Judge probes expert theories in Apple antitrust trial

A federal judge on Tuesday challenged testimony from Epic Games' expert economist that it's anticompetitive for Apple to charge a fee for others to use its App Store and prohibit competing marketplaces when it created the proprietary technology that allows developers to market their apps to users on its mobile operating system.

Comparing Apple's 30% commission to a "toll booth," U.S. District Judge Yvonne Gonzalez Rogers asked David Evans, chairman of the Global Economics Group, why Apple should be forced to permit developers to bypass the fee to use its distribution channels that connect them to over one billion customers.

"The platform and the channel are all technology developed by the owner," she said. "What you're saying is 'No we want you to have it for free or develop our own channel on the proprietary platform."

The remark came on the seventh day of an antitrust trial over Apple barring marketplaces for apps aside from its own and other policies that prohibit certain types of apps and the ability to circumvent its payment processing system.

Epic sued Apple in August after Fortnite was ousted from the App Store, following Epic installing its own payment system that allowed players to buy V-Bucks, the game's virtual currency, directly from Epic. Epic Games v. Apple Inc., 20-cv-05640 (N.D. Cal., filed Aug. 13, 2020).

Attempting to summarize Evans' testimony on the App Store, Rogers said "What we really have is a distribution channel."

"In this platform, Apple has put a toll booth," she said. "It has said ... you have to go through my toll booth to get to the consumer."

Evans cut in. He clarified that Apple is "saying our platform is going to be the only distribution channel" and, for certain apps, "erect a toll booth that charges for something else, which is the transactions that developers engage in with consumers."

But "the owner of that particular platform is Apple," Rogers responded, and "so in order for that channel to be used, you have to use that technology."

"It's all proprietary," she emphasized.

The exchange touched on a U.S. Supreme Court ruling in 2018 finding that American Express did not violate antitrust laws by banning merchants from encouraging patrons to use cards with lower fees. In that case, the court found services that connect consumers and businesses face a different and seemingly more forgiving standard of antitrust scrutiny because they deal with two sets of market participants.

The App Store is an example of such a "two-sided platform."

During another sharp round of questioning, Evans compared the unfairness of Apple's commission on in-app purchases to an Uber driver who forms a private relationship with a customer to continue driving for them. He said Uber does not deserve a cut of the money in that scenario since the rides would take place outside of the app.

Rogers replied that the example is comparable to Apple allowing developers to offer services sold in apps on the web, where the company does not take a 30% commission. Fortnite players, for example, can buy V-Bucks on Epic's website.

"There's nothing about that distribution process that impacts [Epic] differently given your Uber example," she said.

Evans responded that Apple maintains rules that prohibit developers from steering customers away from in-app purchases. Regardless, he said customers prefer in-app purchases because "By and large in the world we live in now, we are smartphone based and app based for much of what people do."

Stanford economics of technology professor Susan Athey testified Tuesday that Apple's anti-steering rules increase the "switching costs" of users leaving Apple's mobile operating system for Android's. She pointed out that consumers "can't tell from looking at their app on their iPhone where they may be able to find that app" on other platforms.

Epic attorney Yonatan Even, a partner at Cravath, Swaine and Moore LLP, showed a 2013 email from an Apple executive to chief executive Tim Cook that said "Getting using our stores (iTunes, App and iBookstore) is one of the best things we can do to get people hooked to the ecosystem."

"The more people use our stores the more likely they are to buy additional apple products and upgrade to the latest versions," the email continued. "Who's going to buy a samsung phone if they have apps, movies, etc already purchased? They now need to spend hundreds more to get to where they are today."

Athey will continue her testimony on Wednesday.