OAKLAND, Calif. (CN) --- Apple slammed Epic Games for trying to introduce a last-minute rebuttal witness Thursday as a federal antitrust trial over Apple’s alleged anti-competitive control of its App Store draws to a close.
Epic lead counsel Katherine Forrest told U.S. District Judge Yvonne Gonzalez Rogers that she was blindsided when earlier this week, Apple executive Phil Schiller testified that app developers were not using their own payment processing methods on iOS before Apple launched its in-app payment (IAP) solution in 2009.
“The launch of IAP would have increased the cost to developers of those in-commerce opportunities,” Forrest said. She planned to question Schiller about this, but he said in-app commerce opportunities would not have been possible before 2009.
“A number of entities had utilized in-commerce opportunities prior to the launch of IAP,” Forrest told the judge. “It came as a surprise to me that he would deny it so vehemently.”
Forrest wanted to call another witness or at least introduce some documents that would rebut Schiller’s testimony.
"Factually, app developers had developed in-app purchasing opportunities through their own methods prior to that and were using them actively and Apple knew about that," she said.
Apple’s attorney Richard Doren objected, saying Apple’s legal team had been caught off guard and would not have time to depose any additional third-party witnesses by tomorrow.
“This is sandbagging, pure and simple,” he said. “Now is not the time for them to be able to kick this door open.”
Gonzalez Rogers said she would not allow any new witnesses to testify, and “will take the record as it is” adding, “it’s the fairest thing to do.”
Forrest said she would likely ask Apple CEO Tim Cook about IAP when he testifies on Friday.
“Mr. Cook was not there in 2008, 2009 so I don't know what kind of information he's going to have,” the judge said. “But the playing field is the playing field and I'm not going to let in something late.”
Cook is expected to take the stand first thing Friday morning.
Epic was booted from the App Store last year after it introduced its own system for in-app payments on iOS, bypassing Apple’s requirement that developers use its in-app payment (IAP) solution that gives Apple a 30% cut of all in-app purchases.
Epic quickly answered with a federal antitrust lawsuit that seeks to change the way Apple runs its store.
Thursday afternoon, an IP valuation expert testified that Epic Games’ desire to “free-ride” on Apple’s intellectual property removes its incentive to innovate and violates its constitutional right to exclude whomever it wants.
Apple has sustained a longstanding commitment to innovation by rigorously protecting its IP, said James Malackowski, CEO of Ocean Tomo, a firm that helps companies secure their intellectual property and other “intangible assets.”
But Fortnite maker Epic Games threatens to upend all of that by asking a judge to force Apple to allow third-parties like Epic to distribute apps on its tightly-controlled App Store, giving Epic a de facto free license to use Apple’s IP.
“It would increase Apples losses, reduce their compensation and remove their incentive to innovate,” Malackowski said. “The requested relief would take away Apple's control or Apple’s provisions in its license agreements, and would force Apple to house a store within a store. They would no longer receive the compensation they negotiated for, but it's more than that — they would be compelled to continue to support Epic Games in its store not only today but into the future.”
"It’s ‘you can use my stuff and I have to keep performing for you now and evermore.’ It’s quite extreme,” he added. “It breaks down the fundamental constitutionally-protected element of your innovation.”
Malackowski said Apple spent $500 million on research and development alone in 2005, and $18.8 billion in 2020, which he called the “innovation footprint” of iOS. In order to operate on iOS, Epic signed Apple’s Developer Program Licening Agreement, giving it license to use Apple’s IP, including patented tools like Metal, a 3D graphics API [application programming interface], and its design API UIKit.
Under cross examination by Epic’s attorney Lauren Moskowitz, Malackowski conceded that the DPLA does not disclose what IP it licenses to developers.
“If I were a developer and wanted to know what IP I was licensing from Apple I wouldn't find it in the DPLA, would I?” she asked.
“You could find it but it wouldn't be in the agreement,” Malackowski said.
“No one at Apple ever gave you a file that said here is the specific IP licensed under the DPLA,” Moskowitz pushed.
“No one gave me that list,” he said.
Moskowitz also pressed Malackowski on his assertion that Apple is protecting its IP by prohibiting third-party app distribution on the App Store.
“You don't know if the prohibition on a store within a store has anything to do with wanting to protect its IP?” she asked
“Generally it's been discussed,” Malackowski said. “I don't recall specific testimony or documents but I do believe Apple is concerned about its IP rights if subject to the requested injunctions.”
"Have you seen any evidence that the reason that prohibition came into being was to protect Apple's IP rights?” Moskowitz asked.
“Not specifically using those words,” he started to answer, before Moskowitz cut him off.
“You do not have any evidence or document that shows the reason Apple decided not to allow side loading on iOS was to protect its IP rights,” she said, referring to the process of downloading and installing apps onto an iPhone from a source other than the App Store.
“No,” he said, but "I believe Apple wants to protect its IP investment by preventing those activities."
Moskowitz also questioned him on the Federal Trade Commission’s antitrust guidelines for licensing intellectual property, which Malackowski said he took into account when preparing his expert report.
“The IP guidelines say the exercise of IP rights are not free from scrutiny under antitrust laws right?”
Malackowski said he agreed.
“And certain types of conduct may have anticompetitive effects that antitrust laws can and do protect,” Moskowitz said, reading from the guidelines.
“Yes,” Malackowski said.
“And restrictions in licensing agreements can harm competition?”
“It's possible.”
“You're not offering any opinion on whether Apple’s restrictions are anticompetitive."
"Correct."
“And courts can reject a justification of IP protection as a pretext if there is no evidence that firm's restrictive conduct was actually motivated by a desire to protect IP?”
“Yes,” he said.
Testimony in the three-week bench trial will conclude on Friday.
Follow @MariaDinzeo
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