Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 1: Why don't you The latest ads for the iPhone are
Speaker 1: all about the app tracking transparency that lets you control
Speaker 1: which apps are allowed to track your activity across other companies,
Speaker 1: apps and websites. But at Apple, we believe that you
Speaker 1: should have a choice. App tracking transparency, a simple new
Speaker 1: feature that puts your data back in your control. The
Speaker 1: ads end with the words privacy. That's iPhone, and that's
Speaker 1: been one of Apple's arguments in its high stakes legal
Speaker 1: battle with Epic Games, saying it's control of the app
Speaker 1: store is the only way to ensure security and privacy
Speaker 1: on iPhones, with Epic claiming that the app stores anti
Speaker 1: competitor is joining me is anti drust expert Harry First,
Speaker 1: a professor at m y U Law School. So, Harry,
Speaker 1: there's been no jury at this three week trial and
Speaker 1: it will now be up to Judge von Gonzalis Rogers
Speaker 1: to make the decision in the case. What are some
Speaker 1: of the issues she'll be considering. Well, there's sort of
Speaker 1: a set of legal issues which involves the technical issues
Speaker 1: for antitrust. What's the market, how do you define it?
Speaker 1: What's the conduct, what are the competitive justifications and what's
Speaker 1: the harm? So you know, those are the legal issues
Speaker 1: that the parties have to deal with. And then there's
Speaker 1: the you know, what's it all about part of the case,
Speaker 1: sort of the texture of what the party's business complaints
Speaker 1: really are and why they're doing what they're doing, and
Speaker 1: that in the end informs the facts that she finds
Speaker 1: and her conclusion. So that part is, you know, well,
Speaker 1: how do you justify this price gouging, Mr? Cook? And
Speaker 1: how did you decide to name fortnite fortnite? You know,
Speaker 1: and as a banana banana? I mean, that's sort of
Speaker 1: what their business is, what gaming is, and what Apple's
Speaker 1: businesses and how they can continue to charge so much
Speaker 1: money and justify And there you're referring to some of
Speaker 1: the more bizarre moments in the trial with the discussion
Speaker 1: of a banana action figure in Fortnite and the judges
Speaker 1: questions about how the game was named. Now, Apple has
Speaker 1: been saying that iPhone security and privacy drives what they do,
Speaker 1: and Tim Cook on the stand repeatedly said that the
Speaker 1: rules and restrictions on the App Store are aimed at
Speaker 1: ensuring a safe and secure platform for consumers, But the
Speaker 1: judge seems skeptical about that argument. I think anyone is
Speaker 1: always a little skeptical when the head of a company
Speaker 1: that has the highest value of any company in the
Speaker 1: country says, Oh, no, we're really just in it to
Speaker 1: protect our you is privacy, So you know, is it
Speaker 1: a smoke screen? I think epics representatives of pushing on
Speaker 1: that and is there some reality to it? Sure, there's
Speaker 1: some reality to it. That's what Apple has been pushing
Speaker 1: as its brand that it's safer. So is it really.
Speaker 1: They've had expert witnesses who testified not really. It's no
Speaker 1: more or less safe than Google Play in the Android marketplace.
Speaker 1: So you can say it all you want, but still
Speaker 1: stuff gets by. And I don't think anyone's going to
Speaker 1: ever believe that that's all that they're doing. They may
Speaker 1: be doing that, but this is about making a whole
Speaker 1: lot of money, and they are making a ton of money.
Speaker 1: And as far as money goes, Apple claims that it
Speaker 1: doesn't break out the app stores profits separate from the
Speaker 1: other units in the company, and Cook denied repeatedly that
Speaker 1: he knew how much money Apple makes in profits on
Speaker 1: the app store. Is that believable. You know, this strikes
Speaker 1: me as amazing. This is a this is a company
Speaker 1: with a market cap over two trillion dollars and they
Speaker 1: don't know where they're you know, Oh, really, we get
Speaker 1: paid so many billions of dollars by Google. I have
Speaker 1: no idea how much? How much that is? Oh do
Speaker 1: we make money off the app store? G I don't know.
