Thread by @thedextriarchy

Day 7 of Epic v. Apple starts in 20 minutes. We’re expecting two expert witnesses from Epic’s side — so fair warning, odds of another Naked Banana Fight seem low. If you don’t know what that is, enjoy yesterday here:

theverge.com/2021/5/10/2242…

https://twitter.com/thedextriarchy/status/1391771972481257476

We’re starting off with economist David Evans, who also gave testimony yesterday. Evans has been laying out the case for why Apple has an unfair monopoly on distributing iOS apps.

Evans made this case on a broad level yesterday, and right now he’s focusing on Apple’s rule that digital goods providers (i.e. Tinder, Fortnite) have to use its payment processing, but physical goods providers (i.e. Uber, eBay) don’t.

Lots of Epic witnesses have alleged this, but Evans’ job is to provide economic analysis that demonstrates it. He produced written testimony trying to do that last month: storage.courtlistener.com/recap/gov.usco…

“Did you see any evidence in the total amount of commerce that was affected by these restrictions?”

Some disagreement over whether this number is based on App Annie or internal Apple data that should be redacted, talking over whether to release it out loud.

Court’s referring to this paragraph, where it does appear to be redacted

“My conclusion is that it harms consumers by raising prices to developers.” Even if it’s not necessarily “visible” to consumers, developers likely pass on those charges. (Some companies have specifically offered lower prices outside the app store.)

Moving into cross-examination. Apple lawyer notes Evans has also been retained in Epic’s antitrust lawsuit against Google.

“I don’t know that we have been formally retained. We haven’t done any substantive work on that. I guess we’ve been retained. But our particular role in that is not laid out at this point,” Evans says of his firm.

So, yes?

Yes.

We’re talking about the definitions of the markets involved here — do in-app purchase transactions occur in the “payment solutions” market? The actual transaction betwteen developer/consumer is not part of the market, but the payment service provided (i.e. in-app purchases) is.

The judge is confused by this and so am I, sort of. Evans says he’s trying to distinguish between the provision of the payment service and the actual process of a consumer paying for it.

Back-and-forth in which the judge appears frustrated and finally gives up and lets Evans continue.

I’m not an antitrust economist, so I need to go back later and figure out exactly what’s going on in the written testimony — Evans is talking about three relevant markets in the case, but I don’t have a great sense of the precise devisions between them.

Apple lawyer notes that it had to subpoena some documents from Evans — they’re handing out a binder of evidence

🚨BINDERS🚨

The document is an economic analysis of Apple mobile platform market power from 2016. “At this point Apple had been a monopolist for how many years?” lawyer asks.

Evans concluded since 2010.

This was apparently submitted to the Federal Trade Commission.

The paper was produced on behalf of an unnamed client, and we’re introducing a slide deck from July 2016 that was made for the same client. Offhand I haven’t been able to hunt the report down publicly.

Evans concluded “no smartphone maker competes with Apple,” lawyer says. Evans says he doesn’t understand the question, they work out a conclusion that the point is Android doesn’t compete with iOS literally on the iPhone, I think? I’m not sure about this.

Moving to game console questions. “You don’t deny that almost all game console owners own a smartphone, do you? And you’re not claiming that 60-90% of game console owners only play on consoles, are you?” lawyer asks.

“I am claiming based on Fortnite data that Fortnite app users who play on game consoles mainly play on game consoles. I don’t have the precise percentage in mind, but it’s a high percentage,” says Evans.

Lawyer clarifies he isn’t making this claim for the market as a whole, Evans agrees.

TL;DR from yesterday, Evans ran an analysis basically saying Fortnite users didn’t switch between platforms much and that banning Fortnite on iOS didn’t send them to play it on other platforms.

Lawyer also asks whether the kinds of switching costs Evans described for going outside the iPhone ecosystem (upshot: very high ones) also apply to the Mac. Evans says yes, to an extent. But, lawyer notes, he doesn’t claim that Macs have the same kind of market power.

We’re back to the App Store structure. “The Apple App Store is providing two … products. One is app distribution services, and the other is the App Store is providing a payment solution for in-app payments,” says Evans.

“For some developers, those would be complements, for others, they could be independent.” Some developers might like to get both, and in that sense they’re complementary.

