"The lack of competition on the 30 percent is something that is troubling," YGR says.
The media line went dead for a few minutes but is now back. Tim Cook is now coming up to be sworn in.
Apple's Veronica Moye is doing the questioning. Cook is getting some water before he begins.
Cook goes over his various jobs at Apple until he became CEO in 2011. He says he has a "review" role over the App Store.
Apple’s mission is “to make the best products in the world that enrich people’s lives.” Cook says. “We invest like crazy in R&D.” We’ve invested $100 billion since the introduction of the iPhone. We’ve invested $50 billion in the last three years.
Apple has a “maniacal focus on the user,” he says. “We take a lot of the complexity of technology away from the user and make things simple.”
Privacy is one of the most important issues, he says. “In a world where everybody is looking at your every move, you do less over time. It goes to our civil liberty as Americans.” Privacy is a core part of our design process, not an after the fact thing.
App store review is important because “there can be malicious things that occur. There can be things that document people’s personal data,” he says. The parade of horribles is pretty long. Computers cannot replace human app review. “It is important to have both”
He cites the App Tracking Transparency feature and the privacy nutrition labels as new aspects Apple introduced.
How have developers responded to Apple’s privacy initiatives? Moye asks. “Some applaud it and some are not happy with it,” Cook says. Apple listens. It doesn’t have “a tin ear,” but Apple is focused on what consumers want. Consumer response is “overwhelmingly positive.”
Apple does some consumer surveys and they show that privacy is one of the reasons that people choose Apple, he says.
How does iOS compare to MacOS? Moye asks. It was different, he says. The iOS was a different design point than the Mac. Mac came out in 1984. And the use cases for the Mac are different. “You have a phone in your pocket or pocketbook and most of the time you want instant service”
The threat profile was much greater on the iPhone because of the number available devices in the market, he says.
It was mid-2008 when Apple introduced third-party apps, he says. “We put in app review so we reviewed every app that went onto the store. This was a combo of tools and human review because we care so deeply about safety, security and privacy for our customers”
If you look at the malware on iOS vs Android vs computers, it’s an off the chart level of difference, he says.
What do you think the third-party data on malware shows? YGR says It shows from a malware point of view that there’s 1-2 percent on the iPhone versus around 30-40 percent on Android and 30-40 percent on Windows. It’s quite a difference, he says.
Do you believe third parties can conduct app review as effectively as Apple? Moye asks. No, Cook says. “They are not as motivated as us.”
On whether things get into the App Store that shouldn't: I get lots of reach out from the public and if there’s something on there [the App Store] that shouldn't be I get notes from developers or customers direct to me and I forward it on quickly to action, he says.
They are now looking at an June 2015 e-mail to Cook about app discovery. Cook forwarded the email with a note to Phil Schiller and Eddy Cue. Cook says in his note that it was something they needed to focus on.
We were already working on a series of things and that's what you see discussed in my note, he says. We had a schedule that was going to roll out new discovery features in the fall of 2015 and early 2016, he says.
Apple has made "many, many" improvements since the App Store launched in 2008, he says. Apple's investments have changed "massively" over time, he says.
Cook is looking at Apple's 2020 10-K SEC filing. Moye has him read out Apple's R&D numbers: $14.2 billion in 2018 and $16.2 billion in 2019. That was a 14% increase. In 2020, $18.8 billion R&D. That was a 16% increase.
The net sales moved from 5% to 7%, Cook says. Moye asks how much can be attributed to the App Store "We don't allocate like that. Instead of having mini P&Ls throughout the company, we have one P&L to prevent a debate back and forth about how we allocate costs," he says.
After an app published on the App Store, "we have great feedback where we would know if something is going right or not." he says.
Cook says Apple's commission rate has decreased over time. About 85% of the apps are free, so there is no commission charged for those. The rest are either 15% or 30%, he says. The 15% are for second-year subscriptions or video partners.
We also lowered the rate to 15% for small developers, he says. That turns out to be the "vast majority" of developers. I was very worried about Covid and the effect of Covid on small businesses, in particular
Did you consider litigation and regulatory issues when implementing that? Moye asks That was in the back of my mind, sure. But it was primarily Covid, Cook says.
The percentage of developers who are impacted by this program is in the "high 90s," he said. Cook said he saw some figures on how it will impact Apple's finances. Google has also implemented a similar program now.
On the commission structure: People were happy with the lowering of the commission. Large developers would also like to pay less than 30, he says.
