The three-week trial between Apple and “Fortnite” maker Epic Games ended Monday with a debate session between the two sides that is known in legal circles as a “hot tubbing.”
In a barrage of tough questioning from lawyers from both sides, Gonzalez Rogers did not tip her hand as to what her final verdict will say. But she gave both sides reason to worry and rejoice at various points during the four-hour court session.
If the judge rules against Apple, any potential remedies could have a huge impact on the smartphone industry, potentially opening the tiny pocket computers to a wave of new innovation and business models. Smartphones today, especially iPhone, are mostly limited to what is allowed on app stores owned by either Apple or Google, and both companies charge high fees for any revenue earned on the stores. Apple has argued in court that such changes would invite malicious apps and violate its intellectual property rights.
At the heart of the trial is a philosophical question about the definition of the “market” in which Apple competes. Epic had argued that Apple dominates the market for distribution of iPhone apps. The only way consumers are allowed to install software on their phones is through Apple’s App Store. Epic argues that the distribution of software on iPhones is a market unto itself and that Apple is a monopolist of that market. Epic says that once consumers have bought an iPhone, they become locked in to that market and Apple no longer competes for their business.
But Apple argues that it competes with Google’s Android operating system, with video game consoles and even other handset manufacturers such as Samsung and Huawei.
If Epic persuades the judge to define the market its way, then it is likely that Apple would be considered a monopoly and thus be subject to greater restrictions on its business practices under antitrust law.
Early on in the questioning, Gonzalez Rogers made blistering remarks about Epic’s desire to end Apple’s tight control over its mobile operating system, called iOS. Apple has argued at trial that it needs that power to protect customers by vetting every single app that is allowed in the store.
“Your formulation seems to ignore the reality that customers choose an ecosystem,” Gonzalez Rogers said. “It is Apple’s business strategy to create a particular kind of ecosystem that is incredibly attractive to its purchasers, its consumers,” she said. If the court were to change that ecosystem by allowing more competition, it would “destroy the ecosystem into which they have made a choice to enter,” she said.
Epic counsel Gary A. Bornstein stood his ground, arguing that consumers aren’t making an informed choice when they buy into either the iOS or Google Android operating system for the first time because they aren’t generally aware of the costs, such as 30 percent commissions for all in-app purchases, and of the ways in which Apple allegedly works to lock customers into its ecosystem.
Bornstein argued that courts have determined that if customers aren’t aware of these types of costs, their initial purchasing decision — in this case, an iPhone — won’t keep companies from acting anticompetitively once they’ve made the purchase and locked in customers. Even if Apple raised commissions higher, it would have little effect on consumer behavior, he argued.
The judge also made comments that appeared to skewer Apple’s argument that it faces immense competition from many companies and that, as a result, it has never raised its commission on in-app purchases.
“The 30 percent number has been there since the inception, and if there was real competition, that number would move, and it hasn’t,” she said. “So far there doesn’t seem to be anything in the market itself that is pressuring Apple to compete with developers.”
Apple attorney Daniel Swanson said the commission is competitive and policies such as the “reader rule,” which allows apps like Amazon’s Kindle to contain digital content that was purchased off the Apple platform, was a sign that Apple faces competition.
Gonzalez Rogers prodded Epic’s side on the fact that the iPhone is an innovative product. She noted that a decade ago, the iPhone would not have been powerful enough to run a game like “Fortnite.”
“There is a tremendous amount of innovation on the iPhone,” Bornstein conceded. “There is not innovation on the App Store,” he argued. “This is a case not about innovation on the device or even innovation on the operating system. This is a case about a monopoly on the distribution of the apps,” he said, pointing to surveys that show dissatisfaction among app developers about how their software is distributed.
Gonzalez Rogers spent time probing both sides to determine an array of possible rulings and remedies that might spur competition and create less drastic changes in Apple’s business. For instance, she opined on a middle-ground solution that would define the smartphone games as the market, rather than by the definitions that Apple and Google argue should apply. “If I decided that the relevant market is mobile gaming, how does that impact your analysis?” Gonzalez Rogers asked Swanson.
“I would be very sad,” Swanson responded.
“What?” Gonzalez Rogers asked.
“That’s not relevant, I understand, but very sad.”
In the back-and-forth, Gonzalez Rogers openly grappled with the role courts should play in the operations of multinational corporations like Apple. She questioned whether federal courts have imposed remedies that forced a big company to make significant changes to its business model. Epic first mentioned the Federal Trade Commission’s antitrust lawsuit against Qualcomm, in which case the court did force a remedy. But the Qualcomm case was overturned, she said. Bornstein argued that, even though the district court ruling against Qualcomm was reversed, the U.S. Court of Appeals for the 9th Circuit did not take issue with what would have been the remedies.
Bornstein then brought up the Justice Department’s lawsuit against Microsoft in 1998, in which an appellate court partially upheld a lower-court ruling against Microsoft and some of the remedies imposed by the court. But that case, Apple’s lawyers pointed out, was brought by the Justice Department and not a private company. Gonzalez Rogers seemed to agree that cases brought by the government are in a different category, because the government can sue on behalf of any citizen and not just one plaintiff or group of plaintiffs. The fact that Epic is a private company does not mean Gonzalez Rogers cannot find against Apple and impose remedies.
The takeaway of the back-and-forth was that a ruling in favor of Epic Games and a court-imposed remedy that forces Apple to allow competing app stores, as Epic has asked for, would be groundbreaking. The judge, though, made light of the possibility of such a ruling coming from the West Coast, a region known for more liberal interpretations of the law. “They don’t call us the Wild West for nothing,” she said.
The judge probed one possible fix to help create more competition: Forcing Apple to allow developers to notify users of alternative payment options, where customers can go to avoid paying up to a 30 percent commission for in-app purchases.
Gonzalez Rogers said the case, which includes mountains of evidence, could take months to decide. She had previously said she hoped the case would be decided by Aug. 13. On Monday, she said the significance of that date was that it marks the first anniversary of Epic’s decision to offer an alternative payment option for “Fortnite.” That move, which was an unapproved software update known as a “hot fix,” caused Apple to kick it off the App Store, spurring the initial lawsuit. “I made a joke the other day of August 13th, which was the date of the hot fix; not everybody got the joke,” she said. “I’m not promising to have this by August 13th.”
