Thread by @thedextriarchy

Last day of Epic v. Apple testimony starts in 20! Apple is calling Tim Cook to bring its side home, with a brief followup by Apple’s expert infosec witness Aviel Rubin.

https://twitter.com/thedextriarchy/status/1395393889343873026

Judge is welcoming the court, including Tim Cook.

We’re going through some final business before testimony today. Apple and Epic will both submit final findings of fact by noon next Friday.

Okay, my line went dead for a few minutes, but looks like we’re back.

And we’ve got Tim Cook coming up. He’s being sworn in.

Apple’s Veronica Moye running through Cook’s history: he joined Apple in 1998 after getting “a call out of the blue” from Steve Jobs while he was at Compaq.

Lawyer asks what Cook’s role in managing the App Store is.

“It’s limited, obviously, in a review capacity,” says Cook.

What is Apple’s mission?

“It’s to make the best products in the world that really enrich people’s lives.”

How does it do that?

"We invest like crazy in R&D, we’ve invested $100 billion since the start of the iPhone’s development, and that number has just accelerated ... We have a maniacal focus on the user and doing the right thing by the customer."

Cook says “safety, security, and privacy” are key to Apple. He says privacy is key to our civil liberties as Americans, and then segues into apps that contain malware or “vacuum up data” or otherwise harm users.

Cook emphasizes the importance of human review through the App Store — “machine learning will not address all the issues in the App Store, it needs human judgment,” he says.

Bringing up the new App Tracking Transparency initiative and the “privacy nutrition label” from last fall.

How have developers responded to these changes?

“Some applaud it, and some are not happy with it.”

What do you do when a dev disagrees?

“We listen, we don’t have a tin ear, but we’re making decisions in the best interests of the user. And I think it’s important to know that sometimes there’s a conflict between what the developer may want and what the user may want.”

Cook says consumer response to Apple’s privacy features is “overwhelmingly positive."

iPhone launched with no third-party native apps. “It wasn’t until the following year” that Apple realized it could implement an app review process that would allow native apps "without having the security and safety and privacy issues that go along with that."

Cook reiterates what we’ve heard before — iPhone holds a lot of sensitive info, much more potentially vulnerable than a Mac. Apple has compensated for that with a very stringent review process, Cook says.

“We reviewed every app that went on the store. This was a combination of tools and human review, because we care so deeply about safety, security, and privacy for our customers."

“You can see in third-party data that if you look at the malware that’s on iOS vs. Android vs. Windows, it’s literally an off-the-chart level of difference,” says Cook.

Judge asks to clarify what the data says. “There’s about 1-2% of the malware is on the iPhone vs. around 30-40% on Android and another 30-40% on Windows. It’s quite a difference,” says Cook.

“We’re trying to give the customer an integrated solution of hardware, software, and services,” Cook says. “I just don’t think you replicate that in a third party."

Is review perfect?

“It’s not 100%. It’s not perfect. You will find mistakes being made. But if you back up and look at it in the scheme of things … we do a really good job."

We’re looking at our first binder exhibit of the day. It’s a note to Cook from someone outside the company.

“He’s making a point that our discovery is not as good as it should be, that we should improve it,” dated June 8, 2015.

Cook forwarded the email on June 9th to other execs, and he said “we were already working on a series of things” before then to fix the issue.

Has Apple made other investments?

“Many, many improvements since the course of the time the App Store launched in 2008.”

And Apple’s R&D has changed “massively” over that time as well.

There’s a filing about the level of R&D spending in Apple’s finances.

In 2018, Apple invested $14.2 billion in R&D, $16.2 billion in 2019. That’s a 14% change.

R&D was $18.8 billion in 2020. (Apple’s expert witness discussed these numbers yesterday.) Does this R&D benefit the app store?

“Yes, of course.”

Did Apple allocate a number?

“We don’t allocate like that.”

(This was a big part of Schiller’s testimony too.)

