Thread by @PatrickMcGee_

Apple-Epic hearing started a few minutes early. “We are going to be hear for hours, I suspect,” says Judge Gonzales, who threatens to mute people if they regurgitate arguments she’s already aware of.

Thread begins...

Gonzales begins by grilling Katherine Forrest - Epic’s lawyer - and says it’s not acceptable Epic hasn’t produced documents for discovery.

“Well, Apple has already produced. So, I find it to be convenient for you, not convenient for anybody else.”

Judge wants to define the relevant market, “the area of effective competition.” Says Clearly “this is where I have the most questions.”

Is iOS platform an aftermarket?

Epic lawyer Bornstein says you can’t distribute on iOS separately. It constitutes an aftermarket.

YGR: “In many ways you’ve created a failsafe definition .... because if it’s a single-product definition, then by definition they have a monopoly.”

Epic’s Bornstein: “We are challenging restraints that occur with respect to distribution and restraints that occur with respect to payment processing, and we are not challenging restraints that are applied at the software platform level which is the primary market.”

YGR asks if this expert came up with these opinions or is making Epic’s arguments?

‘His declaration indicated that counsel asked him to address these issues, as opposed to ... — the way he framed the analysis suggested to me that the lawyers framed “the market” not the expert.’

Epic’s Bornstein says crux of issue is: “Does competition to sell iPhones and iPads impose any discipline on Apple’s conduct in the aftermarket?”

YGR: “The 30% of what you complain seems to be the industry rate, right?
Steam charges 30%. Microsoft: 30% ... If you go to consoles: PlayStation, Xbox Nintendo all charged 30%.
Physical stores: game shop, Amazon, Best Buy, Walmart all charge 30%. Apple and Google charged 30%.”

“it's all 30%, and you just want to gloss over it. You don’t want to address it,” judge YGR says.

Oof, Epic doing poorly on Apple’s 30% fee being excessive.

“There doesn't seem to be evidence to support what you're saying,” Judge YGR says.

Epic’s Bornstein says alternatives to the smartphone have their own constraints. “For example you can’t play an Xbox when you are, you know, on a bus.”

YGR: You can’t play, but you can play on a [@nintendo] Switch.”

Epic’s Bornstein: “Our concern is there is no competitive market right now, and there is no constraint on what they can charge.”

Apple lawyer Richard Doren now speaking. Beings by saying “this is something of a unicorn in antitrust law.” Cites fundamental differences between Apple’s market and Kodak’s (one of the widely cited precedents).

Doren says Epic CEO Sweeney says 10% of average daily players using iOS, which means: “90%, on any average day, of people playing Fortnite are using a device other than iOS”

“There is substantial interchangeability”

Doren says the Kodak precedent is wrong: “there was an undisclosed change of terms that impacted the plaintiffs in a negative way. ... The exclusivity of dealing exclusively with Kodak parts was interposed, after the contract has been entered.”...

Doren says there is no question that Apple’s rules, the 30% fee and in-app payment, have been constant in 2011.

“those terms haven't changed, and that those terms have remained constant. So, there is no aftermarket or aftermarket claim or derivative market....”

Judge YGR now grilling @Apple: “In your view, where is the competition? Where does that 30% come from? ... Why isn’t is 10%, 15%, 20%, or 30%? There doesn’t seem to be competition?.”

Doren says Apple established model in 2008 — the App Store and in-app purchases. Only change is 500 apps have “exploded” to 1.8m.

What has occurred is that since the 1st iPhone, the device has become “profoundly more sophisticated” and “provided profoundly more opportunities.”

“Common sense tells us that a 12 year old fortnite player would prefer a big screen and a large control pad rather than playing with their thumbs on the bus.”

-Apple’s Doren, explaining that users are not “locked in” to iOS.

Bornstein says developers won’t sacrifice 1bn users if Apple were to raise its price. “Yes, a 12yr old would rather be on a big screen, but we see that 63% of those users play on iOS. That, to me, is powerful evidence.”

Epic’s Bornstein says Epic would like its own store to distribute apps on iOS, but it can’t because Apple has prohibited it - that’s the anticompetitive act issue.

Strong words: Apple’s Doren says Epic creating its own competing store within the iOS platform is, ”essentially, an indictment of Apple’s entire business model, which has been committed to the safety, security, and privacy of its users.”

...“That is a fundamental disagreement with the way Apple has chosen to do business, but Apple's business model has been consistent throughout its existence. This is the way it has chosen to set up its model and its trademark, is to safeguard its users”

Doren says 63% figure from Epic is misleading.

“That just tells us that if we look at everyone who has ever opened fortnite on an iOS platform — that they didn't use others. Perhaps they looked and lost interest, we don't know, there's no information offered.”