Speaker 1: We just keep investing hundreds of millions of dollars what
Speaker 1: for the fun of it? I mean, this is whacko.
Speaker 1: I'm not sure it's a great strategy to walk away
Speaker 1: from the idea that this is very profitable. And I
Speaker 1: think their legal strategy in the end will be to say, yes,
Speaker 1: it is profitable and that's what incentivizes innovation. Now, you
Speaker 1: can't say it's an incentive for innovation if you don't
Speaker 1: know that it's profitable. I mean, it's just wacko. And
Speaker 1: I don't think anybody's going to believe that. It's just
Speaker 1: I'm not sure why his lawyers sent him in to
Speaker 1: say that. Maybe they didn't. Maybe that's how what he
Speaker 1: really believes. But it seems unbelievable yet, maybe it's an
Speaker 1: accounting matter, Maybe they don't break it out exactly, but
Speaker 1: that doesn't mean they don't know what's going on. The
Speaker 1: judge also seemed a little skeptical about Apple's intellectual property argument.
Speaker 1: You know, they're protecting their i P. They're spending so
Speaker 1: much money on their i P. She said that they're
Speaker 1: making a disproportionate amount of money relative to the i
Speaker 1: P you've given them. Tech companies have often this, This
Speaker 1: started with Microsoft probably went back before, said oh, you know,
Speaker 1: we've got to protect our intellectual property rights, and we've
Speaker 1: been given these rights and these are really important to us,
Speaker 1: and they never are put to the test whether any
Speaker 1: of these rights are enforceable, and you know, it's sort
Speaker 1: of a smoke screen about right, but it's really about
Speaker 1: protecting their business. As for the relative value of putting
Speaker 1: together the i P. And there's a lot of on paper,
Speaker 1: a lot of copyright and patent protection for what they do,
Speaker 1: but the relative value of doing at and what value
Speaker 1: is added by the gamers and the implementers. This is
Speaker 1: always an issue as well, you know, because both parties
Speaker 1: need each other. So one party says I'm the most
Speaker 1: important one, I should get the biggest amount, and the
Speaker 1: other says no, without me no one would have a phone.
Speaker 1: So one of the interesting things is this issue was
Speaker 1: raised in another piece of litigation in California involving Qualcom
Speaker 1: and their patents on phone technology. And the handset makers say,
Speaker 1: you know, we pay you a lot of money for this,
Speaker 1: and this technology is all about making voice calls, and
Speaker 1: you know most people don't use phones for that anymore,
Speaker 1: but we still have to pay you these huge royalties
Speaker 1: based on the sale price of the handset. So in
Speaker 1: that litigation, Qualcom was defending it's very high royalties, while
Speaker 1: the handset makers, including Apple, we're upset with it. So
Speaker 1: a historic a constant eight in intellectual property where sort
Speaker 1: of both sides need each other and one side says
Speaker 1: we're paying you way more than what you contribute to
Speaker 1: the deal, which is what the programmers are saying. And
Speaker 1: I think the judges picking up on that. So a
Speaker 1: lot of legal experts gave Apple the advantage going into
Speaker 1: the trial, but there was a shift after hearing the
Speaker 1: judge questioning Tim Cook. If the judge finds in favor
Speaker 1: of Epic, what kind of remedies might you order? Well,
Speaker 1: she could enjoin Apple from keeping Epic from providing consumers
Speaker 1: information about a different way to process their charges for
Speaker 1: payments they make for things in the application, Epic apparently
Speaker 1: had a screen that they wanted to show consumers, say
Speaker 1: which would you like to do? Pay more to Apple
Speaker 1: or less to us, So she could enjoin Apple from
Speaker 1: stopping Epic from doing that. Whatever she orders, my guess
Speaker 1: is either she will stay her order or the Court
Speaker 1: of Appeals will stay her order. So actually nothing may