Is Google Play a competitor in the distribution market? “Google Play would not be a significant competitor in that market” for reasons discussed yesterday — basically, if you have an iPhone you won’t be attracted to Play apps.

Same question for the Samsung Galaxy Store, the Amazon Appstore — still no. Are any Android app stores a competitor? None are a “significant competitor” in the sense that they would constrain how Apple manages the App Store.

Evans’ claim is that Apple can have monopoly power in a market even when there are two brands (iOS and Android), because of “the inability of developers and users to substitute from the App Store to Android stores."

Curious if judge will weigh in on this because it’s not, as far as I’m aware, a slam-dunk argument for Epic.

Lawyer noting various kinds of data Evans doesn’t have, including data from Android, Steam, Epic Games Store.

(By contrast, he did have data from Apple, the subject of the analysis.)

Evans is asked to explain why the initial purchase of a paid app is not a separate product from the iPhone market, but in-app purchasing is separate. He says it’s “apples and oranges,” seemingly in part because the original purchase is a form of app distribution and IAP isn’t.

Apple lawyer: “Have you ever gone to the App Store?”

Evans: “I have."

Lawyer asks if Evans has looked through in-app purchases on the store. “I don’t go to the App Store and trawl along for apps with in-app purchases,” says Evans.

Lawyer says you can make in-app purchases before downloading an app, which he’s suggesting muddies Evans’ categories.

Judge has been silent for quite a while now — breaks in to note we’ll be taking a recess soon. There’s been a very, very long discussion about who is competing with whom in payment processing.

We’re going to break for 20 minutes. We’ll come back at 1:35ET.

Evans is getting back on the stand, hope everyone’s ready for more discussion of relevant markets

Lawyer asks Evans to explain what he implies is a contradiction in Apple having always had 100% control over iOS app market share, but not having always had a monopoly (based on its overall power in the smartphone market.)

Evans makes the sort of obvious rejoinder of Apple’s market mattering more when it has more power, super loosely.

Hopefully nothing exciting happens in the next couple minutes because somebody has a jackhammer outside my window! Based on the past two hours I am not super worried.

Okay, I can hear again, and we’re talking about the apparent turning point of 2010 where Evans has said Apple became a monopoly — lawyer says App Store output has “grown explosively by any reasonable measure” since then.

Apparently some kind of hand motions are happening in court mimicking growth in the App Store. I cannot see them.

Lawyer citing testimony yesterday alleging “poor quality distribution and services” in the App Store. But Apple will earn more if it helps users buy apps. “The reverse is true too, right?” Worse service will diminsh Apple’s revenue. “It’s just logical, right?"

Evans disagrees, says he’s seen evidence of quality decreasing w/o affecting Apple’s bottom line. “I have observed that has in fact happened."

Evans: "Monopolists who don’t face competition can get away with providing poor service to their customers. That’s also kind of an obvious thing to know."

Lawyer asks Evans to confirm (he does) that he hasn’t seen any evidence that Apple has sacrificed short-term profit to suppress competition — a common accusation in antitrust cases but one that hasn’t come into play here.

Did Apple have a duty to offer competing app stores when it became a monopolist, lawyer asks?

“I’m not answering your question quickly becuse I’m dwelling on the word ‘duty.’ I can only answer that question in the context of an analysis of anticompetitive conduct."

Evans: "It doesn’t have an abstract duty to do that. The question is once it acquires monopoly power, are there antitrust reason why it would have to cease practices that prevent competition in app distribution?"

Lawyer: “It’s your opinion that before 2010 it wouldn’t be anticompetitive” to have no competing app stores, right? Or to decline to license third-party developers at all?

Evans agrees.

So after 2010 when Apple gained market power, are the only two competitive paths licensing third-party app stores or never licensing developers at all?

Evans indicates that’s a fair description.

Lawyer: “You agree that Apple has established a reputation for the quality of its products don’t you?”

Evans agrees.

Same for customer service, reliability, and protecting iPhone users from security threats.

Lawyer asks, hasn’t Apple been a “vocal advocate” for consumer privacy? And that differentiates it from “ad-supported platforms like Facebook and Google?” And Apple’s brand has been “consistently recognized as one of the most valuable in the world?”

Evans agrees.

Moving to questions about profitability. Lawyer is asking if Evans has listened to any of the testimony after the first day, and Evans says he hasn’t. (He did listen to the first day.)

