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May 3, 2021, 8:07 a.m. EDT

Apple v. Epic: What to expect from a trial that could change antitrust law and the mobile-app ecosystem

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By Jon Swartz

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Antitrust law started with a populist bent, in the protection of mom-and-pop businesses from marauding corporations. It morphed to the Chicago School approach that took hold in the 1970s and 1980s, with a focus on efficiency, prices and consumer welfare. A new approach, however, harks back to the original theory of structure-oriented competition policy to preserve innovation, which could mean trouble for Apple and Amazon, both of which oversee platforms that critics claim put smaller companies at a competitive disadvantage. It is called the “New Brandeis” or “Neo-Brandeis” movement because it, like the early 20th-century Supreme Court Justice Louis Brandeis, is concerned with the downsides of bigness and economic concentration. The argument was summarized in a legal blog post from late 2018 called “A Brief Overview of the ‘New Brandeis’ School of Antitrust Law.”

One interested party in Apple-Epic with plenty at stake financially is Ben Volach, founder of Blix Inc., the maker of an email app that is also suing Apple over its 30% App Store commission.

Read more: Apple’s ‘dark side’ led these brothers to launch the AppRising

“Apple is monopolistic by locking in consumers with the sign-in feature,” Volach told MarketWatch. Blix’s suit defines Apple as operating monopolistically in the U.S., with about 61.5% of the U.S. mobile market vs. Android’s approximately 38%.

“It’s like the last line of the song ‘Hotel California,’ ” Volach says. “You can check out any time you like, but you can never leave.’”

Yet few companies have been willing to take on Apple in court. Few have the money, time and nerve to take on the only U.S. company in history to achieve a market value of more than $2 trillion , thanks to more than 1 billion iPhone customers, in the view of Volach, antitrust attorneys and software companies. “People are terrified of retaliation from Apple if they take legal action,” Volach said. “Perhaps it takes a loss in court to encourage others to join in later.”

A setback in court for Apple would also pique the interest of the politicians on both sides of the aisle who view the company as a monopolistic threat.

The U.S. House of Representatives Judiciary Committee on April 15 approved the recommendations of a scathing 450-page report advocating legislation to rein in Big Tech’s expansive power. The report, released last October, recommends an overhaul of antitrust law to counter the growing influence of tech behemoths. 

In an April 9 letter , Sens. Amy Klobuchar, a Minnesota Democrat, and Mike Lee, a Republican from Utah, of the Senate Judiciary Committee’s Subcommittee on Competition Policy, Antitrust and Consumer Rights chided Cook for belatedly backing out of providing testimony at an April 21 hearing on antitrust. (Cook cited the coming Epic trial as a reason for declining to testify; Kyle Andeer, Apple’s vice president of corporate law and chief compliance officer, took his place.)

Read more: Senate hearing on app stores puts Apple, Google under regulatory spotlight

“More than half of internet traffic comes through mobile phones, whose users rely on mobile applications to access online content and services — and the vast majority of mobile apps are downloaded from either Apple’s App Store or Google’s Play Store,” the senators wrote. “Apple’s power over the cost, distribution, and availability of mobile applications on the Apple devices used by millions of consumers raises serious competition issues that are of interest to the Subcommittee, consumers, and app developers. A full and fair examination of these issues before the Subcommittee requires Apple’s participation.”

During the Senate hearing, lawyers from Spotify, Match and Tile claimed that steps taken by Apple had undercut their competitive status while at the same time charging them millions of dollars in App Store fees annually.

“Apple abuses its dominant position to insulate itself from competition,” Horacio Gutierrez, head of global affairs and chief legal officer of Spotify, testified. “We have been successful despite Apple’s anticompetitive behavior.”

As Apple and Epic lawyers furiously filed documents in the days leading to the trial, regulators in Europe were reportedly about to charge Apple with anticompetitive behavior for the first time . The charges stem from Spotify’s SPOT complaint in March 2019 that Apple abused its control over which apps appear in the App Store to restrict competition against its Apple Music service. A crucial element of Spotify’s allegation is that Apple’s 30% fee made it difficult for Apple Music rivals to market themselves.

The historical impact of Apple-Epic trial

In the pantheon of technology-industry legal cases, only a few are as significant as Apple v. Epic.

Perhaps the most consequential was just resolved. In April, Google prevailed in the Supreme Court, in a 6-2 decision, in its decade-long tussle with Oracle Corp. /zigman2/quotes/202180826/composite ORCL -3.31% over software development.

For more: Oracle takes strike three in Google legal battle, but the game will likely continue for software developers

Nearly two decades ago, a chancery judge in Wilmington, Del., ruled in favor of then–Hewlett-Packard Co.’s $25 billion merger with Compaq Computer Corp. in 2002. The company subsequently was split into HP Inc. /zigman2/quotes/203461582/composite HPQ +1.44% and Hewlett Packard Enterprise Co. /zigman2/quotes/201998588/composite HPE +0.57% .

Yet the closest parallel to the Apple-Epic case is Microsoft Corp.’s /zigman2/quotes/207732364/composite MSFT +1.23% face-off with the Justice Department in the 1990s over how the software giant tied its fledgling internet browser to its dominant Windows operating system. Netscape Communications, a far smaller company whose browser had been the industry leader, took a position similar to Epic’s, and the resulting case led to restraints on Microsoft’s outsize ambitions that opened up adjacent markets for the likes of Google and Facebook Inc. /zigman2/quotes/205064656/composite FB +5.30% .

More on the Microsoft case and its effects: Big Tech was built by the same type of antitrust actions that could now tear it down

Where Apple v. Epic lands on the historical timeline depends on the outcome, which will resonate from Silicon Valley to the Beltway. “The importance of the lawsuit simply comes down to its result,” Volach said, with a sigh of apparent exasperation. “If Apple loses it, it is hugely significant for generations to come. If it wins, it’s business as usual.”

The onus will be on Epic to make the case that Apple enjoys monopoly status in a fragmented smartphone market, said Dan Wang, an associate professor of management at Columbia University.

“It will be hard to prove with the platforms of Android and Samsung,” Wang told MarketWatch.

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$2181.67 billion
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$ 369.79
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P/E Ratio
31.63
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Market Cap
$1048.53 billion
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$1.47M
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