers think the market is?

With both sides pushing so hard to define the App Store market(s), and thus whether Apple has any monopoly, Gonzalez Rogers has given contradictory signals on which definition she finds persuasive. On the one hand, she's suggested that Evans, who testified for Epic, lacked empiric basis for some of his conclusions, and she seemed to be frustrated by the way that he would chop up the App Store into pieces like app distribution and payments. On the other hand, she said iOS exists in a "duopoly," which is more or less Epic's whole argument. Whichever line of thinking she tends toward will probably determine a lot about how she rules.

Does she really think Apple has any duty to deal?

At one point, Gonzalez Rogers also lamented that both sides seemed to be avoiding the question of whether companies, particularly dominant ones that control prerequisites for competition, have a duty to deal with rivals. The doctrine would probably help Epic in the short term, but it is also highly controversial, what law professor Chris Sagers called "a topic of special, virulent hatred" for conservatives and moderates alike. That could tee up big issues for an appeal, and might steer the judge from really incorporating it.

An economist testifying this week on behalf of Epic, in its landmark antitrust complaint against Apple, finally laid out the real crux of the game maker's complaint — and while couched in jargon, the argument is critical to Epic's case and larger questions about how to understand digital platforms.

David Evans explained in court on Monday and Tuesday that although Apple has competition when it comes to actually making smartphones, it monopolizes what he described as a market for distributing apps. That control, Evans argued, leads to inappropriately high prices for consumers and competitors as well as an array of other ills.

That's the argument Epic and many critics of big tech platforms have been making all along. Epic claims, among other things, that Apple uses its peerless economic muscle to extract its 30% App Store commission at a higher price than competitive markets would bear, and that Apple hobbles anyone who tries to get around the fee.

Evans, who is chairman of Global Economics Group, spent some time after Monday's discussion of Peely the Banana with another witness, trying to zero in on those ideas — though he had to use economic and research terminology like "substitution," "switching," "lock-in" and "aftermarket" to do it.

The first step for Evans was to answer the questions, "In what market is Apple an alleged monopoly?" and "How do we know?" Just being big, after all, isn't illegal. Antitrust law instead relates to what a company does with that power.

First, Evans explained, Apple monopolizes a market for getting apps to consumers. How did he know? He studied anonymous data from Epic's Fortnite players themselves before and after the game was taken off Apple's App Store. He found that most users only played on one platform — iPhone, PC, Xbox, etc. — in part because of the cost of switching to another way of playing. Those switching costs include the price of a new system, the difficulty of moving data, the appeal of a device that fits in a pocket or the desire to stick with other apps on the phone. Users' reluctance to switch platforms suggests there's less competition for getting apps than it might appear.

Evans also found that, even after Apple pulled Fortnite from the App Store, less than 20% of playing time switched over to a console or a PC. Playing time did go up on other platforms, but only by about nine minutes per week, versus the 56 minutes it went down on iOS, and even those who switched over likely were already playing on multiple platforms to begin with. "More than 80% of the [iOS playing] time was completely lost," Evans said.

Evans took the fact that players tended to only use one platform and rarely switched even when the game was removed to mean that for many consumers, there aren't really substitutions for Apple. Users are locked in to one competitor, in a way that's giving Apple power to destroy consumption of the game. Evans said that according to his analysis, although Fortnite and lots of other iOS apps are also available on other platforms, consoles and systems, Apple is essentially a market unto itself for most players because they don't want to or can't switch.

"My opinion is Apple has monopoly power in the iOS app distribution market," he concluded.

Costs and competitors

According to Evans, the lack of substitutions for the iOS version of Fortnite, even mobile competitor Android, implies Apple has monopoly power over the selling and supplying of apps to Apple users. That absence of serious competitors allows Apple to charge unreasonable fees or impose unfair terms on both app-makers and consumers.

Antitrust critics of big tech increasingly argue this point — that costs, behavioral nudges and the way data is guarded create lock-in across digital markets. Whether, or where, U.S. courts take up the reasoning is an open question, although Judge Yvonne Gonzalez Rogers seemed frustrated with some of the specific definitions and implications that Evans said he hadn't studied.

Evans on Monday also suggested, in a vague discussion referring to confidential financial figures, that Apple is able to pull in profits "vastly higher" than similar groups of companies, as monopolies often are. Evans said developers don't have enough incentive to create products for other platforms in a way that may break Apple's alleged monopoly.

He also discussed the other main prong of Epic's antitrust accusations against Apple: a related but separate alleged monopoly for Apple's in-app payments themselves.

It's important to discern how much users know upfront about costs of owning Apple devices, particularly what they'll pay for in-app purchases, Evans said. Such purchases relate to existing Supreme Court rulings about the antitrust implications of "aftermarkets." Common aftermarkets include, for example, the ink cartridges that you need for a printer or replacement parts you need for a car. According to Evans, buying apps and goods through the App Store after you've purchased a phone is one such aftermarket.