“I may have written that, I’ve written a lot of things”

basically my life at this point

This is wrt to a line of questioning that’s implicitly about whether Apple’s (as far as we know, very high) App Store profit margins are evidence of overwhelming market power. Lawyer’s saying it’s not, Evans is more hesitant.

Judge has still not given much indication of how convincing she’s finding Apple’s attempts to poke holes in Evans’ testimony, except that she’s seemed a little confused about how Evans is trying to define markets.

I’m not sure there’s a clear comparison to car dealerships — argument is more like, if you have a really big platform and decide to allow third-party services, you can’t set up a system where you can take an additional cut from all those services

https://twitter.com/BaronofAaron/status/1392182309672022024

Epic lawyer and Evans are downplaying the entire exchange about the two-brand (iOS vs. Android) market, saying the important thing is focusing on Apple having a monopoly on the iOS ecosystem.

Judge says she’s “trying to envision” Evans’ scenario: there’s developers on one side, then customers — and there’s a distribution channel connecting the groups...

“It sounds like what you’re saying is the connection between these two groups should have many distribution channels, not just one,” and the issue is “Apple has put a tollbooth” for certain transactions, judge says.

Evans: It’s saying our platform will be the only distribution channel, and for a set of apps, not only the distribution channel, but we’re going to erect a tollbooth that charges for something else, which is the transactions that the developer is doing with its own consumer.

But the channel is "all technology developed by the owner,” judge says. "And the owner of that particular platform is Apple. So in order for that channel to be used, you have to use that technology, that’s all proprietary,” judge says.

Judge: “On one of these many channels, there is a tollbooth, which doesn’t exist on all of them … and what you’re saying is: no, we want you to have it either free, or we want to develop our own channel on your proprietary platform. … that’s what it sounds like you’re saying.”

Evans compares in-app purchases to an Uber driver who hits it off with a customer and decides to keep driving that person as part of a private relationship, but Uber still wants a cut of the money that changes hands outside the Uber app.

(This does make me wonder if Uber *does* have policies around this? Yeah it sounds like the setup for either a romcom or a crime drama, but it feels like the kind of thing a gig economy app plans for.)

Judge says the example of paying someone for private driving just seems comparable to Apple letting someone pay for services through a web browser, a thing it allows. “There’s nothing about that distribution process that impacts differently given your Uber example!"

Evans notes the “anti-steering” provisions that prevent developers from pointing iOS users to cheaper prices elsewhere. Judge asks: if Apple didn’t have these rules, would the problem be solved?

“That wouldn’t eliminate the market power Apple has here, but it would certainly diminish it,” says Evans. But there are “many other apps, including game apps, for which it would not be much of a solution at all.” Including ones with no alternative platform to visit.

Interesting aside:

https://twitter.com/ferago42/status/1392192093360164869

We’re focusing a little more on the anti-steering rules. Apple’s lawyer asks: “You think that a platform owner should be required as a matter of competitive activity to advertise the actions that are available to the consumer in its own store?"

Lawyer suggests that Epic could buy radio, television, or Wall Street Journal ads telling people that they could buy V-Bucks outside the App Store.

The courtroom is being sealed to talk about some financial stuff — not sure when we’ll be in open session again. Aaand the hell synthpop loop is back.

Okay we just reopened court.

Judge says the conversation that just happened doesn’t warrant sealing, so these portions will not be sealed in the official court transcript. With that, we’re out for a 45-minute break. Back at 4:15ET.

We’re back, and Epic is calling Susan Athey as an expert witness. Apple pushed to seal Athey’s written testimony: storage.courtlistener.com/recap/gov.usco…

Athey is an economics of technology professor at Stanford and has been since 2013.

Athey was also consulting chief economist for Microsoft. Apple complained in an objection that Epic "knowingly retained an expert [Athey] that had a past and ongoing working relationship with a competitor of Apple,” which meant she couldn’t review some confidential Apple docs.

Athey says she concluded that switching costs for iOS are "locking consumers into the Apple ecosystem."

Athey is going back to anti-steering rules in iOS. Consumers "can’t tell from looking at their app on their iPhone where they may be able to find that app” on other platforms. If they want to switch to Android they have to do extra research to figure out what apps are available.

Athey notes you have to repurchase the same app on Android even if you’ve already bought it on iOS.