Now Cook is talking about commissions. Says about 85% of apps on the App Store are free. Others pay either 15% or 30%, depending on a few different discount programs Apple uses, most recently the Small Business Program.

The program was in the works for years but only happened in 2020. Why? “I was very worried about COVID and the effects of COVID on small businesses in particular,” Cook says.

Was litigation an issue?

“That was in the back of my mind,” but it wasn’t the primary cause.

Schiller was previously a little more specific in his testimony — he said the program was in the works for several years but Apple’s financial folks were wary and held it up, then COVID and the threat of regulation/litigation pushed them to finally get it done.

How have prices consumers paid for software changed?

“They’ve definitely gone down significantly,” says Cook, from the days of buying a “shrink-wrapped package from the local retailer."

You don’t have to pay for packaging for one thing, and for another there’s much more competition among developers.

“I feel great about how it’s performed. I think it’s a great opportunity for developers, it’s great for the user most importantly,” says Cook.

"The breadth of apps and the number of things you do with them, it’s hard to imagine a part of your life that you can’t have an app for at this point."

Now to in-app purchases: Is the 15/30% take a payment processing fee? No, Cook says. IAP helps Apple collect a commission, and “the commission is for a number of things” — the payment processing, but also developer support, APIs, etc.

“If not for IAP, we would have to come up with another system to invoice developers, which I think would be a mess,” Cook says.

Why can’t apps direct users to deals on their website?

“It would be akin to Apple down at Best Buy saying ‘Best Buy, put in a sign there where we are advertising that you can go across the street and get an iPhone,’” says Cook.

“If the effort goes into transacting with the customer, it seems like it ought to happen in the app,” says Cook.

Cook says Apple faces lots of competition for mobile hardware from other phone makers, and Android is the “dominant” phone ecosystem. Likewise, there are stores on other devices. “There’s a long list of competition both at the developer side and the user side."

We’re not going to get a verdict until over a week from now, at least based on the schedule the judge has laid out.

https://twitter.com/DCOneFourSeven/status/1395769417238200322

We’re now going through some third-party numbers about whether people are changing between phone ecosystems. Lawyer asks if Apple is doing anything to stop people from switching.

“We’re making efforts to get Android people to switch!” Cook jokes.

Cook brings up the data transfer project that makes switching between platforms easier. Judge asks if there are documents about this — lawyer says she’d be happy to direct judge to public resources. “It’s gotta be in the record if I’m going to consider it,” judge says.

(Here’s the project they’re talking about, IIRC:)

theverge.com/2019/7/30/2074…

Apple lawyer asks Cook to define “stickiness,” which has shown up in some Apple emails.

Cook: to be “sticky” is "to have such high customer satisfaction that people don’t want to leave.”

What about references to locking customers into devices?

“It means making all the product work so well together people don’t want to leave,” Cook says.

Is there anything Apple *could* do to lock people into iOS?

“Not that I’m aware of."

We’re asking specifically about iMessage being difficult to leave.

Is iMessage one of the highly ranked features of the iPhone?

“I would say it’s a really good feature.”

But he doesn’t think the lack of it prevents people from going to Android.

Cook looks over an email calling iMessage the toughest thing to leave behind, and he characterizes it as somebody having configured iMessage wrong and having issues getting their messages on a new phone.

Reviewing Apple’s financials, Cook says it had a 20.9% profit margin in 2020. Like other Apple witnesses, he says there’s no division-by-division number.

Does Cook believe the App Store is profitable?

“I do.”

Has Apple calculated by how much?

“We haven’t done that. But I have a feel, if you will."

Cook is looking at a sealed document now — apparently we’ll have a sealed session later where they talk about it in more detail.

It’s a presentation deck, apparently. “I believe it was a one-off presentation that looked at profitability trends over time,” Cook says. “We didn’t try to allocate costs.” You can draw “certain inferences” by comparing years, though.

Does the document assess the App Store’s profitability?

“No — again, we don’t do profitability at that level.”