Even beyond market definition and the presence of monopoly, there are a lot of components to an antitrust complaint that Evans was trying to address. His overall point, though, was that Apple has monopoly power over distributing apps — in a technical, economically rigorous sense.

"Was it your understanding that Mr. Jobs was running a charitable enterprise here?" Epic lawyer Gary Bornstein asked at one point, referring to Apple's late founder. Evans said he was not.

Apple's view

The point Apple's economist will argue, not surprisingly, will be that everything Evans said is wrong. Antitrust cases often devolve into battles between experts, and economist Richard Schmalensee will argue on behalf of Apple that Evans completely misunderstands the market, the substitutions, the lock-in (or lack thereof) — everything. (Evans and Schmalensee have collaborated extensively in the past, so there's a bit of collegial sniping going on.)

During cross-examination, Apple hammered Evans for discounting Android as a competitor, forcing him to concede that Apple does not have a monopoly in the phone business by market share — approximately 47% of U.S. smartphone owners have iPhones. However, Evans argued, Apple still has monopoly power within the market because of users' reluctance to switch. Evans also had to defend his argument that buying a game on one platform doesn't substitute for buying it on another, while two vastly different iPhone apps, such as a graphing calculator and a video game, belong in the same market.

Apple's key argument in previous filings has been that what iOS really provides is a place for users to engage in transactions in the games they love, which they play across platforms. Substitutions in that market are numerous, according to Apple, with robust competition from the web, consoles and PCs. The in-app payment processing that Apple users and app developers are required to use? It's an integral part of the product that pays for improvements, not some afterthought that's invisible to consumers and delivers undue profit. And game transactions are thriving, Apple says, suggesting those fees and the privacy and security they pay for haven't harmed the market.

And since other platforms comprise robust competition, Apple will argue, it cannot possibly be a monopoly, which must therefore mean no violation of antitrust laws, especially if the market is thriving.

What Gonzalez Rogers will take from this is anyone's guess. She directed sometimes frustrated questions to Evans about whether players might have picked up other games in lieu of Fortnite when it was banned, if he had evidence of profit or loss on console sales and what she should make of his treatment of in-app purchases as separate from app distribution.

At one point Gonzalez Rogers pointed out Fortnite's in-game currency, V-Bucks, is available for purchase on the web where Apple doesn't get a cut. She also suggested Apple's prohibitions on app developers telling consumers they can buy digital goods elsewhere may be a problem. Evans began to explain why he thought the availability of V-Bucks on the web didn't alter his market definition and to discuss the prohibitions, but Gonzalez Rogers cut him off.

"Have you done any real analysis?" she asked.

Another Epic expert, Susan Athey, is testifying Wednesday. The trial is expected to last at least through next week.

One of the most curious questions arising from the ongoing Epic Games v. Apple antitrust trial, now on its seventh day of testimony, is why both sides are so intent on establishing their own definitions of basic tech and game industry terms.

Does a phone qualify as a game console, or is it a computer, or both? What's a special-purpose device, and what's a general one? But perhaps the most perplexing line of inquiry has been what is and what is not a video game. Is Roblox a game, or just a platform, or maybe it's an app store? How about Minecraft? What any of this means for the future of Fortnite is still a bit fuzzy, but it's starting to come into focus with each passing day in court.

Defining these terms is important because they help make industry jargon more accessible, especially in a bench trial that will be decided by a judge who is not a gaming expert, but is very much an antitrust one. Yet far more important is that Apple and Epic both have strategic incentives for their respective interpretations of the game and tech industries to win out in the courtroom.

At its heart, this trial is about whether the creator of a closed ecosystem can illegally monopolize software distribution on a platform it owns, and whether Apple and the App Store fit the bill. To do that, lawyers on both sides have to try and establish what the market is. Is it the video game market, the entire mobile app market or just the iOS app market? Apple is far from having a monopoly on the first, arguably has a dominant position in the second and does have top-down control of the third.

The distinctions between Apple's power and how it wields it in those various markets will determine just how consequential the outcome of the trial will be. That will be true both when the trial is decided later this month and for many years into the future, when the verdict becomes either a foundation or a cautionary tale for how other companies think about challenging the App Store.

If Epic succeeds in broadening the scope of the proceedings to include all of iOS and the App Store, it may win a ruling that strikes at the totality of Apple's platform and threatens to open up the entire iPhone ecosystem to competitors. That's an apocalyptic scenario in Apple's eyes; its opening argument called this case a "fundamental assault on Apple's secure and integrated ecosystem." So the iPhone maker is dead set on narrowing the scope of the debate to the game industry, where a ruling could result in less direct or collateral damage to iOS in the event Apple does lose. Narrowing the argument to the game industry also makes Apple's 30% commission on the App Store appear more palatable, because in that case it competes on an even playing field with similar commissions from Microsoft's Xbox Store, Sony's PlayStation and Valve's Steam, among others.

