On Friday Apple CEO Tim Cook took the stand in the Epic Games v. Apple antitrust case, as week three of the trial came to a close and the legal proceedings are nearing the finals hours. On Monday, attorneys for both sides will offer “final arguments” and some other legal loose ends are set to be tied up on May 28.
While Cook faced some fierce questioning from Epic’s attorneys Friday, including a line of inquiry concerning the company’s cooperation with the Chinese government (Cook said that Apple follows the law in every jurisdiction) in removing apps and complying with other governmental requests, Cooks’ toughest moments on the stand came at the hands at Judge Yvonne Gonzalez Rogers.
Rogers pressed Cook about the portion of Apple store sales that come from games and gamers, which he acknowledged was a majority of the revenue. She also asked Cook what was wrong with allowing users (gamers) to have a choice such as cheaper options to purchase content. He replied that they have a number of choices between “iPhone and Android” and that iPhone has certain principles behind it. But Rogers pressed on asking if users had cheaper options for in-game currency or content why should be able to have access to it given how much gaming generates for Apple and subsidizes plenty of other apps. You can read the entire exchange, provided by the press pool who took notes for Friday (Mike Acton from MLex)
Judge’s Questions and Cook’s Answers
Judge: Mr. Cook it was odd to me that you did not remember anything about that termination provision before the break, and it was only by the prompting of your attorney’s question that somehow you remember it.
Cook: I remember something happening in Japan where we needed to make a change in the termination clause. That’s the extent of my memory.
Judge: At the beginning of your testimony you indicated that you wanted to focus on users. I’ve seen evidence that a significant portion of revenue from IAP come from gamers. Have you seen evidence to that effect?
And it’s incredibly significant as compared to all other users, revenue is coming from gamers more than from anyone else. Am I right?
Cook: The majority of the revenue on the app store comes from gamers.
Judge: And IAP in particular.
Judge: You say you want to give users control
Cook: That’s right, of data.
Judge: So what is the problem with allowing users to have choice, especially in a gaming context, to have a cheaper option for content?
Cook: I think they have a choice today, they have a choice between many different Android models, or an iPhone. That iPhone has a certain set of principles behind it.
Judge: But if they wanted to go and get a cheaper battle pack, or cheaper V-Bucks, and they don’t know that they’ve got that option, what is the problem with Apple giving them that option?
You could also monetize it a different way couldn’t you – I mean that is the gaming industry seems to be generating a disproportionate amount of money relative to the IP that you are giving them and everybody else? In a sense it’s almost as if they are subsidizing everybody else.
Cook: You’re right there is some sort of subsidy there. The way I look at that – by having such a large number of apps, it increases the traffic to the store dramatically. Get a much larger audience than they would sell to if there weren’t free apps.
Judge: So your logic is that they don’t get the customer base – it’s more of a customer base, not an IP then?
Cook: It’s both, we have APIs to maintain numerous developer tools.
Judge: Look at banking apps – I have multiple banking apps I haven’t paid for. You don’t charge Wells Fargo or Bank of America – but you are charging the gamers to subsidize Wells Fargo.
Cook: We charge for digital transactions. It’s just a choice of a model. We’ve made a choice, there are clearly other ways to monetize, we chose this one because we think…
Judge: It’s quite lucrative, and it seems to be lucrative and focused on purchase that are being made on impulse basis. That [impulse purchasing] is a different question whether right or not, not really right for antitrust law. But it does appear to be disproportionate.
I understand this notion that Apple is bringing the customer to the game – but after that first interaction, the gamers, the developers of games, are keeping those customers. Apple’s just profiting off that, it seems to me.
Cook: I view it differently than you do, I believe we are creating entire amount of commerce on the store. We do that with a lot of free apps, they bring a lot to the table, we don’t collect commission. And then we have the vast majority of other people on 15 percent.
Judge: Yeah but the 15 percent – you would agree with the basic proposition that competition is good.
Cook: I think it’s great.
Judge: You don’t have competition in IAP though.
Cook: Sure somebody can go and buy on the Sony PlayStation or Nintendo Switch
Judge: Well only if they know, right?
Cook: That’s up to the developer to communicate
Judge: And only if they decide to switch? The issue with the $1M small business program, at least what I’ve seen so far, that really wasn’t the result of competition – the pressure you were feeling.
Cook: Of course we had lawsuits and all the rest of the stuff in our head.
Judge: Ok but it wasn’t competition.
Cook: It was competition after we did ours to 15, made Google drop theirs to 15
Judge: I understand perhaps that Google changed its policy but your action wasn’t the result of competition
Cook: It was the result of feeling like we should do something for small business – small developer
Judge: So when other stores reduced price, Steam, you felt no pressure to reduce your price
Cook: I’m not familiar with Steam and their financial model. One of the thing that’s missed here is there’s a huge competition for developers, in addition to the user. You can imagine if we had an above-market kind of commission, people just wouldn’t develop for us.
Judge: I’ve seen evidence in the record, survey of developers, I’m going to share with you the results of this bar graph presented to me – don’t know how accurate, looked for source doc and couldn’t find. Indicated that 39 percent of developers were either very dissatisfied or somewhat dissatisfied with Apple distribution services. 36 percent somewhat or very satisfied. And 19 percent didn’t go either way, in the middle.
So with 39 percent of all your developers dissatisfied, how is that acceptable and how is it assuming those numbers correct that you are again feeling any motivation or incentive to address their needs?
Cook: I’m not familiar with the document you are referencing – friction is what creates a curated experience for users that they are assured safe and trusted. So sometimes the developer and the user are not necessarily intersecting interests.
Judge: It doesn’t seem to me that you feel again real pressure or competition to actually change the manner in which you act to address the concerns of the developers – if these numbers are right.
Cook: I would look at that v differently, we turn the place upside down for devs.
Judge: Do you have and again you see a hundred binders behind me – I don’t recall seeing any other surveys or business records showing that you routinely conduct surveys re. developer satisfaction and that you in fact move or make changes.
I take with a grain of salt each side’s anecdotal evidence, what I am looking for is aggregates…
Cook: That’s something Phil [Schiller] better placed to answer.
Judge: You as CEO don’t regularly receive reports.
At the end of the day on Friday Rogers announced that “The evidentiary portion of this trial is now concluded,” and noted that on Monday counsel for both sides would have an opportunity to engage in “back-and-forth” closing arguments. Rogers also said that she expects to deliver a written ruling on the case “hopefully before August 13, but you never know.”
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