The App Store has been "an economic miracle," he says. There are more than 2 million developers. There is worldwide half a trillion dollars in iOS ecosystem. It's been one of the most important job growth segments in the last decade, he says.
How has the App Store impacted consumers? Moye asks "It has given them an enormous level of innovation," he says. It has given them more apps to enrich their lives.
The prices of apps have "definitely gone down" over time, he says. When you buy software in a store, 60-70% would go to the retailer. Now the competition between developers has driven the price of software down, he says.
"I feel great about how the App Store has performed," Cook says. It's great for the user, most importantly. It's hard to envision anywhere in life where there isn't an app that can help you out.
App review has helped have significantly less malware than other stores, he says.
IAP is the in-app purchase, it's a feature of the App Store, he says. It's not a payment processor, that's Apple Pay. There is no fee for using IAP. The commission is not a payment processing fee, he says. IAP helps Apple efficiently collect the commission.
The commission is for developer tools, APIs, customer service. It enables Apple to efficiently do it, he says. "If not for IAP we'd have to come up with another system to invoice developers, which I think would be a mess"
Developers would still have to pay a commission if there was no IAP, he says.
Can developers contact customers to encourage them to use other payment methods? Moye asks. Yes, but Apple can't provide the email. If the developer gets the customer to do that, they can send them marketing material.
Developers can't include links to direct customers to other payment within the app. Cook said that would be akin to Apple saying Best Buy needs a sign to say you can go across the street and buy an iPhone somewhere else.
Apple does not have a dominant share in mobile devices. Worldwide is 15 percent. In US it's high 30s, he says. They compete with Google, Oppo, Huawei and others.
App Store faces competition from other app stores like Google and Samsung. It also, from developer POV, has competition from those, and for games there's competition from game consoles, he says.
Do you regularly monitor other game app transactions? Moye asks. We look at that, he says.
Cook says he's "not a gamer," but he has a view on game competitors. Cook says he considers game streaming services a competitor to games on the App Store. Epic Games Store is also a competitor as are xBox and Playstation
Cook is looking at a survey for the US market in 3Q 2020. Cook says the survey shows of people who purchased smartphones that had an iPhone, between 12% to 26% switched to Android, depending on the quarter.
Cook says they want to encourage Android users to switch to iPhone. The Data Transfer Project is one between Apple, Facebook, Google and others to help users transfer data between devices and services.
People today are streaming videos and streaming music, it's easy to authenticate on each device, he says. The data transfer project is an effort to make switching devices even easier, he agrees.
YGR asks if there are any exhibits related to the Data Transfer Project. Moye says no, but they will submit some public websites about it
Moye asks about the term "sticky." Cook says the term is rarely used but "it means to have such high customer sanctification that people don't want to leave"
They are looking at a 2010 email from Steve Jobs to the executive team with a meeting agenda. The first bullet point refers to "lock-in." Cook says that means "making products work so well that people don't want to leave"
Apple "wants to make the ecosystem have such great customer satisfaction that people don't want to leave," Cook says.
Apple has devices that help Android users move to iPhone, and Google has similar tools, he says.
Now looking at an email to Cook about iMessage. Cook says he doesn't think the inability to use iMessage on Android has kept iPhone users from leaving. iMessages can be transferred to an Android if a user switches, he says.
Going back to Apple's 2020 10-K. Apple had a 20% profit margin overall, Cook confirms. Apple doesn't prepare fully burdened P&L for individual business units, he says.
Because there are joint costs, you end up arguing about where the costs should be allocated, and that's not useful, Cook says. Jobs changed it so there's only one P&L and Cook says he's never wanted to change that.
"It means we spend more time focusing on customers and not focusing on each other," Cook says. Apple has never tried to determine the profitability of the App Store as a stand-alone unit, but he has a "feel" that it's profitable.
Cook is going to look at a sealed document and answer some questions about it. It is a presentation looking at profitability trends over time, Cook says. He says it was a "one-off." It didn't try to allocate costs, so it has a "limited use" to it.
If you don't allocate and you compare the numbers year to year, you can draw inferences so long as the allocation methodology is the same, Cook says. This is the only one he can recall, he says. It was from September 2019.
"We don't do profitability" for individual business units, Cook says. So he doesn't believe Epic's expert Ned Barnes was correct when he said this was a fully burdened analysis.
The document "shows a revenue by product and some of the services and then a catch-all category," Cook says. It also includes a gross margin, and an opex for the company (operating expense), he says.