Lawyers are good at poker face but Epic’s Bornstein looks confused and frustrated as Judge YVR and Apple’s Doren agree on an “alternative reading” of how Epic portrayed the number of iOS users for Fortnite.

Bornstein clarifies: The 63% represents 71m users. ... Says 10% of Daily Active Users on Fortnite recently used iOS. But the total number who only sign in using iOS is 71m.

Judge YGR: “I think this is going to be a fascinating trial, frankly. Because each of these experts makes a compelling argument.”

Judge YGR says it’s complicated, “we are in a new world — they don’t call this The Wild West for nothing.”

Says: walled gardens have existed for 4 decades. Nintendo, Microsoft and Sony all had/have them.

“What Apple is doing is not much different ... they created a platform.”

Bornstein says the economics of consoles are different: Consoles are sold at a loss, so their 30% is very different from (Apple’s) 30%.”

Judge YGR: “Well plaintiffs always want me to define relevant markets as narrowly as possible. It helps their cace. And defendants always want me to define markets as broad as possible, because it helps their case.”

Next part of case starting, with Judge YGR beginning: “I'm not particularly persuaded with section one”

Epic’s Bornstein: “Not an auspicious start for me but I’ll do my best, your honour.”

We’re on the “tying” argument, which regards whether the App Store and in-app purchases (IAP) are separate products.

Apple’s Doren: “IAP is simply the function within the App Store that administers the collection of a commission... It’s never been marketed or sold separately.”

“Epic has offered no evidence of there being a separate demand for IAP specifically as a product. And it's not at all like PayPal or Stripe, in that it is an integrated element of the App Store.” -Apple’s Doren.

Judge YGR: “Mr Bornstein, I just don't see this as a separate and distinct product.”

YGR: Apple Pay is much more like Paypal than when I’m in an app, and I purchase something and it’s tied to my credit card. Apple takes its cut, the credit card takes their cut. I don’t see divvying up the payment is a separate and distinct product.”

Bornstein: if I’m getting an Uber — my credit card is there already. I don’t have to do anything else. It’s like IAP in that respect, except Uber is not required to use Apple services. Why?... We can speculate why they have not chosen to extend that tie that far.

Thrust of Apple’s argument here is that in-app purchases are just the checkout counter for the App Store. It’s not a distinct product, never has been, and nobody has ever asked it to be one.

“This is simply an element of the App Store, which is an element of the iPhone,” - Doren

Could use a recess... There’s a “raise hand” icon and it’s very tempting. 🖐

Bornstein says there *IS* distinct demand for different payment mechanisms. When it circumvented Apple’s payment system, “over 50% of people chose to use direct pay.”...

“Apple disclosed in its papers for the 1st time that there have been thousands of instances in which developers have attempted to introduce a separate payment processing service in-app...” -Bornstein

Judge YGR, to @apple: Your expert opines said there is no separate demand for IAP, but as Mr Bornstein correctly points out ... 50% of people did in fact use their mechanism....

Apple’s Doren responds: No, that just demonstrates people would rather pay $7 than $10.

“What's probably most enlightening about that statistic is that 50% prefer to stay within the App Store, within IAP, because they trust Apple to protect their safety, security and privacy”

Moving to other arguments now.... It’s now Katherine Forrest representing Epic

She’s a high-profile former judge and antitrust litigator at Cravath.

Forrest going hard on how Apple caused irreparable harm by trying to ban Epic’s graphics platform Unreal Engine.

“Having competition go from two development platforms with Unreal Engine and Unity, down to one, is not an answer.”...

“There is absolute irreparable harm to Epic’s Unreal Engine business. It's got thousands - hundreds of thousands - of developers who have millions of licensees who are dependent upon these engines, and this is going to shutter that business for epic. That is not contested.”

This is moving quickly, sorry. Judge YGR says some of Forrest’s arguments are circular. Will have to come back to this later.

Judge YGR says federal courts don’t issue injunctions just b/c parties find themselves in a contractual dispute.

“There are instances where federal courts might issue orders to keep the status quo — in situations where a company/business is going to go out of business....

“And that's not the case for Epic. No one's entitled to make billions of dollars. There was a calculated decision here...”

Forrest says the idea that Unreal Engine is a Trojan Horse is “a total straw man” and “completely irrelevant” to Fortnite dispute.

Judge appears to take her side, mocks Apple a bit for its “the sky is falling” approach which “is a bit overblown” and “not on solid ground”

Apple’s Boutrous counters that if Unreal is allowed to operate then Epic may try to sneak past Apple’s app-review process.

