Apple Epic Trial

Four big takeaways from Epic v. Apple week two, and what's yet to come

Here's what we learned after a week of expert testimony.

Four big takeaways from Epic v. Apple week two, and what's yet to come
The outcome of this case could change how billions of dollars flows between tech companies.
Illustration: David Pierce/Protocol

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.

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A visitor plays a game using Microsoft's Xbox controller at a flagship store of SK Telecom in Seoul on November 10, 2020. (Photo by Jung Yeon-je / AFP) (Photo by JUNG YEON-JE/AFP via Getty Images)

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