The opex would not include all of the expenses for the App Store, Cook says. This would only be some of the direct costs like App Review, he says. Does this document convey an operating margin for the App Store? Moye asks. It does not, Cook says.
"From another page, the R&D and SG&A allocation to services is very, very small," Cook says It's a reminder that's not the purpose of the analysis. SG&A = Selling, general and administrative expense
The only people who got this document were Cook, the CFO and some CFO staff. It has a "limited purpose" and he didn't show it to any of the business staff, he says.
Are the operating margin numbers fully burdened? Moye asks. No, he says. The margins reported in the document about the App Store refer to both the iPhone and Mac App Stores, he says.
Now another document, Cook says its a "benchmarking exercise." It does not capture App Store profitability, he says. It takes the sum of the direct opex and subtracting that from gross margin. It would be higher than if did a fully burdened accounting, he says.
There are some other companies mentioned, including Netflix, Moye says. Netflix number would be their real total company reported numbers from a 10-K or 10-Q, Cook says. If Apple were on here, you could only compare Apple to Netflix as a total company.
"It has limited meaning," Cook says. Cook says he's aware there are ways they could do accounting to determine the App Store profitability such as the agency model.
His explanation: In the agency model, the developer sets the price, we, Apple, book the net revenue. So for $1, we would book $0.15. In a regular accounting method, net accounting, we would book $1 and then show $0.85 going to the developer.
Epic seeks an order requiring Apple to permit sideloading and alternative app stores, Moye says. What would be the consequences? This would be terrible for the users, Cook says. We review thousands of apps a week. If you turn review off, App Store will become a "toxic mess"
"The developer depends on the store being a safe and trusted place," Cook says.
It seems like it would be forcing us to license our IP and I can't imagine that, Cook says. Apple doesn't license iOS.
"We could no longer make the promise" of safety, security and privacy, Cook says. The promise depends on the app review. I know they want that because they tell us that.
What would be the consequence of not having to use IAP? Moye asks. Customers would then have to post their credit cards in all these different apps. It would be a huge inconvenience and the fraud risk would go up, Cook says.
Apple would also have to come up with a new way to collect its commission. IAP is the most "efficient" way to do it, Cook says.
Going back to the Data Transfer Project, Moye has shown Cook a print out of the website datatransferproject.dev
Moye says there's a small amount of sealed testimony. They will do that later. Epic's Gary Bornstein is now coming up for cross.
This is Tim Cook's first time testifying in court, he confirms.
They are going back to an email Moye asked about that related to discovery on the App Store.
It mentions some announcements in 2016 at WWDC. That big announcement was about search ads, Bornstein says. It was another way for Apple to make money off of discovery? No, Cook says.
I believe we also announced the Today tab and did editorial, Cook says. Together with search ads, that require people to pay to get ads at the top, Bornstein says. Cook says if he doesn't remember if it was 2016.
Does Apple compete against Google for operating systems? Bornstein asks. We compete against the devices they enable. We compete against Samsung and LG, Cook says.
We benchmark them, but consumers don't buy operating systems they buy devices, Cook says.
Bornstein is showing Cook a video of himself speaking at a Berkshire Hathaway conference
Was that you on the video saying you compete against Google on the operating system side? Bornstein asks. It sure looked like me, Cook says.
Cook says Apple knows the revenues of the App Store. Apple was invited to a Senate hearing last month? Bornstein says. He confirms. Apple's Kyle Andeer attended and testified.
Do you remember that Andeer was asked about App Store revenues? Bornstein says. Cook says he doesn't.
Bornstein is now showing a clip of Andeer's testimony before the Senate.
Andeer gave the same statement you did, Bornstein says. But he did not give the revenue information. Cook says he doesn't know if he gave it separately.
Going back to that presentation Cook says was a "one-off" about App Store profitability (this exhibit is sealed).
The person who made the presentation is the head of corporate financial planning and analysis, Cook confirms.
The document includes a fiscal year 20 services summary, Cook confirms, and breaks out numbers for different operating, expenses, operating margin and gross revenue, including the App Store.
You have not reviewed the expert report from Ned Barnes, Bornstein says. Cook says he did not. Are you aware he took account of the agency model accounting you described? Bornstein asks. Cook says he was not aware.
There is a page in the document that tracks App Store margins for a period of five years. Cook says it is his view this isn't fully burdened.
The document says it is "based on Method 2" for allocating operating expenses, Cook confirms. It doesn't indicate any further what Method 2 is, though Cook says he believes its described on a different page.