Apple is invested in this argument, so much so that its legal team last week aggressively and antagonistically cross-examined Xbox VP Lori Wright, who argued Microsoft sells Xbox consoles at a loss and makes up for it with software and services. Apple then filed a motion to undermine her testimony for lack of evidence. Microsoft has since submitted evidence to support Wright's testimony, but Apple's move suggests comparisons likening the iOS game market and the console game market are critical to its defense.

So how do you narrow the scope of a case this complex? Well, you argue a whole lot about whether the app in question, Fortnite, is just a game, or if it's something more. That's what Epic CEO Tim Sweeney argued in his testimony last week when he called Fortnite a "phenomenon that transcends gaming."

In Epic's eyes, Fortnite is more than a game because it includes concerts, deep social interactions and very real and very lucrative digital commerce. But Epic has also admitted that Fortnite needs to grow beyond the bounds of its popular battle royale game mode or risk declining into obscurity, as many popular online games do.

"We've reached basically full penetration on console, and mobile offers the biggest growth opportunity … Everybody has a mobile device, and they have it with them all the time. Not everybody has a console and not everybody has a gaming PC," Matthew Weissinger, Epic's marketing director, testified on Monday. Weissinger revealed that Fortnite, prior to its removal, counted roughly 2.5 million daily active users on iOS, or about 10% of its total, and represented the fastest-growing market for Fortnite across all platforms.

Sweeney spoke in broader terms last week, casting the outcome of this trial as existential to Fortnite's future and its ability to power a unique blend of internet economy and online social space. "The long-term evolution of Fortnite will be opening up Fortnite as a platform for creators to distribute their work to users … and creators will make the majority of profits," Sweeney said last week. "With Apple taking 30% off of the top, it makes it very hard for Epic and creators to exist in this future world."

If Fortnite is just a game, then this is about one game company's quest to get one game special privileges that let it bypass the App Store's restrictions, and that's not especially convincing. If Fortnite is more than a game, as numerous Epic executives have now contended, then Epic's quest can be recast as one to open a door to Apple's walled garden, to the benefit of developers everywhere. It's no secret that Epic called its campaign to launch these lawsuits "Project Liberty." To Epic, this is a fight for its freedom to build Sweeney's version of the metaverse and not stay beholden to any device manufacturer or operating system creator.

Of course, this is just one small slice of a multi-faceted debate happening between both sides. The ontology of the video game won't be decided by this case, and whether Fortnite is considered a game or something more than one likely won't be the most important factor Judge Yvonne Gonzalez Rogers considers when reaching a verdict. The trial is just now wading into the thorny antitrust arguments that will ultimately decide the market we're dealing in and whether it can be proven Apple has harmed consumers and stifled competition within it.

But the scope of Fortnite and whether it can be considered more than just a game sits at the heart of Epic's lawsuit and, as we've heard in recent testimony, the future of its business. Epic may be commonly thought of as a game developer today, but its ambitions are to be a multimedia giant that "transcends gaming." Standing in its way are Apple, the App Store and that 30% cut.

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Epic CEO Tim Sweeney finished his time on the stand Tuesday afternoon, during day two of the Epic v. Apple trial. His multi-hour testimony offered a rare glimpse at the philosophy and business strategies of one of gaming's most powerful and influential executives, if only in the context of his quest against the most valuable tech company on the planet.

The theme emerging from both days of testimony is that Sweeney sees this as a fight that goes well beyond a single game and even a single platform. In Epic's eyes, suing Apple is an existential fight for the future for media, computing and software distribution, and maintaining the status quo would represent a major setback for Epic's ambitions.

Sweeney faced cross-examination from Apple counsel Richard Doren, while Epic lawyer Katherine B. Forrest was given an opportunity to construct more ironclad defenses to some of Apple's sharper lines of questioning during redirect. Among the many questions and answers that arose during Sweeney's day-two testimony, four major points became clear.

Epic and Sony's relationship is an Apple attack line

Apple spent a fair amount of its cross-examination of Sweeney questioning the exec about the relationship between Epic and Sony with regard to the PlayStation platform. This is in many ways one of Apple's strongest lines of attack because, as court documents have made clear, PlayStation is the most dominant platform for Fortnite by both player count and revenue. Meanwhile, iOS accounts for just 5.5% of overall Fortnite revenue through 2020. "It makes you wonder what we're even doing here," Apple lawyer Karen Dunn said during the iPhone maker's opening argument.

Doren raised a number of questions about Sony's negotiations with Epic. The most important of those was how Epic paid Sony additional revenue over the standard 70-30 revenue split on PlayStation to compensate for cross-play, a feature Epic received significant pushback over and which it had to carefully orchestrate across all major console platforms.

