Apple Inc. began to make its case Monday in federal court against Epic Games Inc., with a long history lesson on why its App Store is a digital democratization.
Apple Fellow Phil Schiller, a company executive who oversaw the marketing of its products for 30 years and was the late Steve Jobs’ right-hand man at multiple iPhone events, said he didn’t consider the smartphone market as a duopoly — as Epic’s economic experts repeatedly claimed.
When presented with a 2008 email that Schiller authored that Epic contends amounts to a monopolistic plot, Schiller said “the plan” in question was simply the imminent launch of the App Store.
Schiller outlined the history of the massive App Store under questioning from Apple lawyer Richard Doren during nearly five hours of testimony. Schiller offered a narrative on the success of the store, which is the center of Epic’s antitrust claims.
Schiller said he helped develop the idea of the iPhone in 2004, with keen emphasis on security and privacy because the smartphone would store sensitive, personal information. When the iPhone was launched in 2007 and Apple decided later that year to create the App Store, there were two digital stores, Valve Corp.’s Steam and Handango Inc., he said.
The App Store was considered the only way to download apps to maintain “the quality of iPhone [and] maintaining security and privacy to users,” Schiller said.
“Is Apple’s 30% commission still competitive?” Apple lawyer Doren asked. “We believe it is, yes,” Schiller answered. He added that a program for small-business developers with less than $1 million in sales to pay 15% commissions was first discussed in 2016. The program went into effect last year in part because of the pandemic, and Google followed in similar fashion, Schiller said.
“I proposed commissions even lower,” he testified.
Apple considers Google Play and app stores from Microsoft, Samsung, Huawei, and Amazon to be rivals of the App Store, according to Schiller. As for gaming consoles, “I consider them competitors as well: Xbox, PlayStation, Nintendo Switch,” he said. (About 6% of game apps are paid on the App Store, he said.)
There are 2 million apps in the App Store, of which 280,000 are games, according to Schiller. Three-fourths of the games are free. Between 2005-2020, Apple spent $100 billion on research and development for the App Store, including $18 billion last year, he said.
Schiller’s testimony kicked off Apple’s
side of the closely watched case, though Apple’s expert witnesses bookended those of Epic’s, as previously agreed in court.
Epic spent most of the previous two weeks presenting its case that Apple’s App Store has abused its market dominance to unfairly charge developers a 30% commission fee while suppressing rival apps. Apple’s heavy-handed tactics amount to antitrust behavior, Epic’s lawyers and witnesses asserted.
Apple, which has accused Epic of breach of contract and engaging in an elaborate corporate plot to extract additional revenue through lower commission fees, says there are plenty of digital platforms for developers to sell their wares. And several of them — Samsung, Sony Group Corp.
Google Play — charge similar commission fees.
“What Apple will say is that switching costs are not that high. There are lots of examples of app makers who sell on multiple platforms like Apple, Samsung, Nintendo, Microsoft,” Dan Wang, an associate professor of business and sociology at Columbia Business School, told MarketWatch. “In face, there are software developers that specialize in switching platforms.”
In his testimony, Schiller said Apple, Google, and Samsung all have tools to make it easier for users to switch from iPhone to Android and vice versa.
The bench trial is expected to end May 24. Federal Judge Yvonne Gonzalez Rogers requested that neither side’s closing argument exceed 90 minutes.