What portion of the revenues come from Mac App Store versus iOS App Store? Bornstein asks. Apple objects saying its sealed. Do you have an understanding of the order of magnitude between the two? Bornstein asks. The iOS would be larger, "a lot larger," Cook confirms.
Now on to R&D numbers. Those are for the company as a whole, Cook confirms. This analysis allocated the R&D numbers to different products, Bornstein says. They did on a direct basis for direct costs, Cook says.
And they allocated shared and allocated R&D, Bornstein says. They did the work for me, yes, Cook says. They have allocated a total amount of R&D for services that is a small sliver, Bornstein says. For this chart, yes, Cook says.
Cook says there was a meeting about this document with the CFO and his staff after the fact. One of the CFO staff sent a follow-up email answering some questions he asked. Cook says he doesn't remember particulars but sees the email.
At the meeting, Cook and the CFO staff looked at another document, the benchmarking document he discussed earlier. I don't know what Mr. Barnes did, but this is not a fully loaded accounting, Cook says again.
Cook says he doesn't know if they've done this type of analysis since, but it is not done quarterly.
While waiting for Cook to switch binders, YGR says: "If anyone knows where I can give away lots of thick binders, let me know."
Now looking at another document from December 2019. It is from the same corporate financial planning and analysis group as the previous presentation, Cook confirms.
It includes some discussion of profitability and includes another quarter's worth of information, Bornstein says. Cook confirms.
They are doing an analysis that is not fully loaded, Cook says. But they have come up with a profitability analysis of the App Store, Bornstein says. He confirms.
Cook says he didn't know these documents were found in his files and produced after his deposition in the lawsuit.
One of the benefits of the IAP is to reduce friction for customers, Bornstein says. You mean they don't have to put in credentials each time, Cook says. He confirms it makes it easier to make purchases.
Apple doesn't want to make their customers leave the app to make a purchase if its possible to make a purchase in the app, Bornstein says. "We want them to do what they want to do," Cook says. He acknowledges that from his point of view, he wants them to stay.
"We try to make it as easy as possible," Cook says.
Apple has parental controls to ensure that kids don't make impulse purchases, Cook says. In-app purchases using IAP constitute a very substantial percentage of App Store revenue, Bornstein says. Cook says he thinks so.
You do not believe it is as easy to buy virtual currency on the web as it is to buy them while you are in the app on an iOS device, Bornstein says. "It takes another click to get onto the web, but people do it," Cooks says.
Apple has an arrangement with Google in which Google is the default search engine on the iPhone, Bornstein says. That's a lucrative arrangement. "We do so in the best interest of the user," Cook says. "They pay us money."
The government claims its upwards of $10B, Bornstein says. Cook says he doesn't know. That is just to set the default, Bornstein says. That is something that Google pays a lot of money to Apple to avoid extra click. "That's not how I look at it," Cook says.
You'd have to ask them why they are doing it, Cook says. You must have an idea why they pay billions to Apple to be the default search engine, Bornstein says. "I believe they pay us for the searches," Cook says.
Cook confirms that he reviewed the decision Apple made to terminate developer account for Epic Games and agreed with it. He believes Epic's actions were "malicious"
Schiller told the court that the only viable option for Apple was to cease doing business with Epic, Cook confirms. But Apple offered Epic could return to the App Store, Bornstein said. "The whole time we've said that," Cook says.
If Epic were the bad actor Schiller claims, it wouldn't be to the benefit of users, Bornstein said. "Users are caught between two companies here," Cook says. "We aren't thinking about the money at all. We're thinking about the user"
"We always put the user at the center of everything we do," Cook says. "It has nothing to do with money."
Bornstein asks about Cook's congressional testimony last year.
Cook says he doesn't remember if someone asked about Apple retaliation. They are now playing the clip in which Cook says they do not bully people or retaliate.
You maintain Apple did not retaliate by threatening to shut down the Unreal Engine, Bornstein says. Cook confirms. Bornstein asks if they retaliated against the Down Dog Yoga app for testifying in this case. Cook says he's not familiar with it. "Can you play me something?"
Are you familiar with the Developer Program License Agreement? Bornstein asks. Cook says he has a vague knowledge of it. They are now going to look at it
Are you aware there was language added to this document about when Apple can terminate developers, Bornstein says. Cooks says he is not.
Bornstein is reading the new provision about being able to withhold payments. You have no idea this language was added to the document, Bornstein asks. Cook says no.