Speaker 1: happen immediately no matter how she rules, and it will
Speaker 1: await a decision by the Court of Appeals. Epic, interestingly,
Speaker 1: is not asking for money. They're not asking for damages
Speaker 1: from the high charges. I think it's a clever tactical
Speaker 1: move on Epics lawyer's part. So just saying, give us
Speaker 1: a chance to compete for consumers, give consumers a choice,
Speaker 1: and makes a very clean ask in a way. Could
Speaker 1: the judge ever rule, Okay, you're taking from developers, now
Speaker 1: that's too much you have to take or whatever. So
Speaker 1: one of the interesting aspects of this is, as a
Speaker 1: legal matter, there is no any trust restriction on Apple
Speaker 1: charges even as a monopolis. They can charge whatever heck
Speaker 1: they want and it doesn't violate any trust law. So
Speaker 1: judges are very low to start monkeying with saying your
Speaker 1: prices are too high. And in the qualcom case of
Speaker 1: the District Court, judge did get into that issue and
Speaker 1: the corn appeals to everyone sort of sidestepped back. So
Speaker 1: it's not a violation of the any trust laws to
Speaker 1: charge a high fee, even an exorbitancy. So it's hard
Speaker 1: for a judge. So now say, okay, I'm going to
Speaker 1: price regulate you, and you know you can only charge
Speaker 1: x per cent. I don't see her doing that, and
Speaker 1: I don't see Epic asking for that because I think
Speaker 1: they will get reversed so fast in the court of appeals,
Speaker 1: So I think they're being careful to stay away from that,
Speaker 1: but to try to achieve a similar result in a
Speaker 1: different way. What's your take on this case is Apple
Speaker 1: of Monopolis. Here is Apple violating antitrust laws. So I
Speaker 1: will tell you June that this basically was my exam
Speaker 1: question this year. So I've been reading papers all about this.
Speaker 1: So there's a real question how we want to think
Speaker 1: of these markets. And I think the courts are gonna
Speaker 1: have a little trouble with this. But my view is
Speaker 1: in the end, they do have monopoly power over the
Speaker 1: distribution of Apple apps to the iPhone, And I think
Speaker 1: that the hard question really is, well, what's the anti
Speaker 1: competitive effect? Who's harmed in terms of competition, and how
Speaker 1: do we think about it? Pretty clear that the harm
Speaker 1: is that they're being charged a high fee. At one point,
Speaker 1: Epic calls that attacks on their business. But since we
Speaker 1: can't say that that's the harm, exactly, where's the competitive harm.
Speaker 1: They don't compete with Epic, they don't have their own
Speaker 1: games that compete. There are other Fellers who complain about
Speaker 1: Apple and are competing with them, so it's not that
Speaker 1: so exactly, how is competition, you know, which we tend
Speaker 1: to think of as rivalry among different sellers of products.
Speaker 1: How is it that effected? Is an Epics being forced
Speaker 1: at all? Developers being forced to pay a lot of money?
Speaker 1: How a court is going to deal with that? Now?
Speaker 1: I would like to see courts deal with that a
Speaker 1: little more, but I think that's gonna be a difficult issue.
Speaker 1: It may end up going to the Supreme Court. Thanks Harry.
Speaker 1: That's Professor Harry First of n y U Law School.
Speaker 1: Billions of dollars are at stake, and at the end
Speaker 1: of the three week trial, the judge will decide the
Speaker 1: Apple Epic case has signaled that neither Apple nor Epic
Speaker 1: Games will get what they want from her ruling. Joining
Speaker 1: me is molefy Nayak, Bloomberg Legal reporter. The judge made
Speaker 1: some telling remarks at the end of the trial. Tell
Speaker 1: us a little bit about what she said to the
Speaker 1: jetting this case. You know, towards the end of this
Speaker 1: trial had some really tough questions for both sides, and
Speaker 1: it was sort of selling because I think that you know,
Speaker 1: to the trial and some of these questions team up.