We’re going through testimony from Epic’s expert Ned Barnes — I can’t explain it very well especially without the numbers, but Barnes basically estimated the App Store has 70-80% profit margins, and Apple says that doesn’t account for lots of investments.

(Jumping back a few minutes, Cook had a funny quip about Steve Jobs saying he came back to Apple and discovered they were losing a billion dollars a year but every individual division was making money.)

Cook and the lawyer are still going through sealed documents trying to establish that they don’t show Apple’s App Store having outsized profit margins. Including this tidbit:

https://twitter.com/nickstatt/status/1395775911270682628

Now we’re going to turn to Epic’s requests for relief, starting with allowing sideloading and third-party stores.

“I think it would be terrible for the user, because if you look at it today we review 100,000 apps a week and review 40,000 for different reasons.”

Without Apple’s review, the store would be “a toxic mess,” and it would be bad for developers, because “the developer depends on the store being a safe and trusted place where customers want to come.”

What about letting developers use their own in-app payment systems?

“It would wind up where customers would then have to [fill in] their credit cards for all of these different apps, so it would be a huge convenience issue, but also the fraud issues would go up."

“Also we would have to come up with an alternate way of collecting our commission,” Cook says. "We would then have to figure out how to track what’s going on and invoice it and then chase the developers; it seems like a process that doesn’t need to exist."

Gary Bornstein of Epic is stepping up for cross-examination, and we’re going back to that email about how Apple should improve discovery.

Epic says search ads were announced around that time — so the big improvement project was just “another way for Apple to make money for discovery?"

Cook says he thinks they also announced the Today tab.

Epic’s lawyer: “Together with search ads that require developers to pay to have their own apps appear at the top of their search results?” [lightly paraphrased]

Does Apple compete against Google in operating systems?

“We compete against Samsung and LG…” Cook says. Asked to clarify, he says “customers don’t buy operating systems, they buy devices.”

Epic’s lawyer calls up video where Cook *does* say it competes with Google.

“Can we at least agree that you know the revenue for the App Store?” lawyer asks. Cook agrees.

Lawyer mentions that another Apple exec was asked about revenue at a congressional hearing, and we’re going to play that tape from here: judiciary.senate.gov/meetings/antit…

Lawyer notes that Apple’s Kyle Andeer gave basically the same testimony Cook gave about not calculating separate profits and losses for specific divisions, but Andeer didn’t offer revenue numbers during that hearing.

Now there’s an Apple “Fiscal Year ’20 services summary” document being called up, containing different operating margin estimates. The App Store is listed. Document was prepared for a meeting Cook was in.

Cook said that these estimates didn’t represent “fully burdened” costs for the App Store (accounting for investment etc.). Epic lawyer contends that its expert (Barnes) accounted for issues that Cook raised earlier (i.e. his high profit estimates *are* accurate.)

Lawyer says that the method Barnes used is also used in this presentation, listed as “method 2” — says it shows Apple had at least two methods it considered accurate ways to allocate expenses around the App Store.

Lawyer asks if Cook can separate out what % of App Store revenues come from the iOS and Mac App Stores?

“The iOS would be larger. A lot larger,” Cook says. He can’t say more, but they’ll discuss it in the sealed session, apparently.

We’re still going through how Apple allocates its costs/revenue in internal meetings.

FWIW I still have very little sense of how much Judge Rogers cares about the App Store’s profit margin and whether Apple knows it, compared to all the other arguments at play in the trial.

Judge Rogers: “If anybody has an idea of where to give away lots of thick binders, let me know”

I HAVE AN IDEA

Anyhow, if the App Store has super-high margins that could be a sign it’s not subject to meaningful market pressures, but there’s a lot more in play here, especially when you start breaking out specific issues like the anti-steering rules, etc.

Okay we are finally done with the accounting. We’re talking about IAPs and friction — Cook agrees one benefit of IAP is that it makes it more convenient to make purchases.