Why is this relevant? Apple's line of argument is that Epic's major financial and strategic concerns over Fortnite are the cause of friction with Sony and other console makers, not Apple. And yet Apple is the one Epic has chosen to target because, in Apple's eyes, this is less about trying to ensure a more fair playing field for Fortnite on mobile and more about trying to disrupt the entire iOS ecosystem for financial gain. If Epic were truly concerned about the 30% cut, would it not have gone after Sony, the true Fortnite moneymaker, instead of Apple?

The differences between consoles and phones are evident. But will it matter?

Sweeney and Epic's lawyers offered some explanations to the PlayStation argument in their console versus phone rebuttal. For one, Sweeney pointed out that game console makers are willing to negotiate, making the 70-30 cut more palatable because a store owner, like Microsoft, can often sweeten the deal with free marketing, partnership efforts and perks.

Submitted exhibits showed extensive discussions between Sweeney and Xbox chief Phil Spencer in which the two execs discussed favors Epic could do for Microsoft if Microsoft opened Xbox Live to free-to-play games like Fortnite without charging its standard subscription fee. (It included Sweeney's now-infamous line, "You'll enjoy the upcoming fireworks show," referencing the lawsuits.) Epic's argument is that Apple's platform is differentiated because its owner is unwilling to bend (unless you happen to be Amazon), making the App Store fee more punitive over time.

In one somewhat perplexing exchange, Sweeney was asked by an Epic lawyer whether he'd accept a deal from Apple for a lower App Store commission that applied only to Epic, and he replied he would. Though this may have signaled Epic's many unheeded attempts to negotiate with Apple ahead of the so-called "Project Liberty" campaign, the answer potentially undermines Epic's argument that it's fighting for the "basic freedoms of all consumers and developers," as Sweeney wrote last on Twitter last summer.

Sweeney was pressed further on this point and clarified that Epic "never negotiated a different commission structure with the console makers." But he also repeated his argument that game consoles, which are largely single-purpose devices and not general computing ones, are often sold at a loss and make up the difference through software sales. In Sweeney's eyes, that justifies a higher commission.

That led to perhaps the most amusing courtroom display thus far, in which Sweeney was asked to demonstrate the complexity of a Nintendo Switch and its detachable controllers, much to the bemusement of Judge Yvonne Gonzalez Rogers. "You can see I'm not a Switch player," Sweeney said, as he fumbled with the controllers.

The point of the exercise, including a hypothetical from Epic's lawyer over checking a bank balance at the doctor's office using a game console, was that phones are multi-purpose, general computing devices and that game consoles are not valid substitutes. It's not clear to what extent Gonzalez Rogers will buy this argument as the trial goes on, but it's a central one to Epic's defensive strategy as it tries to deflect Apple's comparisons between the App Store and console platforms.

The Epic Game Store is a huge money sink, and Epic's motives are unclear

A lengthy part of Sweeney's testimony was dedicated to explaining the business model behind the Epic Game Store, which, according to court documents, loses hundreds of millions of dollars a year and won't be profitable for nearly half a decade. Apple's lawyer made the point that the Epic's PC marketplace, because it pays minimum guarantees to developers to secure exclusive games and compensate developers and publishers for giveaways, may end up losing close to $1 billion total by 2024, the earliest point at which it could conceivably turn a profit.

The point here is a savvy and strategic one for Apple's defense, because it paints Epic as a cash-flush competitor willing to spend enormous sums of money — far more than it gives up to Apple in Fortnite fees — to compete with Valve on Windows and establish its competing software marketplace. Apple's lawyer quoted an email from Sweeney in which he says "obviously the direct ROI scenario here is super crappy," referencing the Epic Game Store, but that "the long-term value is in bringing consumers into Epic's multi-game, multi-platform social and ecommerce system."

Apple is trying to establish the Epic Game Store as an underlying motivation for Epic here, in part because Sweeney has outright admitted he'd like to distribute an iOS version of the store on iPhones and iPads that mirrors the company's PC version. And if Epic is willing to lose that much money competing on PC for a much larger share of consumers, what, then, is all the fuss about on iOS?

The future of Fortnite hangs in the balance

Sweeney's most salient testimony came near the end of his session when he was asked to explain what's at stake for the future of Fortnite, and why the fight for alternative app stores and payment methods on iOS is so important to Epic. Sweeney said the App Store's in-app purchase restrictions present an "existential issue" for Fortnite and its potential of evolving into a true metaverse-style platform.

"The long-term evolution of Fortnite will be opening up Fortnite as a platform for creators to distribute their work to users … and creators will make the majority of profits," Sweeney said. "With Apple taking 30% off of the top, it makes it very hard for Epic and creators to exist in this future world."

