By Natalie DeCoste
The second week of the antitrust battle between Apple and Fortnite game creator Epic has come to a close, bringing more insights into the world of big tech.
Epic Games sued Apple in August of 2020, accusing the tech giant of engaging in monopolistic behaviors when Apple pulled Epic’s game Fortnite from its App Store. Apple had removed Fortnite from its App Store after Epic added a direct payment option to Fortnite to circumvent the 30% cut that Apple takes from all digital transactions.
The second week of the trial seemed to get more at the meat of the antitrust dispute. The week was focused mainly on expert witness testimony on antitrust disputes.
Epic brought in David Evans, a University of Chicago economist, to argue on their behalf. Evans argued that game consoles aren’t suitable substitutes for smartphones like the iPhone in a legal argument because consoles cannot be used to access the internet by consumers on the go. Devices like the Nintendo switch are portable but do not have internet access for users.
Apple’s transparency with consumers was also called into question by Evans. He explained that Apple’s rules unfairly prevent developers from informing consumers if their prices for in-app purchases take into account Apple’s 30% commission or that consumers may be able to get better deals elsewhere.
This policy is Apple’s anti-steering provision. Judge Yvonne Gonzalez Rogers, who is presiding over the trial, interrupted questioning by lawyers during Apple’s expert witness testimony to better understand the impact of this provision.
“What’s so bad about it anyway, for consumers to have choice?” Gonzalez Rogers asked economist Richard Schmalensee, a Massachusetts Institute of Technology professor and one of Apple’s key expert witnesses.
Earlier in the week, Gonzalez Rogers had asked Evans whether removing the anti-steering provision in the App Store could offer some remedy to the problem.
“That wouldn’t eliminate the market power Apple has here, but it would certainly diminish it,” Evans replied to the judge.
Susan Athey, an economics of technology professor at the Stanford Graduate School of Business, also spoke on behalf of Epic and offered insight into how Apple locks in consumers. She explained that Apple locks consumers into its iOS mobile operating system by making it so that to switch devices, consumers would, in many cases, have to repurchase the apps they already bought and deal with other hurdles.
Lorin Hitt, a professor at the University of Pennsylvania’s Wharton School and one of Apple’s expert witnesses, rejected Athey’s argument. He argued that consumers do switch devices and that Apple’s high retention rate is because people enjoy the product, not because of the high costs to switch.
Apple attempted to switch focus off its own App Store towards Sony and Microsoft, who also charge a 30% commission on in-app purchases in their stores. However, Epic countered by pointing out that both Sony and Microsoft sell consoles at a loss and use the app store revenue to generate profits in their gaming businesses.
On the consumer front, Apple continued to push the narrative that its App Store review policy is an important security benefit for consumers. Again Epic countered Apple’s contention by pointing to Apple’s approval of a school-shooting game and apps that carry out malicious ad-fraud tasks.
Schmalensee tried to excuse Apple’s business practices as being similar to credit-card companies. He claimed that, like credit card companies, Apple offers transaction platforms and has rules to ensure it collects commissions from sellers.
The first week of the trial focused on Epic portraying Apple’s App Store as a monopolistic and anti-competitive ecosystem that fails to offer consumers the benefits it claims to provide. The court also gained insight into Apple’s negotiations with app developers and big companies like Netflix and Facebook.
The second week of the trial has demonstrated just how fact-intensive and complex antitrust litigation is. The judge must understand the context the rationale for business and consumer decisions in the tech marketplace.