Now specifically talking about subscriptions. “If I purchase that subscription on my iPhone, I need to continue to manage that subscription through Apple,” even without an iOS device — you have to go back to Apple’s ecosystem, says Athey.

Judge says she thought you signed up through the service, not the platform. Athey says some services (Netflix) are like this, but others (The New York Times) allow the option to buy a subscription directly through Apple, in which case it would be managing your account.

If you wanted to switch to Android, you’d cancel your subscription with Apple and then sign up again elsewhere, Athey says, adding friction.

Athey also brings up what she calls “mixing and matching costs,” which add more friction if people (or families) want to alternate between using iOS/Android apps.

(As folks have pointed out in mentions, having to re-buy apps on different platforms is not unique to Apple/Android; you often have to re-buy games on various consoles, for instance.)

Developers have a strong incentive to solve these problems, Athey says — “the more the user can consume their services, the more value the consumer gets from them. If they can access the app both in the park and in bed at night, that’s going to create more value."

This requires some specific technologies. “If the developer wants to maintain a relationship with the users, they need an account management infrastructure,” Athey says. They also need a payment infrastructure that works cross-platform.

Small companies don’t necessarily want to build their own infrastructure. Athey mentioned before that she’s here to talk about middleware — where independent companies build specific services to solve those problems.

One of Epic’s complaints here, for the record, is that Apple isn’t allowing certain middleware like alternate payment processing options on iOS.

Athey says middleware can also make it easier to port apps to new/smaller computing platforms, solving the “chicken and egg” problem where developers don’t want to spend money on a platform without many users and vice versa.

Athey on mobile ecosystem: “We’re talking about a scenario where we have a stable duopoly where most users are already locked in, and where even the few new arriving users like children coming of age are already going to be influenced by the platform purchases of their parents."

“In this environment with locked-in consumers, we have a scenario where the platforms are adding additional frictions to an environment where we already expected to have switching costs, and these additional costs create market power over both users and developers."

“From the user perspective, the fact that you have these switching costs means that you’re going to be less sensitive to low prices or new features that a platform introduces."

By contrast if you want to switch from, say, an older iPhone to a newer one, all your apps will carry over, Ather noted a little before this.

“Middleware has this prominent role as one of the things that can help a new entrant overcome the barrier to entry, and it plays an essential role in platform competition,” says Athey.

Lawyer asks for examples of middleware. Athey cites cross-platform app stores and app streaming services. (Doesn’t say this specifically, but seems like Epic Games Store and xCloud/GeForce Now respectively fit these bills.)

Athey notes that middleware was a key concept in the big Microsoft browser antitrust case, where it referred to platforms like web browsers. Little background on that here: arstechnica.com/tech-policy/20…

Judge brings up the option of signing up through something like a website again. “If they did that, then there wouldn’t be the same kind of need for this cross-platform app store you’re talking about,” she says.

“That would be a big benefit, I agree. That you could alert people to the most efficient way to pay and if people valued cross-platform access that would be a benefit,” Athey says.

Athey says the problem is "consumers do get klutzy and disconnected and sensitive to delays when trying to complete that kind of activity, so making it easy and being able to get there quikly would be helpful.”

Judge says: “That would be 1) their choice and 2) because there are lots of choices in antitrust law, that would be an alternative solution.”

The galaxy brain evaluation of this is that web browsers are simply the ultimate cross-platform app store.

We’re discussing striking some detail on consumer preferences because it was outside the scope of written testimony. Apple complains that Athey is making unfounded assumptions without research on how consumers think.

Lawyer asks: any examples of a cross-platform store that sells things besides apps?

Athey: “Going back in history, when you used to watch movies and shows on the iPhone, you would purchase individual movies on iTunes but you could watch those in the iOS system. Today, there are services like Amazon Prime Video,” which was similar but cross-platform.

Going back in history!

Athey now cites the Epic Games Store as a cross-platform app store where people can access a library of apps across “any platform that they choose to use."

Athey cites Steam as well — which, obvi, is a games store that lets you access the same library across Windows/Mac/Linux insofar as individual game developers choose to support each platform.

Athey has moved on to discussing streaming game/app services, which (as she describes it) do away with a lot of the difficulties of porting games/apps to specific platforms. She notes that the genre is “nascent” still.