In other words, Epic sees Apple's platform fees as a threat to what Fortnite could become in the future, not necessarily what it is right now. If creators are selling digital goods on Fortnite, and giving a cut (presumably 12%) to Epic, it's not ideal to turn around and give 30% of that smaller cut right to Apple, Sweeney argues.

It's clear Epic has an uphill battle establishing the importance of iOS to its overall business when it represents such a small chunk of Fortnite's revenues, not to mention the difficulty in convincing Gonzalez Rogers that Epic's motivations here are predominantly altruistic and not just purely financial. Yet much of the case's path from here will depend on testimony from third parties, Epic employees, and, most importantly, Apple executives, who will have to mount the ultimate defense of the App Store as the trial moves forward.

The first day of the Epic Games v. Apple trial kicked off Monday in California, featuring opening statements from both sides and hours of testimony from Epic CEO Tim Sweeney.

As befitting of what is arguably the most consequential tech antitrust trial since Microsoft, it's been a fair amount of courtroom chaos, some enlightening courtroom arguments and a whole lot of video game jargon.

Here are the biggest takeaways from our first day in court.

1. The court was not prepared for a Fortnite lawsuit

In the half hour leading up to the trial's start on Monday morning, the courtroom public access phone line was swarmed by young Fortnite fans clamoring for access to the game's long-lost iOS version. "We just want mobile back please," was a common refrain from the call participants, all of whom were talking freely over one another as the court struggled to figure out how to mute those dialing in.

It was an absurd, hilarious and also quite illustrative debacle. It showed both how unprepared the court was for an antitrust trial drawing eyes and ears from all age groups and also illuminated how invested even a teenage Fortnite player is in the outcome of this case. The big picture is an antitrust battle over app distribution, but for regular consumers, this has always been about losing access to a favorite mobile game because of a complex corporate squabble.

2. Talk of the metaverse, and basic video game facts

Much of Sweeney's early testimony revolved around answering basic, procedural questions about the nature of Epic's business and the fundamentals of Fortnite, including what the Unreal Engine is and what a "cosmetic" and video game "avatar" are. At one point, Judge Yvonne Gonzalez Rogers told Sweeney, "I'll just stop you and ask you to explain to the court what a 'server-side change' is."

But one of Sweeney's more animated answers came when he was asked to elaborate on all the various elements that make up Fortnite. "[Fortnite is] a phenomenon that transcends gaming. It's a social and entertainment experience that includes a variety of gaming experiences and non-gaming experiences within it," he said, before dropping the term metaverse, prompting the court reporter to ask for elaboration.

"The metaverse was defined in early science-fiction literature and novels such as 'Snow Crash,'" Sweeney explained. This concept is cited more generally as both Epic's inspiration and its ultimate goal with Fortnite, with the developer having turned its virtual island into an ever-evolving pop culture mashup capable of housing Marvel superheroes, real-life actors and celebrities and much more.

And now the metaverse is part of the court record in Epic's fight against Apple, no doubt something Sweeney will relish when this is over, regardless of the outcome.

3. The 70-30 cut becomes a central character

Part of the intense interest in this trial has been gaining unprecedented access to competitive industry secrets. Apple is loath to ever talk about its business in any meaningful fashion, making the court system one of our few ways to look behind the curtain of the iPhone maker's business. And the game industry is well known for keeping a tight lid on the contractual details around, say, console exclusives and licensing deals. That's precisely why the 70-30 revenue share built into both the App Store and the game industry's digital distribution platforms has become a central character in the trial.

Epic wants to bypass that cut, and Epic's opening arguments sought to establish the revenue split as both unjustified and designed primarily to line Apple's pockets. Apple wants to protect it, and its opening arguments tried to establish the split as an industry standard agreement established well before the App Store's introduction. A key finding here includes emails from Apple executive Phil Schiller in which he reveals reservations way back in 2011 about the 70-30 cut remaining "unchanged forever," while Apple's lawyers hit back at Sweeney during cross examination for once upon a time offering developers a 60-40 publishing split.

We also saw some other bombshell figures leak out of the court through uploaded exhibits and other submitted documents: Fortnite made an eye-popping $9 billion in just two years; Epic's gross revenue in 2020 was $5.1 billion (and Fortnite, with more than 400 million players, contributed an overwhelming majority of that); and the App Store has an estimated profit margin of 78%, according to an analysis from an expert Epic witness.

4. Apple thinks prior court rulings give it the win

In her opening statement, Apple's lawyer, Karen Dunn, made sure to cite, by name, some of the freshest rulings in antitrust, particularly Ohio v. American Express, which was decided at the Supreme Court in 2018, and FTC v. Qualcomm, which ended in a federal appeals court last summer.