Lawyer asks: "Apple doesn’t want to make its customers leave the app to make a purchase if it’s possible for them to make it wihin the app,” right?

Cook says it’s about the customer, they bicker their way into agreeing that in-app payments are a better user experience.

IAPs are a “very substantial portion” of App Store purchases, right?

“It would be the dominant way of purchasing,” Cook says.

The dominant source of revenue, too?

“I think so."

And it’s not as easy to buy online through a browser, is it?

“It takes another click to leave the app [for] the web,” but “people do it,” Cook says.

Lawyer says it’s valuable to minimize friction.

Lawyer notes that Google pays lots of money to get the default search status on iPhones, for instance — a government antitrust complaint has alleged $10 billion.

“I don’t remember the exact number,” Cook says of that.

The type of search deal in question, BTW: theverge.com/2020/7/1/21310…

Switching topics, going to Apple’s banning of Fortnite and its attempt to ban all Epic access.

https://twitter.com/leah_nylen/status/1395787118883098628

Apple told the court its “only viable option” was cutting off Epic access, but it offered to let Fortnite back on. Why would it do that, if Epic’s a bad actor? lawyer asks.

“I think it would be to the benefit of users to have them back on the store, if they abided by the rules,” Cook says of Fortnite/Epic. "The user is caught in between two companies here, and it’s not the right thing to do to the user.”

Was it about getting Fortnite revenue back?

“We weren’t thinking about the money at all. We were thinking about the users,” Cook says.

The lawyer essentially asks Cook how Apple's scorched-earth “ban the entire Unreal Engine account” request wasn’t just retaliation against Epic, if Apple didn’t have a serious problem with Fortnite coming back. (Judge denied this request, by the way.) theverge.com/2020/8/25/2140…

(Cook is like, um, no it wasn’t.)

Do users like the app review process?

“They like the output of it, which is safer, more secure, and more privacy.”

Epic’s lawyer says Apple has 1.8 million apps, so it couldn’t possibly be “curated,” a term Apple has linked with the store. Lawyer then reads the dictionary definition of “curated”; I take no pleasure in reporting this.

The point is that some stores are *more* curated — lawyer raises GOG and SlideME. Some stores have “subject matter focus” for individual interests. (Implication is, these could have unique value.)

All right, we’re going to take a 20-minute break. Tim Cook is not allowed to talk to anyone. Sorry Tim. I’ll be back at 1:35ET.

Big fan of @doratki’s Tim Fidget Updates today

https://twitter.com/doratki/status/1395794738486210560

Cook is back on the stand, will be questioned by Epic’s lawyer “as soon as I finish wrestling the binders."

the binders are learning

Lawyer asks if people “pay Apple to make decisions for them?"

Cook says he wouldn’t phrase it that way, but that when people buy an iOS device they’re paying to have certain decisions pre-made to make things simple.

Lawyer says, “if people really value Apple’s curation and Apple’s App Store, even if there are multiple stores, people could still go shop at Apple,” right?

“It seems like a decision that they shouldn’t have to make,” Cook says.

"When they buy an iPhone today, they buy something that just works,” Cook says. “I think they buy into a total ecosystem when they buy an iPhone."

Will people not be able to distinguish between an official and unofficial store?

“They’ve never had to do it before. They’ve bought into something that’s an ecosystem that just works.”

So you don’t know if people can tell the difference?

“I’m saying I don’t know,” Cook says.

Apple can’t really know that it runs a better app store than anyone else, when it’s never let anyone try, right?

“It’s an experiment I didn’t want to run,” Cook says. Customers “uniformly” want it to “stay like it is."

There are “just a few” developers who don’t like the current system, Cook says.

Lawyer asks if he’d be surprised to learn no developers are here testifying for Apple.

“I don’t see that there would be a natural way to include them,” Cook says.

Moving to privacy now. Is Apple’s stance on privacy a differentiator?