Steam Link arguably fits more in this category, though it streams from a computer you own.

https://twitter.com/27hectormanuel/status/1392226805717905410

Based on the docket I think it was kept under seal, although I might be wrong about that

https://twitter.com/zwinst/status/1392227757157863425

Judge asks if we’re in a “chicken and egg” situation right now. Athey says definitely not for App Store/Play Store, but a third competitor could benefit. She cites the modified-Android Fire tablet, which @345triangle reminds us is still a thing theverge.com/2021/4/27/2240…

Ah, my mistake on the Athey testimony, here:

https://twitter.com/brockgs/status/1392229294001180672

We’re moving to cross-examination of Athey.

Apple lawyer notes Athey hasn’t reviewed any Epic documents. “I don’t believe so,” Athey agrees. Same for third-party documents.

Athey also didn’t review confidential Apple documents about why the App Store is organized like it is — like surveys of how many people switch platforms, if Apple had them, etc.

“If that evidence existed and it was produced by Apple, you would not have seen it, correct?”

Documents may have been “alluded to,” Athey says, but she didn’t look to those in written testimony.

“Have you ever done that before? Offered an opinion about the [competitive effects of a company] without reviewing their internal documents?” lawyer asks.

Athey says she hasn’t done that under oath in a court specifically.

Athey couldn’t look at documents because she was affiliated with Microsoft at the time.

Apple lawyer is criticizing Athey for what Apple calls a failure to disclose portions of her relationship with Microsoft on her CV. Athey says she didn’t have a court-specific CV that she was submitting.

Apple previously pushed to discredit testimony from Lori Wright of Xbox, incidentally, saying she’d failed to produce documents they requested.

Apple’s argument here in part is that Athey couldn’t have a reasonable knowledge of anything she’s talking about because she hasn’t been able to look at relevant information from Apple, thanks to her relationship with Microsoft and confidentiality issues.

Apple grilling Athey on whether her term “economic middleware” is actually used in any economics literature. Lawyer says Athey has said she came up with the term for the case. Athey seems unsure but says the concept is widely recognized.

Apple notes both contractual and technical restrictions for putting third-party apps on the store. Athey says it would be “beneficial for competition” to lift contractual restrictions and also some technical ones.

Does the technical design of iOS prevent third-party cross-platform app stores? “I didn’t provide a full analysis of the code,” Athey says, but some things like subscription-based apps with content catalogs are allowed, and those have “aspects” of middleware.

FWIW I don’t think Athey has particular technical expertise that would make her good for analyzing this aspect of iOS.

Apple lawyer tells Athey that APIs are required to connect apps to iOS, so putting middleware on iOS would involve using Apple’s IP (if you believe APIs are intellectual property.)

Lawyer pointing out (Athey agrees) that she hasn’t run an actual analysis of how much money people would spend repurchasing apps, for instance.

I’m honestly not the best person to explain this but the basics of the decision rested on “APIs *are* IP but Google made a fair use of them”

https://twitter.com/Xudmud/status/1392238281002164225

Apple is citing the issue of Android piracy now — referring to what I believe is this article: theguardian.com/technology/app…

Apple says Athey cited the first prong here — that there’s a perception people will spend less on Android — but failed to mention the “crippling levels of piracy” prong.

Athey basically says that the first part is the relevant bit she was talking about, piracy was “not the primary thing that would set the expectations of industry participants, in my opinion."

yes — we’re expecting him near the end, which would probably be next week

https://twitter.com/JCR_83_/status/1392240163552567299

Apple lawyer: “You focus on certain things, not others, even though in the industry security and privacy — which you do not mention — are very important. Do you disagree with that?”

“I don’t think that’s a completely fair characterization, becuse the reason that we’re here to talk about competition is … we need competitive pressures to ensure that firms innovate and provide features that people want,” Athey says. Which doesn’t satisfy Apple lawyer.

Lawyer notes again that V-Bucks can be purchased on one platform and used on another (except Sony/Nintendo.) Including buying on iOS browser.

Athey: “I don’t know if you’ve ever tried to do that with a baby on your shoulder, but in principle, yes."

With that, we’re wrapping up Day 7. We’ll be back tomorrow with more Athey.

For a relatively sober day in Epic v. Apple, I wrote a little about anti-steering rules and that extended analogy to moonlighting Uber drivers theverge.com/2021/5/11/2243…