Sparks flew in Epic Games Inc.’s antitrust case Tuesday morning, when former Apple Inc. marketing chief Phil Schiller faced a grilling from Epic attorney Katherine Forrest over a series of internal email among Apple executives that, Forrest argued, showed a clear intent by Apple to quell competition.
Citing an October 2008 email exchange between Schiller and the late Apple
co-founder Steve Jobs about Google and the iPhone ad market, Forrest pointedly asked, “You weren’t basking in the ability to destroy another company’s business?” “No,” Schiller replied.
In December 2019, Craig Federighi [Apple’s senior vice president of software engineering] forwarded to Schiller email from Apple Chief Executive Tim Cook. It discussed, “What could we do that would give us a long-term competitive advantage for enterprise and consumers?” that pointed to a “primary strategy” to “eliminate the use of user-entered passwords.” This line of thinking, Forrest said, strongly suggested ways Apple considered to lock in customers to its operating systems. (Schiller replied that users could merely use a password manager among various devices.)
Forrest also mentioned an October 2016 email message from Schiller to other Apple executives, linking an article in The Verge with the headline, “iMessage is the glue that keeps me stuck to the iPhone.”
The email trail illustrated a bruising cross-examination of Schiller that attempted to paint an unflattering portrait of Apple as a price-gouging monopolistic bully that overcharges developers with a 30% commission fee while Apple competes against many of their apps. To drive home its point, Epic’s legal team mentioned antitrust charges against the iPhone maker from Spotify Technology
probes in Europe and Asia, a House Judiciary antitrust subcommittee investigation into competition in digital markets, and a Politico report on the Justice Department and state attorneys general looking at the App Store.
Apple has steadfastly maintained that developers have plenty of choices to distribute their apps via digital stores from the likes of Google
Samsung Electronics Co. Ltd.
Sony Group Corp.
and that 30% is the industry standard. Epic, Apple contends, breached its contract on the App Store in an audacious, premeditated scheme to gain a more-lucrative side deal to line its corporate pockets.
Forrest pointedly asked if Apple’s small business program — which charges 15% commission fees — was to ease competition complaints. “Those aren’t mutually exclusive,” Schiller said.
At one juncture, Forrest openly mocked Schiller when he could not say if the App Store was profitable. “How is it as the executive responsible for this major business in the country, you don’t know if its profitable?” Forrest asked.
“It’s not what we focus on,” Schiller responded. “It doesn’t come up.”
Forrest then produced a 2017 press release from Apple, in which Apple said it paid developers more than $70 billion since the App Store was created in 2008. With a 30% commission, Apple would have received about $20 billion, she said, which would strongly indicate profitability. (Schiller said he didn’t know.)
“So Apple can make accelerometers and machine learning and it can’t figure out if the App Store is profitable?” Forrest sarcastically asked.
The exchange was one of several that highlighted Epic’s strongest day in court so far as it pursues a more level-playing field on the App Store.
“You understand we are seeking to allow other competitive stores and channels,” Forrest said. “Not the elimination of IAP [In-App Purchase] and App Review. App Review for apps in the App Store would continue to exist. What we are seeking is the ability to have other payment opportunities but IAP would” be there.
On Monday, Schiller testified that if Epic were to win the case in federal court in Oakland, Calif., the App Review process would go away.
Tuesday’s combative cross-examination was in stark contrast to Monday, when Schiller smoothly led an Apple attorney through the 12-year history of the App Store.