The consequence of Apple's unilateral suspicion is that Apple can withhold payments to that developer and all its affiliates, Bornstein says. Cook says he doesn't know. He confirms it is contrary to Apple's culture to retaliate.
You believe consumers value the app review process? Bornstein says. They value the outcome which is more privacy and security, Cook says. How do we call a store with 1.8 million apps curated? Bornstein says.
They have to live up to the rules, Cook says. Curation is organized and sifted through, like a museum, Bornstein says. "You can curate something large and curate something that's small," Cook says. We make sure they all comply with rules of the App Store.
Cook says he thinks Bornstein is confusing curation and featuring. "We're not passing a moral judgement on them," Cook says. "We're applying the guidelines on an egalitarian basis."
Are you aware there are stores that have a subject-matter focus? Bornstein says. Cook says he is not. The only person who can make recommendations on the App Store is Apple, Bornstein says. "Anybody can write about an app out in the wild," Cook says.
We are taking our morning break for 20 minutes.
Back now. Epic's Gary Bornstein resumes questioning Cook.
It is your view that users want Apple to curate the App Store? Bornstein asks. Yes, Cook says.
You believe users pay Apple to make decisions for them? Bornstein says. That's not the way I'd say it, Cook says. Now we're going to the deposition.
You do decided for them they cannot download apps from a developer directly? Bornstein says. They can do web apps themselves, Cook says. If there were multiple stores, people could still go to Apple? Bornstein says. The promise of the iPhone would be gone, Cook says.
It seems like a decision they shouldn't have to make, Cook says. When they buy an iPhone today, they buy something that just works.
Is it your understanding that customers don't understand the difference between Apple App Store and a third-party App Store? Bornstein says. "They buy into an ecosystem," Cook says. Bornstein repeats his quesstion. I don't know, Cook says.
You trust that users know the difference between the App Store and a browser? Cook says yes. "They've never had to do it before," Cook says of using third-party app stores. "I don't know" if they'd know the difference.
"It seems like a complexity they shouldn't be burdened with," Cook says.
If there were other app stores, "we'd have to differentiate in some way," Cook says. "I don't know what we'd do."
"It's an experiment I wouldn't want to run," Cook says. "I'm giving you my business judgment." The market could come to a different judgment, if there were a market that you allowed to exist, Bornstein says.
The customers who have reached out to me, all love the safety and security of today, Cook says. What about developers? Bornstein says. There's one that doesn't, Cook says. Just one? Bornstein says. Cook confirms there are some.
On privacy, Apple believes privacy is a basic human right, Cook confirms. Privacy is also a differentiator in the market? "We care more than others," Cook says. "I think there are some people who want that and buy an iPhone because of it."
Other app stores could make a similar commitment to privacy? Bornstein asks. I haven't seen any that do, Cook says. I don't know that anybody would. They haven't thus far.
Apple doesn't have a unique ability to decide which apps are safe and protective of user data? Bornstein says. We reject 40K a week, Cook says. That's not all on privacy grounds, Bornstein says. No that's on various things, Cook says.
People who value privacy could choose Apple or choose someone else who they think could do a better job, Bornstein says. Cook says that hypothetically possible.
Bornstein is walking through Cook some of Apple's privacy policies related to the App Store.
Cook says he is not familiar with how Apple uses information to do searches in the App Store.
We generally collect the minimal amount of data, Cook says. Bornstein said an App Store could not collect info on what people search for. Then they couldn't make recommendations, Cook says. Bornstein says that a company could choose that though. Cook says he doesn't know.
Apple does business in China with GCBD, an entity owned by the Chinese government. apple.com/legal/internet…
When iCloud is enabled, data will be sent to and stored by a Chinese state-owned entity? Bornstein asks. Cook confirms.
Bornstein says that Apple takes down apps at the request of the Chinese government. “Occasionally we have apps on the store that are illegal and we have to remove,” Cook says.
Bornstein says Apple has agreed to remove news apps from the App Store. "Some," Cook says. "I wouldn’t say its a regular occurrence."
"We have to comply with the law in each of the places we operate in," Cook says.
If there were more than one app store, the government wouldn't be able to go to one place to get things taken down, Bornstein says. "Governments have the right to pass laws for their citizens," Cook says. "We have to comply with the laws in the jurisdictions we operate in"
We believe its better to operate there, rather than not, Cook says. "I know of nobody in the smartphone business that is not selling in China."
Looking at an email from Tim Sweeney to Apple's Mark Grimm about jurisdictions using Apple to surveil citizens. Cook says he never saw this email and has never heard of the concept.