Both are seen as defendant-friendly decisions, further narrowing the definitions in antitrust law and requiring plaintiffs to show more. Antitrust suits aren't just about what's unfair. Most plaintiffs have to show that the other side has a monopoly in a relevant market, exclusionary conduct by the defendant in that market, harm to consumers as a result of that conduct (usually through higher prices or lower output) and a lack of justification. None is really expendable, but rulings like the ones the Apple lawyer cited have made a lot of these difficult to demonstrate. "Epic has to run the table on this," Moyé said, and for the most part, she's right.

That's not to say Epic came unprepared. Its lawyer, Katherine Forrest, alluded to documents suggesting Apple is extracting its commission arbitrarily: "There's a name for business that set prices without regard to costs: monopolies," she said. Showing that sort of pricing power could help Epic get around some of the precedent. Even if it doesn't, though, Forrest said Epic's experts have shown that Apple has a monopoly because it carefully ensured users, including Epic's, won't switch to Android or other platforms, a line of thinking that popped up in Europe's charges against Apple last week and that the Fortnite lovers on the call echoed.

Correction: An earlier version of this article mistakenly identified Apple's counsel. It was lawyer Karen Dunn who delivered opening remarks, not Veronica Smith Moyé. It also incorrectly stated who was affected by recent defendant-friendly antitrust decisions. It is the plaintiffs that must provide more evidence, not the defendants.

The European Commission on Friday handed Spotify a major victory in its fight against the App Store by charging Apple with antitrust violations in the music streaming market, a direct result of Spotify's 2019 complaint. Now, the mobile gaming market on iOS might be next.

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On Monday, Apple and Epic Games will meet in court to decide one of the most consequential antitrust arguments in the history of the tech industry. The trial has been nearly a year in the making, following Apple's removal of Fortnite from the App Store in August 2020. It's arguably the biggest courtroom showdown Apple has engaged in since its smartphone patent war with Samsung nearly a decade ago.

This time, however, Apple is the one on defense. Epic alleges that the iPhone maker's App Store and in-app purchase policies both violate antitrust law. At the heart of the case are arguments over whether Apple can and should exert total control over iOS and the App Store, or whether developers should be allowed to distribute apps over alternative marketplaces or simply bypass Apple's longstanding 30% commission on digital goods.

The outcome of this case could change how billions of dollars flows between tech companies and could provide hints as to how tech antitrust cases and regulations are likely to work in the coming years. Or, as often happens in these cases, it could end up much more narrow than that. And no matter what happens, there will certainly be appeals.

We'll be updating this page through the trial, but here's everything you need to know about Epic v. Apple.

The Stakes

What Epic wants: To be able to sell V-Bucks to iOS-using Fortnite players without having to use Apple's in-app purchase tools, and to be able to operate its own app store on iOS.

What it would mean: A sweeping Epic win would both establish the App Store as a monopoly and advance the idea that Apple abuses that power to shut down other app markets. Apple could be forced to give Epic and other developers ways around Apple's 15% to 30% commissions, or to open up the iPhone to side-loaded apps or even full-blown alternative app stores.

What Apple wants: To prove that the App Store is a necessary and inseparable component of the entire iOS experience. It says that without the app review process, without the software enhancements and OS-level functionality that come from approval and without the security and simplicity provided by the in-app purchase system, the iPhone would be a fundamentally different device and, in Apple's view, a worse one.

What it would mean: If Apple can succeed in defending itself against Epic, it would make it much, much harder for anyone else to come after Apple on similar grounds. It would set the precedent that the App Store is as inextricable from the rest of the iPhone as its A-Series chip.

How we got here

On Aug. 13, 2020, Epic implemented an alternative in-app payment system for Fortnite on iOS and Android to bypass Apple's 30% cut.

Both versions were promptly removed by Apple and Google, an outcome Epic was well prepared for as it countered immediately with antitrust lawsuits against both companies and a carefully crafted media blitz under the hashtag #FreeFortnite. Epic filmed a video casting Apple as the very villain it once said it was rebelling against, using a parody of its iconic "1984" Ridley Scott-directed Macintosh ad, and even promoted its lawsuit within the world of Fortnite itself.

The video Epic had ready as soon as Apple kicked Fortnite out of the app store. Video: YouTube

Apple fired back by attempting to strip Epic of both its iOS developer access and the developer license it uses to distribute its Unreal Engine on the macOS platform, setting up early courtroom fireworks as Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California had to rule on what, if any, restrictions Apple could continue to impose on Epic and Fortnite prior to trial.

Following a series of pre-trial hearings, Gonzalez Rogers ruled that Apple could in fact keep Fortnite off the App Store and prevent Epic from publishing new iOS versions and additional iOS apps for the duration of the trial, but Apple was barred from voiding Epic's developer agreement for the Unreal Engine.