“I think we care more than others do,” Cook says. “I think there’s some people that really want that, and therefore buy an iPhone because of it."

“Apple doesn’t have a unique ability to safeguard privacy, does it?” lawyer asks.

“Of course it does,” says Cook.

Apple just released a new ad campaign built around privacy, incidentally theverge.com/2021/5/20/2244…

We’re looking at the App Store privacy policy, noting the kind of data Apple logs when people open the store.

Epic asks if other stores might collect data.

“I think we generally collect the minimum amount that we can,” Cook says.

Epic says someone could offer a store that collects even less, and users might prefer it.

Cook says it seems “very hypothetical."

Now we’re noting that Apple has data managed in China partly by a state-owned enterprise.

China is generally Apple’s privacy Achilles heel, i.e. this @nytimes piece from earlier in the week nytimes.com/2021/05/17/tec…

Epic also notes that Apple sometimes takes down apps due to Chinese government demands.

Some information involved here is apparently confidential, so we’re going to drop this line of questioning and they’ll bring it back up in a sealed session.

When Apple shares user data and takes down apps, that’s a situation where its commitment to privacy and its financial interests are at odds, right?

“[Light paraphrase] We have to comply with the laws and the restrictions in each of the countries we operate in,” Cook says.

Lawyer says Apple could have chosen not to comply.

“You have to comply with the laws in the jurisdictions you operate in,” repeats Cook. It’s “in the best interests of the people there” that Apple operate in China.

We’re going to a Sweeney email that warns of a “peril” that locked-down phone ecosystems pose because they can act as an extension of a surveillance/censorship regime. Apparently Epic declined to pursue a Vietnam license for Fortnite out of principle about privacy.

It’s maybe worth noting that Chinese tech megacorp Tencent owns a 40% stake in Epic.

Epic now going to Cook’s congressional testimony saying Apple’s never increased the commission rate in the store. But Apple has “expanded the scope of transactions” to which the commission applies, right?

Cook says yes if that means they’ve added new product features.

We’re looking at some apps that allegedly let people buy in-app purchases before Apple allowed it. This was a big point of contention yesterday — Epic thought these existed, Schiller said they didn’t earlier this week.

Cook is saying he’s not sure if these apps made it through review. But it appears there was an app that had in-app purchases, and Apple wanted it to be switched out to a link that would run through Safari, i.e. a thing current developers can’t do.

Epic is reserving some time for sealed session questioning, so Apple’s lawyer is back. We’ll start with questions about search ads.

When the search ad feature was offered, lawyer asks, were there other features also added?

Cook says the Today tab (which featured apps) was added, also they changed the recommendation engine.

The separation of games and apps was also a way to increase discovery.

Now we’re looking at some of the earlier presentations that Epic’s lawyer brought up, with alleged profit numbers. Apple’s lawyer notes that there were only a couple of these meetings, starting in 2019, and Cook says he knows better than Epic’s witness what was in the numbers.

Lawyer brings up Cook’s earlier statement that Epic’s actions were “malicious.” Does he still think that?

“I do.”

So why did they invite Epic back?

“Because we thought it would be the right thing for the user,” Cook repeats.

Cook says that some language recently added to the developer license agreement was a requirement in Japanese law. (Cook isn’t specific.)

Lawyer asks if Apple (and then any company) has the option to “defy Chinese law.”

“No,” says Cook.

Why does the Chinese government make app takedown requests?

“Because in their view, it’s not lawful.”

Cook repeats that Apple follows the law in all jurisdictions.

Cook says it still offers other privacy features to users in China.

Now talking about the emails about app Scyscape, which allegedly offered in-app purchases before it was allowed. Lawyer notes language saying Apple is “working with” it to make it compliant with Apple’s terms and conditions.

Now talking about whether developers like Apple — the lawyer is trying to bring up an article that was published while Tim Cook was on the stand, but the judge won’t allow it. Not sure what it was.