Epic refused to engage in business where it was going to be required to compromise user privacy and data, Bornstein says. Cook says he is not aware. Bornstein reads from the e-mail that Epic decided not to operate in Vietnam because of privacy concerns.
Is it your view there is no benefit to users for being able to download software outside the Mac store? Bornstein says. "The Mac and iPhone are very different," Cook says. Bornstein says are there are benefits. Cook says that all apps aren't available on the Mac App Store.
"I think it would be a lot safer if we did it the other way," Cook says. "Today not all apps are on the store, so there might be a user benefit to having access to something not on the store."
Apple's lawyers have taken the position that accepting Epic's position would require the court to find that the business models of game consoles are also illegal. Cook says that would make sense.
Returning to the House Judiciary hearing, Cook says he doesn't remember being asked about what would stop Apple from increasing its commissions. They play the clip.
You said we've never increased commissions in the store, Bornstein says. Apple has expanded the scope of transactions to which the commission applies? Bornstein says.
Before IAP was introduced in 2009, developers could offer commerce in their apps without paying a commission, Bornstein says. Not to my knowledge, Cook says.
Now looking at a February 2009 email about an app called Skyscape.
The email indicates there is a store within the app. The app is free and then you could purchase things within the app, Bornstein says. Cook says he doesn't know, from looking at the email he says it isn't clear they allowed the app into the store, it was going through app review
Now another email to C.K. Haun about an app called Unbound Medicine. It had a form that allowed people to order from them, Bornstein says. Does this refresh your recollection that in-app commerce was available before IAP? Cook says no.
This says that Apple instructed Unbound Medicine to change the app so that it launches Safari for purchases, Bornstein reads. That's like Apple having a sign go purchase this at Best Buy. Cook says he isn't familiar with the e-mail so he doesn't know.
If somebody signs up to an app and shares their email through account registration in the app, you can't send a communication encouraging purchase elsewhere, Bornstein says. Cook says you can direct market to users. If the developer gets the email from the customer they can.
Bornstein says he only has sealed questions remaining. So Moye is back up again for re-direct.
Was search ads intended to help with app discovery? Moye asks. Cook says yes. They also announced the Today tab so they could feature apps. He thinks they also changed the recommendation engine.
Cooks says they went through "quite a process" to take out some of the old apps in the store which would also improve discovery. They also added the Games tab to separate
Does Apple have agreements with other search engines? Cook says yes.
Those also provide revenue, he agrees.
Returning to the financial documents. Are there any other presentation like this? Moye asks. Cook says he doesn't recall any.
Who is in a better position to give testimony on these documents, you or Ned Barnes? Moye asks. I am, Cook says.
Do you still consider Epic's conduct "malicious?" I do, Cook says. We think users are being put in the middle of a business dispute. The dispute should be settled in court but not have the user suffer from that.
They would have to commit to abiding by the rules, Cook says.
Going back to the new provision in the DPLA, do you know whether or not Japanese law requires the additional of the language that Mr. Bornstein asked about? Moye asks. Epic objects.
Do you know what motivated the change? Moye asks. Cook says Japanese law required it.
"We have been at App Review since 2008. We have built up a number of tools and human expertise to evaluate it. We know a lot of things to look for." Cook says.
Apple does not have the option to not follow Chinese law. Cook says they ship the same iPhone to China as it does elsewhere in the world. The product other than the iCloud piece is the same, he says.
When Apple takes down apps from China they are doing it because the Chinese government has determined it is not lawful, Cook says. "We have to follow the law in each jurisdiction."
We have the same App Tracking Transparency in China, the privacy nutrition labels are the same in China, he says.
Can developers send email to customers? Yes, as long as the customer freely gives them the address, Cook says.
You were asked about in-app commerce prior to IAP functionality, Moye says. What was your understanding about whether in-app commerce was permitted before IAP? That it was not allowed, Cook says.
Moye is having Cook look at another document that relates to Skyscape, an app that Bornstein sought to show had in-app commerce before IAP was introduced.
It's a February 2009 email. Moye reads "Skyscape: need to remove in-app commerce capabilities" and "Working with Skyscape to be compliant with current P&Cs"
Do you see messages of support from developers? Yes, Cook says. Are you familiar with Snap? she asks. Cook says yes. Do you recognize this as publication dated May 21, 2021. Bornstein objects saying its a news article that was published while Cook was on the stand.
Moye finishes. Bornstein is back up briefly.