Since then, we've seen a fair amount of discovery and document filings shedding light on Apple and Epic's business practices and communications, revealing some revelatory findings like how much money Fortnite makes on various platforms and Apple's ecosystem lock-in strategy with regard to iMessage. In the run up to Monday, both sides have put out massive document dumps detailing their respective strategies and outlining witness lists and expert testimony.

How the trial works

Epic v. Apple starts Monday and is estimated to last about three weeks. In total, each side will have 45 hours to present its case. Gonzalez Rogers has been overseeing the case since the beginning and will preside over the trial as well.

The trial will be held largely in person, but with only six people per side allowed in the courtroom at a time. (A few witnesses will testify over Zoom.) Masks have been a contentious issue, with the court ruling that attorneys will be required to wear masks, but witnesses will be given transparent masks for when they're testifying.

Each witness will wait in a sort of green room before they're called to the stand. Beyond that, each company also gets a "designated representative" who can be in the courtroom the entire time. That'll be Tim Sweeney for Epic and Phil Schiller for Apple.

The themes and recurring narratives

This case is about how to read the Sherman Act. The biggest question for this specific case is not about app stores or Fortnite, but about how to define a monopoly. That's the biggest issue facing enforcers in general right now, really: how to approach digital markets and separate vigorous competitors from those damaging the whole process to maintain their dominance, even as would-be reformers push to go beyond the long-held "consumer harm" readings of the Sherman Act and toward a definition that makes more sense for huge internet platforms.

The App Store is hugely profitable. Apple talks about how much it invests in app review, and how much benefit it provides to developers throughout their time in the App Store. Epic counters by saying that the App Store is outrageously profitable — former App Store exec Phil Shoemaker testified last year that the App Store costs Apple about $100 million a year to run, and while Apple doesn't disclose App Store revenue specifically, it's estimated to be many tens of billions a year — and thus should be considered a business rather than a service to the ecosystem.

But "Project Liberty" could be a profit move, too. Epic wants people — and Gonzalez Rogers — to see it as the white knight fighting on behalf of developers, gamers and little guys everywhere. Apple instead wants to paint Epic as another tech giant eager to keep more profit for itself, and says Epic's entire "Project Liberty" plan to pick this fight is little more than a thinly-disguised money grab.

30% is an industry standard for commissions. Google charges the same for Play Store apps (though Epic's suing over that, too), and most similar platforms offering apps and games use the same 70-30 split. Apple says that's lower than brick-and-mortar splits, and that Apple shouldn't be penalized for doing the same thing as everyone else. Epic says Apple started the 30% trend, and that it also gives special deals to companies like Amazon.

But what about game consoles? One of the biggest arguments put forth by Apple defenders is the lack of alternative app stores and 70-30 revenue split on console platforms like PlayStation and Xbox. Epic said in a recent filing that computing devices like smartphones are differentiated from consoles because "video game consoles operate under a radically different business model than smartphones." But the existence of alternative platforms with similar restrictions bolsters Apple's argument that the App Store has an industry-standard approach with regard to gaming platforms.

The Mac model might be the answer. A big part of Epic's argument hinges on the fact that the Mac has an App Store, with in-app purchases, and still allows people to buy and sell stuff in other ways. Apple touts the Mac as a secure device, Epic argues, so what gives?

And then there are web browsers. Apple has long made the case that if you don't want to buy things through Apple's in-app systems, no problem! Just open up Safari and do it there. Part of Apple's defense will be that there's no way it could be a monopoly, simply because Safari exists and so do web apps. And it will surely point to things like Microsoft's new Cloud Gaming service, which wasn't allowed in the App Store but is now coming to iOS through Safari.

We've been through this before. There will be many parallels drawn to the last big tech antitrust fight, United States v. Microsoft Corp., from 2000. Some of the folks involved in this trial actually participated in that one, too, and the way the courts thought about software and internet power will certainly affect the outcome here, as well.

The cast of key characters

For Epic:

Tim Sweeney, co-founder and CEO — Called as a witness by both Apple and Epic to testify on "Epic's efforts to compete in app distribution and in-app payment processing," among other topics.

Mark Rein, co-founder and VP of business development — Called as a witness by Apple only to testify on "the Epic Games Store business model and commission."

Daniel Vogel, chief operating officer — Called as a witness by Apple to testify on "Epic's exploration of sideloading on iOS and Android; Epic's launch of Fortnite outside of the Google Play Store."

Steve Allison, Epic Games Store general manager — Called as a witness by both Apple and Epic to testify on "the Epic Games Store business model and financial projections; the Epic Games Store's revenue split; the Epic Games Store's market share."

Andrew Grant, engineering fellow — Called as a witness by both Apple and Epic to testify on topics like "Epic's interest in workarounds to undercut Apple's 30% commission."