Speaker 1: But toward the end she talked about how Apple but
Speaker 1: then she need does face any real competition in the
Speaker 1: market for app distribution. And on the other side, she
Speaker 1: also questioned um epics motives and asked, you know where
Speaker 1: the Epic was suing because they were doing it to
Speaker 1: become richer than they are as a gaming company currently.
Speaker 1: What are her options here? So the joet has a
Speaker 1: few options. Obviously she's very powerful here, and this is
Speaker 1: an ant attract case that is extremely complex. She can
Speaker 1: either grant Epics request for a ruling that would block
Speaker 1: the apps Florence policies in their current form. She could
Speaker 1: perhaps go step further and even ask Apple to change
Speaker 1: the percent commission rates that its currently charges developers. On
Speaker 1: the other hand, she could maybe decide not to go
Speaker 1: that far and take a step back, because sometimes judges
Speaker 1: are reluctant to really rule in a way that would
Speaker 1: disrupt a market. So it's possible that she it's not
Speaker 1: to go that far and says that Apple's app store
Speaker 1: as it is is fine and isn't a monopoly, And
Speaker 1: she could also choose something in the middle, which is
Speaker 1: something she inted that during the course of the trial.
Speaker 1: You know, one of the the issues that Ethics had,
Speaker 1: and this came up in the case two during the trial,
Speaker 1: was that currently Apple's app store policies don't let users
Speaker 1: go outside an app to buy a virtual good to
Speaker 1: the cheaper rate. So, for instance, what Ethic wanted to
Speaker 1: do was have some sort of an alternative payment system
Speaker 1: where users could go, you know, outside the app store
Speaker 1: and you know, on the on the fortnighte app and
Speaker 1: buy virtually good directly to sort of circumvent the thirty
Speaker 1: percent commission. And one of the appture policies currently doesn't
Speaker 1: let um developers include a link some sort of a
Speaker 1: button that maybe users can click on that would take
Speaker 1: the user to the web where online they could for
Speaker 1: just the same virtual goods like in Apparency, at a
Speaker 1: cheaper rate. So that was an issue that came up.
Speaker 1: This is sort of called um an anti steering rule
Speaker 1: that Apple has where developers can't hear a customer outside
Speaker 1: the realm of the iOS ecosystem to make cheaper purchases outside,
Speaker 1: for instance, on a web browser. So the judge kept
Speaker 1: asking during a child you know, why can't Apple this allow?
Speaker 1: She exactually asked apples see you can cook this, why
Speaker 1: can't Apple just give consumers this choice either through some
Speaker 1: sort of a link or a button that a development
Speaker 1: can place within an app so that the consumer has
Speaker 1: a choice to go outside the app store and make
Speaker 1: a purchase potentially on the web, you know, at a
Speaker 1: discounted price. So it's possible that she chooses some sort
Speaker 1: of a compromise where maybe she asked for some sort
Speaker 1: of tweaks to some of these actual policies that Epic
Speaker 1: has an issue with. So she could also sort of
Speaker 1: find something the middle ground here. Instead of giving Epic
Speaker 1: or Apple an entire wind, she could give them a parction.