As a couple people in mentions point out it’s about Snapchat, likely this article where Evan Spiegel says he’s happy to pay Apple’s 30% commission cnbc.com/2021/05/21/sna…

I’m sure there *are* plenty of developers who are fine by the App Store but it’s funny to think about Apple going “we need some happy developers from our 10+ years operating a giant store, thank god one finally came in an hour ago"

Epic’s cross-examination is going back to the Skyscape emails. Cook is saying he doesn’t know what’s going on here, and in fairness Epic is bringing this up here because they weren’t allowed to call another witness separately to talk about it.

Judge asks about the fact that Cook somewhat abruptly remembered the developer agreement change was made in response to a law changing in Japan.

Rogers zeroes in on games/gamers making up the bulk of transactions. She asks — what’s wrong with giving users choice from within in-app purchases? This kicks off a very long debate between judge and Cook — longest we’ve seen by far in the trial.

People are buying a “certain set of principles” when they buy an iPhone,” Cook says. But if people want to buy V-Bucks etc. separately, what’s the problem, Rogers asks, "with Apple giving them that option?” Or at least telling them they can make the choice?

“If we allowed people to link out like that, we would in essence give up our total return on our IP,” Cook says.

But it seems like games are making up a huge amount of these payments, Rogers notes. “It’s almost as if they’re subsidizing everybody else.”

Cook says that free apps draw in an audience, so it’s not like a subsidy. “We need a return on our IP, we have 150,000 APIs to create and maintain and numerous developer tools,” and processing fees, he repeats.

Apple has created a system that’s “quite lucrative,” Judge Rogers notes — and it’s “a choice of a model,” not something Apple had to do. She compares it to, say, Apple not taking a cut of the money when you use your banking app.

Judge Rogers: "You don’t charge Wells Fargo or Bank of America, right? But you’re charging gamers to subsidize Wells Fargo."

“In the gamers example, they’re transacting on our platform,” Cook says.

“People are doing lots of things on your platform,” judge says.

"I understand this notion that somehow Apple’s bringing the customer to the gamers, to users. But after that first time, after that first interaction … the developers of the games are keeping their customers. Apple’s just profiting off that, it seems to me.”

“I view it differently than you do. We’re creating the entire amount of commerce on the store, and we’re doing that by focusing on getting the largest audience there, we do that with a lot of free apps so those bring a lot to the table,” says Cook.

“The issue with the $1 million Small Business Program,” says Rogers, is "that really wasn’t the result of competition. That seemed to be a result of the pressure you’re feeling from investigation [and] lawsuits, not competition.”

“It is the result of feeling like we should do something from a COVID point of view,” says Cook. "Of course we had the lawsuits and the other things in the back of our head, but the thing that triggered it was, we were very worried about small businesses."

Rogers then cites a study that many developers are dissatisfied by the App Store — she says she takes both sides’ anecodotal evidence with a grain of salt — and it doesn’t seem like Apple has an incentive to make things better.

https://twitter.com/leah_nylen/status/1395816646439280642

We’re in a closed session now, and not clear when we’ll be back — it could stretch into the lunch break, so we’d be back 4:15 ET.

judge yvonne gonzalez rogers: gamers rise up

We’re back in court with Aviel Rubin, Apple’s security expert. I’m going to be tweeting a little slower here, and we’re very near the end of testimony.

In general, Epic’s lawyer Brent Byers is discussing some written testimony about the security of in-app payment methods. Rubin is admitting that he didn’t conduct extensive research on whether there are security issues or added friction with non-Apple payments.

We’ve been going through this paragraph in both Epic and Apple questioning, talking about whether Rubin can reasonably interpret Epic’s state of mind here

https://twitter.com/leah_nylen/status/1395837577530417154

The evidentiary portion of the trial is done now! On Monday, we will have (non-traditional) closing arguments. Then Judge Rogers will review evidence and “that will take some time.”

Rogers promises she’s not one to let things sit around, but “no promises as to exact dates. Hopefully before August 13th."