Matthew Weissinger, VP of marketing — Called as a witness by both Apple and Epic to testify on "marketing and promotional support services offered by video game consoles and mobile operating system providers, including Apple."

Thomas Ko, senior director and head of online business strategy and operations — Called as a witness by both Apple and Epic to testify on "Epic's payment processing services; Apple's payment processing services; Epic Direct Payment on iOS."

Also testifying: Joseph Babcock (former CFO), Joseph Kreiner (VP of business development), Haseeb Malik (former marketing manager), David Nikdel (online gameplay systems lead), Nick Penwarden (VP of engineering) and Alec Shobin (senior marketing manager).

Epic's lawyers: Paul J. Riehle of law firm Faegre Drinker Biddle & Reath LLP, and Christine A. Varney, Katherine B. Forrest, Gary A. Bornstein, Yonatan Even, Lauren Moskowitz and M. Brent Byars of law firm Cravath, Swaine & Moore LLP.

For Apple:

Tim Cook, CEO — Called as a witness by Apple to testify on "Apple's corporate values; Apple's business and operations; development and launch of the App Store; competition faced by Apple."

Eddy Cue, senior VP of internet software and services — Called as a witness by Epic to testify on "App Store business strategy; App Store financial performance; current and historical App Store policies and practices."

Craig Federighi, senior VP of software engineering — Called as a witness by both Apple and Epic to testify on "iOS and macOS engineering, security, privacy and competition issues; App Store policies and practices."

Phil Schiller, Apple fellow and former marketing chief — Called as a witness by Apple to testify on "Apple's business and operations; development and launch of the App Store; App Store policies and guidelines; the App Store business model; the App Store commission; app distribution," among other topics.

Matt Fischer, App Store VP — Called as a witness for both Apple and Epic to testify on "competitors and competition in the sale of apps and the different app marketplaces; Apple's business relationships with app developers."

Eric Gray, director of commerce and payments — Called as a witness by both Apple and Epic to testify on "design and operation of Apple's payment processing policies and practices."

Trystan Kosmynka, senior director of marketing — Called as a witness by both Apple and Epic to testify on "App Store policies and guidelines; Apple's app review and curation process and procedures."

Scott Forstall, former senior VP of iOS software — Called as a witness to testify on "iOS and macOS engineering, security, privacy and competition issues; historical App Store policies and practices; Apple's in-app purchasing function."

Phillip Shoemaker, former technology director for App Store review — Called as a witness by both Apple and Epic to testify on "historical App Store review policies and practices."

Also testifying: Eric Friedman (head of fraud engineering, algorithms and risk), C.K. Haun (senior director, developer technical services), Ron Okamoto (former VP of worldwide developer relations), Carson Oliver (director of business management), Shaan Pruden (senior director of partnership management and worldwide developer relations), Mark Rollins (finance manager) and Michael Schmid (head of App Store game business development).

Apple lawyers: Veronica Smith Moyé and Richard J. Doren of law firm Gibson, Dunn & Crutcher LLP.

Third-party witnesses

Lori Wright, Microsoft's VP of Xbox business development — Called as a witness by both Apple and Epic to testify on "the Microsoft Store; Xbox video game console business and operations; Xbox cloud gaming; distribution of apps on the App Store."

Benjamin Simon, Yoga Buddhi Co. founder and CEO — Called as a witness by both Apple and Epic to testify on "app distribution; participation in the Apple Developer Program; App Store review process; participation in the Coalition for App Fairness."

Aashish Patel, Nvidia's director of product management — Called as a witness by both Apple and Epic to testify on "Nvidia's GeForce Now service and business model; differences between streamed apps and locally hosted apps; differences between native apps and web apps."

Adrian Ong, Match Group senior VP of operations — Called to testify for Epic on "lack of competition among mobile devices and mobile operating system software" and "Apple's prior antitrust violations."

Shelley Gould, SmartStops co-founder and president — Called to testify for Apple on "App Store review process; communications with Apple" and "... benefits that Apple provided to SmartStops."

Further reading

If you want to get deep in the weeds of the trial, start with two documents: Epic's Findings of Fact and Conclusions of Law and Apple's version of the same. Between them, they're 690 pages of not-so-light reading, but they preview practically everything the two sides will argue at trial.

More recently, Apple filed a selection of its expert testimony, previewing the evidence it will use to prove its case. Epic quickly followed up with its own. Both rely on outside experts, academics and analysts to put their arguments in a broader context.

For some good catch-up reading on applying antitrust law to tech companies, there's Lina Khan's seminal paper, "Amazon's Antitrust Paradox," and Tim Wu's "The Curse of Bigness." Wired published a sweeping look at the Microsoft case after it ended in 2000. Around the same time, University of Chicago law professor Richard Posner wrote an influential essay called "Antitrust in the New Economy."

Protocol will be covering the trial every day, and you can follow along with our coverage right here.