I suspect it was this: cnbc.com/2021/05/21/sna…
BTW, Judge YGR said they couldn't question Cook on it because it's hearsay. (ie there's no way to verify its correct)
Bornstein is asking about the second profitability analysis he showed. Cook says he didn't know if it went to a broader group.
Bornstein asks why Cook said he didn't know about the language added to the DPLA on cross but now says its because of a regulatory issue in Japan. He said Moye's prompting reminded him.
Going back to the financial documents. Bornstein points Cook to a section called "licensing." Cook confirms that is the search deals and might be more in there. He confirms that Google's licensing deal is much larger than any of the others.
Back to the Skyscape emails. It was possible for apps like Skyscape to sell things within their free app? Bornstein says. "It was definitely against the rules," Cook says, I don't know if they could.
A new email relating to the Sansa (sp?) app. The email asks which of the various apps on the App Store the developer should use. It mentions the Amazon Kindle app that allowed purchases. So Amazon Kindle allowed commerce before IAP? Not to my knowledge, Cook says.
BTW, this is what Katherine Forrest and Richard Doren were fighting about last night. Epic wants these emails in because they are arguing developers had the ability to do commerce in their apps before Apple introduced IAP and therefore Apple increased prices/costs
There is another email from 2010 again about the Amazon Kindle app. It says users get kicked out of the app and has to purchase on the web. "This sounds like the Reader rule," Cook says.
YGR asking about how Cook remembered that something related to Japan. He says he recalled that something happened in Japan that meant they needed to change the termination clause.
In your testimony, you said you want to focus on users. I've seen some evidence that a significant portion of revenues coming from gamers, YGR says. The majority of the revenue on the App Store comes from games, Cook says.
The other thing you said is you want to give users control, YGR says. That's right, of their data, Cook says. So what is the problem with allowing users to have choice and a cheaper option for content? YGR asks.
They have a choice today between many different Android phones and iPhone, Cook says.
YGR: if they want to go and get a cheaper BattlePass or V-Bucks. What is the problem with Apple giving them that option. It's information that they can go and have a different option for making purchases?
If we allowed people to link out like that, we would give up our monetization of our IP, he says. You could monetize a different way, YGR says. The gaming industry is "almost subsidizing everybody else"
The way I look at that by having such a large number of apps free, it increases the traffic to the App Store. They have a much larger audience than if there weren't free apps there, Cook says.
Well, that's the customer base not the IP then, YGR says. It's both. We have 150K APIs to maintain and the customer service for all these transactions, Cook says.
Ok, so banking apps, YGR says. I don't pay for them. But you are charging the gamers to subsidize Wells Fargo. Games are an example, they are transacting on our platform, Cook says.
It's a choice. There are clearly other options, we think overall this one is the best one, Cook says. It seems to be lucrative and focused on purchases made, frankly, on an impulse basis. That's a different question not ripe for antitrust law, YGR says.
It does appear to be disproportionate, YGR says. I understand Apple is bringing users to the games. But after that first interaction... Apple is just profiting off that.
"We are creating the entire amount of commerce on the store and we are doing that by getting the largest audience there," Cook says. I think competition is great. We have fierce competition.
You don't have in-app competition on those in-app purchases though, YGR says. People can buy on other platforms, he says. Only if they know, YGR says. That's up to the developer to communicate, Cook says. And only if they decide to switch how they do things, YGR says.
The issue with the $1 million small business program is that really wasn't competition. That seemed to be the result of the investigations, YGR says. It was because of Covid, Cook says. Of course, I had the lawsuit in the back of my head.
I understand Google changed its practices from competition, but you didn't change because of competition, YGR says. It was to help small business, Cook says.
So when other stores like Steam reduced their price, you didn't feel the need to reduce price, YGR says. Cook says he doesn't know Steam.
Let's talk about developers, YGR says. She asks him about a survey that found 39 percent of developers were dissatisfied. How is it that you are feeling motivation or incentive to work for them?
Cook says he doesn't know that survey. But they reject 40K apps a weak so there is some friction. Sometimes the developer or the users don't have incentives aligned.
It doesn't seem to me you have competition or much incentive to work for developers, YGR says. I don't recall seeing any other surveys or any other business records showing that you routinely conduct surveys regarding developer satisfaction and move or make changes.
Moye has some follow-up questions on the judge's questions. Are developers allowed to sell things they sell in-app outside the app? Yes, Cook says. Are consumers allowed to purchase outside the App Store content at lower prices? Yes, he says.
The app review is not a one and done kind of thing. It's a continual process. The APIs we create each year are a massive update. We are continually innovating, Cook says.
