By Jon Swartz
As Epic Games Inc. methodically made its case in the opening week of its antitrust trial v. Apple Inc., it carefully laid out economic and technological evidence that included testimony from representatives of other major gaming developers and some eyebrow-raising email exchanges among Apple executives.
But as the company approaches the home stretch to drive home its points, some legal experts wonder whether Epic is running out of time.
“From a legal standpoint, they have established nothing in terms of antitrust. They haven’t shown the practices they are complaining about are harming consumers,” Larry Downes, project director at the Georgetown’s Center for Business and Public Policy’s Evolution of Regulation and Innovation project. “This is about lining up other participants [such as Sony and Microsoft] in the ecosystem against Apple, to upset consumers, and force Washington to enact legislation.”
Florian Ederer, an associate professor of economics at Yale School of Management, lauded Epic’s legal team but expects Apple (NAS:AAPL) to win the case based on what Epic has presented. The longer-term strategy for Epic, he said, is to “get some form of long-term regulation” on commissions demanded by digital platforms.
In what many are increasingly calling the internet’s trial, Epic has scored with the testimony of Microsoft Corp. (NAS:MSFT) and Nvidia Corp. (NAS:NVDA) officials on Apple’s prohibitive policies toward competing cloud-gaming platforms, and compelling email in which Apple executives discussed market dominance. In an infamous 2010 email , the late Apple co-founder Steve Jobs expressed his desire to “tie all of our products together, so we further lock customers into our ecosystem.”
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And the strongest witness for Epic is yet to come. Epic’s lead expert economist, David Evans, chairman of the Global Economics Group, is expected to explain how “distributing its apps through the App Store” caused Epic to pay “supra-competitive commissions and been deprived of the benefits that would flow from a competitive market.”
Apple has been especially mindful of Evans. In March, a judge granted Apple’s motion for a 14-hour deposition of Evans, whose 653-page report on the case covers nearly every disputed economic issue in this lawsuit.
“Epic’s opening slides had no mention of output or prices, no mention of consumer experience, no mention of the law under which it has the burden, and no mention of its own lead economist, Dr. Evans, upon whom its entire case relies,” Apple attorney Karen Dunn said in her opening statement Monday.
From the start, Epic has faced a tall order: Convincing a federal judge that Apple (NAS:AAPL) broke antitrust law and fomented a monopoly through its App Store.
Antitrust experts like Downes are adamant Epic hasn’t shown enough so far to convince Judge Yvonne Gonzalez Rogers that Apple punished developers with a hefty 30% commission that was passed on to consumers and gave the iPhone maker an unfair advantage over competing apps. Epic needs to convince Rogers that the relevant market at the core of this case should be defined more narrowly as iOS apps.
Epic’s best path to legal victory may be the assertion that rival platforms — in particular, Android phones — are not reasonably interchangeable with iOS because of the “walled garden” constructed by Apple, according to Ari Lightman, professor of digital media and marketing at Carnegie Mellon University’s Heinz College. Nonetheless, he deemed Epic’s chance for success as minimal.
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Epic got off to a rocky start the first two days of the expected 3-week trial on Monday with the testimony of its lead witness, company chief executive Tim Sweeney. His at-times inaudible responses and admission he would have accepted a side deal with Apple to avoid 30% commission fees undercut his effectiveness, according to Apple legal strategists and some antitrust experts said.
“He was our most effective witness,” an Apple representative gleefully said several times during the week.
Sweeney’s time-consuming stint on the stand — he was frequently asked to define the functions of a console and gaming terms — also cut into Epic’s allotted 45 hours to make its case. (Apple also has 45 hours to present its side.)
Indeed, the languorous pace of some questioning and proceedings seemed to wear on Judge Gonzalez Rogers, who requested both sides to expedite things.
Apple, which could start its case as early as next Friday, is expected to chip away at Epic’s case through a number of counterarguments. It will contend App Store is not a monopoly, and that people can download games on Android phones, gaming consoles, and desktop operating systems. It will assert Epic’s motivation all along has been a greedy, money grab to enrich company coffers after years of working successfully with Apple. (Georgetown’s Downes refers to the suit as a “power play” in a contract dispute to help Epic’s bottom-line.)
And, most important, Apple defines the game distribution market includes the Android mobile operating system, Xbox, and laptops.
“All of Epic’s claims depend on its ability to define the relevant market, the universe of reasonable substitutes,” Apple attorney Dunn said Monday. “Epic’s main economist, Dr. David Evans, proposes a single brand aftermarket of iOS app distribution containing all apps in the app store.”
“The App Store is a store. And like many stores, it is full of products that are not substitutes for each other,” she said. “Fortnite is not a substitute for Waze and it’s not a substitute for the Starbucks app. Under the law, including in the Ninth Circuit, for Epic to cluster all these non-substitutes together, it would have shown that products in the store are subject to the same competitive conditions. And Epic cannot show that.”