Economist David Evans got into the weeds with a federal judge in California Tuesday as she questioned him as to what’s so wrong about Apple charging app developers for using its proprietary “distribution channel” to connect with customers.
OAKLAND, Calif. (CN) — A federal judge continued to press a prominent economist on his theory that Apple forecloses competition in the iOS app distribution market as he took the stand for a second day of questioning in Fortnite game maker Epic’s antitrust battle with the tech titan.
David Evans, chairman of Global Economics Group and Epic’s main economic expert, struggled at times to relay his granular points, even to U.S. District Judge Yvonne Gonzalez Rogers.
Evans testified that the App Store provides two products: app distribution services and an iOS in-app payment solutions. And he said that Apple is a monopolist that “has been able to increase the price for payment solutions by a significant amount.”
He sadded that Apple’s commission costs would be much lower if developers were not required to use Apple’s in-app purchase system (IAP) in the App Store, where Apple currently charges a 30% commission on all in-app purchases for digital content.
Posing a counterfactual scenario where 20% of app developers choose to use their own payment solutions and the remaining 80% use Apple’s IAP, Evans said Apple’s commission rate would drop to roughly 23%.
“The commission rate would be much lower in an actual competitive market,” Evans said, adding that competition would, in turn, lower prices on digital content for consumers who are harmed when developers pass on a portion of those fees.
But the thread of Evans’ logic broke down a bit on cross.
Apple’s attorney Daniel Swanson opened with noting that, in Evans’ opinion, there are three relevant markets — operating systems, IOS app distribution, and payment solutions. When he asked Evans if in-app purchase transactions occur in the “payment solutions” market, Evans had difficulty giving a precise answer, which frustrated the judge.
“I’m trying to distinguish between the provision of the payment service, which is something Apple is providing,” and the actual transaction between the customer and the developer, he said.
Ultimately, he conceded that the provision of the payment solution for that transaction is in the payment solutions market, though the transaction itself is not, a point that confused Gonzalez Rogers even further.
“I’m trying to understand your point of view,” she said, sounding increasingly exasperated but eventually stopping her questioning so it wouldn’t eat into Apple’s time on cross.
Apple, for its part, is arguing there is only one relevant product market — digital transactions between game app developers and consumers — and that the App Store is a two-sided transaction platform that facilitates one simultaneous transaction between the two.
The product that must be examined for substitutability is transactions, Apple claims, and the relevant market encompasses platforms other than the App Store, where Apple says there is plenty of competition.
A breakthrough seemed to come when Gonzalez Rogers interrupted Epic’s redirect to question Evans on his theory of the case.
“I’m trying to envision this,” she said. “On one side you have all these developers who are making apps. And on the other you have billions of customers. So what we really have is a distribution channel that connects these two groups. You’re saying these two groups should have many distribution channels, not just one.”
“Correct,” Evans said, sounding relieved.
“In this digital world you have developers and consumers and in between them you have a platform, and in this platform Apple has put a toll both,” Gonzalez Rogers added. “And Apple has said if you want to make certain kinds of purchases you’ve got to go through my tollbooth to get to the consumer.”
“Apple is saying our platform is going to be the only distribution channel,” Evans Responded. “And for a certain set of apps, we’re going to erect a tollbooth that charges for something else, which is the transactions that the developer is doing with its own customers.”
But Gonzalez Rogers pointed out that Apple is the developer and owner of that distribution channel, and that it appears that Epic is trying to circumvent Apple’s proprietary technology in order to set up its own channel.
“You’re saying we want you to have it either free or develop or our own channel over your proprietary platform. That’s what it sounds like you’re saying,” Gonzalez Rogers said.
Evans seemingly assented, saying that in addition to being the only distribution channel for iOS apps, Apple “divided that channel into many channels for something else, which are the transactions that the customer makes with developers whose app they have, and Apple is going to set up a tollbooth for those particular transactions.”
Epic wants to be able to sell its in-game currency for digital content directly to iOS users who play Fortnite through its own game store on the App Store.
But Gonzalez Rogers pointed out that these users could just go buy Fortnite “V-Bucks” elsewhere on the web and use them in the app.
Evans acknowledged this is true. ”If I have an iOS app user of Fortnite it is theoretically possible that the user could go to the PC and buy V-Bucks,” he said. “I agree that sometimes happens.”
But he said the problem is that Apple’s anti-steering provisions make it difficult for users to know that they can do that.
It’s also not very convenient to the iOS user to have to buy them outside the Fortnite app.
“In a situation where a consumer is out and about and they’re interested in buying something using their app, later on they could go to a PC and do that, but when they’re out and about it’s not convenient,” Evans said.
“But if someone has proprietary software, if someone invested the capital to create that software, what’s so bad about that?” the judge pushed. “If they want convenience isn’t that a fine option for the consumer? In fact, isn’t it a fine option for both the developer and owner of the software?”
“In a lot of cases that’s not a good option,” he countered. “While I take the point that there are circumstances where using an app on a PC is an option for people, by and large in the world we live in now that is smartphone-based and app-based for much of what people do, I don’t believe that’s really a realistic option.”
The judge responded with a simple “Hm.”