Speaker 1: She could give Epic a partial wing. So legal experts
Speaker 1: going into the trial gave Apple the advantage until Tim Cook,
Speaker 1: the CEO of Apple, testified. Was it the judges questions
Speaker 1: were harsh? Was it that he didn't have the right answers? Yeah,
Speaker 1: it was very interesting to see. Didn't could seek the
Speaker 1: Britness stand for the first time ever, and the judge
Speaker 1: definitely had some very very touch questions for him. And
Speaker 1: I think, you know, again this whole question of consumer choice,
Speaker 1: that why can't Apple just let developers provide users alternative
Speaker 1: options to to buy virtually good outside the app store
Speaker 1: was one of the questions she had, and Tim Cook
Speaker 1: said that, you know, but we have all this intellectual
Speaker 1: property that we've invested millions on and we've helped these
Speaker 1: developers create these businesses on top of our ecosystem, so
Speaker 1: we need to return on investment. And that was his
Speaker 1: response in terms of having a return on investment for
Speaker 1: all the i P that they've been providing developers. And
Speaker 1: I think one of the the arguments that Apple also
Speaker 1: need was that Epic was basically just getting a free
Speaker 1: ride on the App Store and building out this big
Speaker 1: business making use of its i P. And she also
Speaker 1: asked him Cook another question, which was decently Apples introduced
Speaker 1: this to the small business program where they reduced the
Speaker 1: submission from fifteen percent for small businesses and UM, this
Speaker 1: happened sometime around the pandemic, and at that time there
Speaker 1: was a lot of scrutiny from U S lawmakers, regulators
Speaker 1: in Europe, this whole discussion around the app store and
Speaker 1: how Apple controls the app So the debt asked him
Speaker 1: Cook whether it was, you know, all the regulatory scrutiny
Speaker 1: that was pushing the company to to to sort of
Speaker 1: introduce this new program where they were giving small businesses
Speaker 1: this smaller commission fifteen percent commission. And she asked him
Speaker 1: what the motive behind that was, and you know, sim
Speaker 1: Cook said, oh, no, you know, of course, the law
Speaker 1: that Epics filed and all the regulatory strupany was at
Speaker 1: the back of my mind. But you know, it was
Speaker 1: a pandemic and we wanted to do something for the developers.
Speaker 1: Tell us a little about Apple's argument that this is
Speaker 1: all about security on their platform. So yeah, I think
Speaker 1: this whole argument that Apple has been making that you
Speaker 1: know that what they're doing here in terms of restrictings. UM,
Speaker 1: the app store or like, you know, having these these
Speaker 1: sustringent rules and regulations around the app store. Um. You know,
Speaker 1: they keep arguing that it is for the benefit of
Speaker 1: developers or it's for the benefits of customers, that they
Speaker 1: need to have these restrictions in place so that consumers
Speaker 1: have a safe and trusted experience when they have UM
Speaker 1: when they're playing games or using their iPhones. And I'm
Speaker 1: not entirely sure the judge was convinced because you know,
Speaker 1: she was questioning whether Apple or um Epic me have
Speaker 1: some sort of you know, monetary motives or sort of
Speaker 1: monetary must be thinking of Monday benefits. Uh, you know
Speaker 1: at this point, So did you sense tension between them
Speaker 1: or was it just tough questioning? There was definitely, you know,
Speaker 1: some attention. I mean when when we had Tim Cook
Speaker 1: being questioned Apples lawyer, it was definitely a lot a
Speaker 1: friendlier and you know, typically, uh, you see a lot
Speaker 1: of these executives when they, uh, when they're questioned by
Speaker 1: their own lawyers, they're definitely more relaxed. Um. But the judge,
Speaker 1: you know, he definitely was a bit if he did
Speaker 1: have justifications, but they just didn't seem convincing enough. Um,
Speaker 1: I think so at feel like he was. Um. He
Speaker 1: definitely had justifications, but this whole um argument about how
Speaker 1: the Act restrictions are necessary because the health developers and customers,
Speaker 1: I'm not sure it was. I'm not sure the judge
Speaker 1: was entirely persuaded. Bada. Did she question all the witnesses
Speaker 1: or just Tim Cook? She questions, you know a number
Speaker 1: of witnesses. There were other executives from Apple as well.
Speaker 1: There was Phil Schiller, who is um now an Apple fellow,
Speaker 1: but you know, has been a Apple's marketing chief for
Speaker 1: a very long time. She even quest in simce Me,
Speaker 1: who was at the stand whose Epics CEO as well.