We are now moving into a closed session so they can ask Cook about some confidential material. YGR says they may not be back into public before lunch starts in 30 mins. So we might not be back till 1:15 / 4:15
The court clerk just came back on the line to say we are in lunch recess. So not back till 1:15 / 4:15, at which point I believe we'll be back up with Aviel Rubin, Apple's security expert.
I'm a couple minutes late getting back. Aviel Rubin from Johns Hopkins is back on the stand, being cross examined by Epic's Brent Byars.
Rubin said in his report that IAP provides a "frictionless" experience for customers. He confirms he didn't examine how much friction there is in different payment systems.
Byars is asking about this paragraph from Rubin's written statement
Looking at an August 2018 email from Epic about Apple's enterprise program. In an email from Tim Sweeney he wrote "the goal isn't to siphon away from the iOS App Store." Rubin said he interprets the document to be about Epic trying to avoid paying 30 percent.
Byars is done. Apple's Jason Lo is back up.
And after one question, Lo is done. Rubin is relieved.
Both Epic and Apple officially rest their case. The closing arguments will be on Monday.
"I have a considerable amount of evidence to review in more detail," YGR says. "That will take some time. My decision will be in writing. I am picking a jury on June 7 and when I'm in trial I won't be working on this case. But I am not one to let things sit around."
YGR says she will work hard to get a decision as soon as possible, but doesn't want to give an exact date. Then she said, hopefully before August 13.
We'll have closing arguments on Monday. They won't be the traditional closings where Epic talks for awhile and then Apple does. Instead YGR has given the lawyers a list of topics and they'll debate them. Expecting some more 🔥and possible hints on her decision then.
And now....I think I've earned a🍸

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More from @leah_nylen

21 May
Day 15 (and our last trial day) for #epicvapple. MLex's @MActon93 and Law360's @doratki are in court today.

Apple CEO Tim Cook will be up first. After he's done, Aviel Rubin, Apple's security expert from Johns Hopkins, will finish his testimony.
Going through our morning introductions now.
Epic has roughly 2 hours left (YGR gave both sides 45 hours each and has been timing them)
Read 5 tweets
20 May
Day 14 of #epicvapple. I feel a bit like a marathon runner entering the last few miles. The end is in sight, just have to get there.
Today's reporters are @mslopatto and @Siliconlaw. We're getting a few more expert witnesses from Apple today: UCLA's Dominique Hanssens; James Malackowski, CEO of Ocean Tomo; and Aviel Rubin from Johns Hopkins
YGR says she felt "too much stress" to watch the Warriors-Lakers game last night.
Read 229 tweets
19 May
Welcome to Day 13 of #epicvapple. @joshua_sisco and @BobbyAllyn are doing double duty and are back in court again today.
Apple’s Michael Schmid, who works with game developers, will be back up on the stand this AM. After he’s done, Craig Federighi, senior vice president of software engineering at Apple, will testify followed by Dominique Hanssens, Apple’s marketing/survey expert
YGR says she works every weekend during trial because she has "hundreds of other cases" and those do not end at the end of the trial day.
Read 221 tweets
18 May
Doren returns to the sexual terms. There are categories of things we don't want on our store like pornography, Schiller says. When you have categories of apps, like dating apps, developers will try to find where the line is. "It's not an easy task," he says.
It would be inappropriate for Apple to reject dating apps because of the people who use them, Schiller said.
Nudity is allowed for medical apps, but pornography is not permitted, Schiller says. "It's been a very difficult topic," he says of porn. Apple sets rules like the display of genitalia to help the app reviewers, Schiller says.
Read 58 tweets
18 May
Now it's adding podcasts, Forrest says. Schiller says that is iTunes not App Store.
Schiller says he receives regular reports on how much Apple is earning in search ads through the App Store. They are looking at one (which is sealed).
You are aware IAP requires developers to choose a price from a price tier, Forrest says. Schiller agrees. The prices must end in .99.
Read 47 tweets
18 May
And now, back to our regularly scheduled #epicvapple coverage. Apple's Phil Schiller will be back up on the stand this morning. Expect him to have a tougher reception today as Epic's Katherine Forrest gets her chance at questioning.
Today and tomorrow, we have @joshua_sisco and @BobbyAllyn as the in-court reporters.
If Schiller finishes today (he might or might not depending on the cross examination), Apple's Michael Schmid, head of game business development for the App Store, is up next.
Read 160 tweets

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