“Others would do it too. And that really goes to the core of the system. So it's not just Epic and Unreal Engine that we're concerned about.”

“That would go to the core of Apple's business model and unravel it — and be a greenlight to other companies. And that would be very dangerous.” - Apple’s Boutrous

“Apple wasn’t retaliating against Unreal Engine ... it was protecting its ecosystem,” says Boutrous.

YGR cuts him off. “I understand that..” Says this is an extraordinary case

GREAT QUESTION from Judge YGR: “At what point in time did Apple become a monopolist?”

Forrest doesn’t have a great answer, merely states that it was a monopoly in 2018 when Epic went to iOS.

YGR: I think it's obvious that in 2007, nothing existed...Apple created something. And now, it’s a ubiquitous platform. So they’ve gone from being a non-player to an innovator. And at some point, there is a claim they became a monopolist, even though rates haven’t changed.”

Forrest: “What I'm suggesting is that as of 2018, when we entered into our relationship with iOS, there were no alternative app stores. ... there was alternative to IAP. It was a monopolist at that time and it has sought to maintain its monopoly.”

Forrest: “When did it become unlawful? That becomes a more complicated question [but] it became unlawful as to us, as of 2018.”

Harsh words from YGR, re Epic’s “hot fix” in-app purchase circumvention:

“You were not forthright. You weren't. You were told, you couldn't do it. And you did. You know, there's an old saying, a rose by any other name is still a rose. I mean, you can try all you want...”

Ouch. Judge YGR:

“There are plenty of people in the public who consider you guys heroes for what you did — but it's still not honest.”

“Don't try to convince me that you were forthright — when you weren't,” Judge YGR tells Katherine Forrest representing Epic.

Apple’s Boutrous:

“There's no dispute that Epic needs to meet all 4 preliminary injunction standards to get a temporary injunction. Ms Forrest just admitted they must show likelihood of success on the merits.”

“If Epic would just come into compliance, it can free Fortnite. It can free Unreal Engine by just complying [with] what it owes, and we have a trial and summary judgment and proceed. And that will protect the public.” - Apple’s Boutrous

Judge YVG says, “What if” the 30% went into some escrow account?” — Will Apple let Fortnite back on, and will Epic agree to go back w/o their own payment option, but all monies go into escrow? Yes or no?

Apple lawyer Boutrous *agrees* it would “address a lot of the issues” — but he’ll have to ask Apple — for Fortnite to re-enter the App Store w/ 30% fee going into escrow.

Epic disagrees though. “this court should not give its assistance to unlawful provisions by monopolists...”

Judge YVR again doesn’t buy the argument for irreparable harm:

“There's no case law that says that, ‘our company is losing some millions and so therefore that's a reparable harm. There's no case law to support that.”

Apple lawyer says Epic doesn’t need the court’s help — it can just fall into compliance and avoid any harm, then proceed with its lawsuit.

Epic’s Forrest: “the evidence has been completely mischaracterized....we have millions of people who will be directly affected.”

“When you are taking on the biggest company in the world ... you know it's going to retaliate. You don't lie down in the streets and die. You plan, very carefully, on how you're going to respond. You try very hard to keep your head above water. And that's what we've done here.”

Judge YGR making everyone laugh, saying in previous case alleging Apple had a monopoly because of iPods.

“By the time I got it, it was so old... we had to bring iPods into the court b/c no one knew what they were.”😹

“I'd forgotten you have to put headphones in. I tapped the little button, expecting the music, and nothing came out. Until then I remembered, ‘oh you need headphones for these things.’”

Potentially *big development*:

“I think personally this case should be tried to a jury,” Judge says.

“I know I’m just a stepping stone for all of you. Whoever loses is going to take it up [appeal] and say everything I did was wrong. That's what litigators do.”

Judge YGR: “I don’t want to try two cases. The difference between six months, 8 months and 10 months in our life is not a big difference. So I’m inclined to try both cases at once.”

Katherine Forrest has been told twice now to slow down — the court transcribers cannot keep up with her pace.

On to schedules.

Epic’s Forrest: We’d urge the court for the shortest schedule possible... “Important we get to trial as quickly as possible.”

Apple’s Doren: Document production by early January is reasonable. Epic wants depositions from Jan4-Feb5, we’d extend that by ~3 weeks.

Schedules....

Judge:

Complete your initial disclosures by October 12

Sets January 6 for complete document production.

Need to know by tomorrow (5pm PST) if Apple demands a jury. Epic, too.

Will give rest of schedule later.

Judge rules out June for a trial date, b/c of class-action case she has. “I think you’re looking at a July trial date.”

2 hrs 30m later, that’s a wrap.