Speaker 1: So this was in the first week of the trial,
Speaker 1: so she definitely had a lot of questions. But towards
Speaker 1: the end of the trial as it wrapped up, this
Speaker 1: exchange which Tim Cook was definitely an interesting one, and
Speaker 1: though I was listening to the audio field, the pension
Speaker 1: in the room was definitely possible. I have know much
Speaker 1: about gaming or Epic, but it's not some new upstart
Speaker 1: fighting to keep its company going. Fortnite generated five billion
Speaker 1: dollars for Epic and the app store for Apple possibly
Speaker 1: about twenty billion a year. So oh no, definitely not
Speaker 1: this This um game business is well and Fortnite is
Speaker 1: a very very popular game. So and and I think
Speaker 1: the big question is if Epic didn't have to pay
Speaker 1: that Apple, it'd probably be richer than they are today.
Speaker 1: So um, although in this fight, interestingly enough, Epic isn't
Speaker 1: speaking any damages. You know, it's more a fight on
Speaker 1: principle in terms of we want this app store to
Speaker 1: be the one where developers have the feeding in terms
Speaker 1: of deciding what what sort of famous systems need to
Speaker 1: be in place, and also, um, you know, how customers
Speaker 1: should sort of experience and apps. So let's say the
Speaker 1: judge does take the compromise fruit and says that Apple
Speaker 1: has to allow the gamers to put a link in
Speaker 1: so that people can buy from them directly. Has there
Speaker 1: been an estimate about how much Apple would lose and
Speaker 1: revenue from that? So, you know, it's very interesting because
Speaker 1: Apple so far has not shared its app store revenues.
Speaker 1: So it says that, you know, as for the accounting rules,
Speaker 1: that they doesn't have to separate the app store out
Speaker 1: is a separate business unit. So so this there is
Speaker 1: a sort of mystery around what then when there is
Speaker 1: a supposed to we have estimates in place UM and
Speaker 1: you know it is supposed to be somewhere to the
Speaker 1: tune of twenty billions. But they will definitely lose a
Speaker 1: lot of money because we're talking about you know, UM
Speaker 1: houses and thousands of developers and millions of apps, and
Speaker 1: if they don't get this thirty percent commission UM, then
Speaker 1: you know it is going to definitely um be a
Speaker 1: big financial sort of set back because they're not going
Speaker 1: to make those UM fees that they have been collecting
Speaker 1: in permissions. And it's interesting too, is that this business
Speaker 1: with the app store that Apple has created is a
Speaker 1: high margin business, so you know, they're getting a lot
Speaker 1: in return, we're not really investing as much. So for instance,
Speaker 1: they do have this I T in place and everything,
Speaker 1: but this uh, but the commissions that are coming in
Speaker 1: are are coming in it at high margins. And so
Speaker 1: how long did the judge say how long before she
Speaker 1: gives her decisions? So she didn't specify a specific date,
Speaker 1: but she did say that she would rule as soon
Speaker 1: as possible, you know, while all of the arguments and
Speaker 1: um testimony and evidence to fresh in her memory. Um,
Speaker 1: she is going into trial the first week of June,
Speaker 1: so we'll expect think something perhaps later this summer. But
Speaker 1: she didn't specify a lead, but we should. We should
Speaker 1: probably have a ruling incoming months. And um, you know,
Speaker 1: everyone is definitely going to set in nyaut for that,
Speaker 1: and she's anticipating already. I mean, everyone assumes that whoever
Speaker 1: loses is going to appeal. In front of the judge
Speaker 1: herself actually said that, you know, she wanted to build
Speaker 1: out a very clear record of the evidence because she
Speaker 1: expects an appeal in this case. And um, you know,
Speaker 1: legally put to expect, you know, the losing side to
Speaker 1: file an appeal. If there is just sort of compromise
Speaker 1: or middle grounds situation that we end up with, then
Speaker 1: it's possible that both sides to feel as well. So
Speaker 1: we'd have to see how it bangs out once we
Speaker 1: have the ruling. Now, that would be an interesting appeal.
Speaker 1: Thanks so much for being on the Bloomberg Law Show.
Speaker 1: That's Mollothy Niac, Bloomberg Legal Reporter. And that's it for
Speaker 1: this edition of the Bloomberg Law Show. I'm June Grosso
Speaker 1: and you're listening to Bloomberg