Suits, investigations prompted commission cuts, App Store chief says

The executive in charge of the App Store acknowledged Tuesday that the company rolled out a program cutting commissions in half for small businesses in response to pressure created by antitrust investigations and lawsuits.

Undercutting his testimony that the Small Business Program was implemented to help developers impacted by the pandemic, Apple fellow and former marketing chief Phil Schiller said monopoly concerns were "certainly a consideration of creating it."

Counsel for "Fortnite" creator Epic Games questioned Schiller on Apple's motives behind policies that govern the App Store and multiple internal communications that Epic claims detail a decadelong scheme to create a "walled garden" for its apps that locks consumers and developers into its mobile operating system.

Opening Apple's defense on Monday as the first company executive to take the stand, Schiller offered a narrative that the App Store has had a positive impact on innovation, the customer experience and developers who want to market their apps to more than 1 billion iPhone owners since its introduction in 2008. Epic Games v. Apple Inc., 20-cv-05640 (N.D. Cal., filed Aug. 13, 2020).

Schiller said that Apple finally carried out its plans for the App Store Small Business Program, in which developers that earn less than $1 million are only subject to a 15% commission, because of the COVID-19 pandemic.

Epic attorney Katherine Forrest, a partner at Cravath Swaine & Moore LLP and former federal judge, countered that the program was only announced five years after it was first thought of in 2016 to ease growing antitrust concerns that Apple maintains a monopoly over the distribution of apps.

"I don't think those points are mutually exclusive," Schiller responded.

Forrest said the pandemic was never referenced in internal documents discussing the program's launch. She detailed multiple antitrust investigations from countries around the world looking into Apple's App Store restrictions in addition to the filing of Epic's high profile lawsuit preceding the announcement of the initiative.

Among those investigations are probes from the European Union, Russia, South Korea, Japan, Australia and the U.S. House Antitrust Subcommittee, which Schiller said he does not recall.

The Small Business Program was implemented in November after Epic sued because Apple wanted "as a public relations matter to have something out there in the face of a cascade of congressional, judicial and regulatory activity, isn't that right?" Forrest asked.

"As I stated yesterday, Epic was a factor that helped," Schiller replied. "It wasn't the only thing that mattered. Other factors mattered too, like the pandemic."

During another sharp round of questioning, Forrest asked about an email Schiller sent in 2008 to Scott Forstall, senior vice president of software engineering, in which he referenced "the whole plan we have in place." She suggested that Schiller withheld information about the email during his deposition because he testified on Monday that he was referring to Apple's plan to launch the App Store in a few weeks and not a "monopolistic plot."

"At some point, you had a recollection," Forrest said without posing a question.

Schiller said he looked back on the emails, which he noted were sent more than a decade ago, because Epic kept emphasizing a plan for a "walled garden."

Forrest responded, "You wanted to make sure you knew how to explain it."

Epic has wielded the email, including in its opening statement, as evidence that Apple schemed to create a "walled garden" for its apps where it controls all aspects of operations to extract monopoly fees from developers.

Forrest also attacked Apple's narrative that the restrictions over the App Store are necessary to promote the security and privacy of devices that run its mobile operating system.

Even if the judge finds that Apple has a monopoly, she could conclude that those benefits outweigh harm to consumers.

Pointing to its privacy policy stating it collects a variety of information on users, including location data, search history, and personal identifiers, Forrest said Apple tracks users. She said there's no way to opt out of the service designed to deliver targeted ads.

During questioning by Apple attorney Richard Doren, a partner at Gibson, Dunn & Crutcher LLP, Schiller clarified that tracking refers only to when a developer sells or shares data with third parties, which Apple does not do, and not when location data is gathered to provide a necessary service. He said users can opt out of data collection if they want.

Schiller detailed Apple's newly unveiled App Tracking Transparency feature, which forces developers to get permission from users if they want to share or sell their personal information, in support of the company's narrative that its users prefer Apple over competitors because it values the security and privacy of users.

Facebook has been a vocal opponent of the feature.

Trial continues on Wednesday with testimony from Michael Schmid, head of game business development for the App Store.