Pod Insights The Vergecast Epic v. Apple judge rules that Apple must allow other forms of in-app purchases About this episode In an emergency Vergecast, The Verge's Nilay Patel, Dieter Bohn, Adi Robertson, and Russell Brandom discuss the ruling today in the Epic v. Apple trial.
Further reading:
Apple must allow other forms of in-app purchases, rules judge in Epic v. Apple
Epic v. Apple judge rules Fortnite’s Peely can appear naked in court
Epic will appeal the Epic v. Apple decision
Will Fortnite return to iOS? Probably not any time soon
The future of the App Store depends on the difference between a ‘button’ and an ‘external link’
The Apple App Store: A brief history of major policy changes
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:04 Nilay Patel? Hello and welcome to an Emergency Vergecast, the flagship podcast of emergencies. I wasn't prepared today. It's an Emergency Vergecast. I thought today was gonna be pretty easy. I had a whole list of things to do on this Friday, but instead, the judge in the Epic versus Apple case issued a ruling, issued an injunction against Apple, a lot going on. I'm joined as always by Dieter Bohn. Hey, Dieter. Hey, how's it going, everybody? And then to talk about this case, we have to bring in Addy Robertson.
0:30 Speaker 01 Hi.
0:31 Nilay Patel? And Russell Brandom. Hi. I forgot to say my name is Neelai, but honestly, if you're listening to this and you don't, you don't recognize this group of people, I don't know what you're doing. Anyhow, huge news. The Epic versus Apple trial went on. Addy covered a bunch of it. We covered it very in-depth. It had twists and turns. It had a lengthy digression into what the definition of the game is. We knew this ruling was coming very soon. It's funny because there's an Apple event on Tuesday. Yep. But Friday morning, the ruling doesn't hit first. An injunction against Apple hits first. The injunction says Apple can't prohibit developers from linking to other kinds of payment systems and other stuff. We'll get into it, but that's, that's big news on its
1:13 Nilay Patel? face. Then there's a ruling. I would say the ruling is not so great for Epic. Epic lost a bunch. Addy, explain the shape of the ruling to people.
1:22 Speaker 01 So at the very highest level, the ruling is ruling both on Epic's claims against Apple, which are antitrust related, and then counterclaims that Apple made against Epic, which were mostly breach of contract related. So the really big thing that Epic's been arguing is that the iOS ecosystem itself is an unlawful monopoly, just sort of by existing in the state it does. And that claim failed. There was the idea that iOS locking down app distribution, not allowing third-party stores or not allowing side-loading, was a thing that Apple was doing to lock out competition and was violating antitrust laws. That also
2:04 Speaker 01 failed. Then, related, there is an argument that Apple had been doing.
2:10 Speaker 01 Had been sort of self-preferencing its own apps and creating a bunch of sort of pretexts to kick apps out of the App Store, but also not illegal or not convincingly breaking antitrust law. There is Apple, the idea that Apple is illegally tying in-app purchases, which were the thing like V-Bucks, the sort of central issue in the case, to the rest of the App Store and that they should have let people use and sell in-app purchases as a sort of completely separate product. That also failed. Then there was Epic's win, which is anti-steering rules, which are basically if you are offering a cheaper
2:53 Speaker 01 option, like a cheaper way to buy things somewhere else, like you're, you can let people buy in-app purchases through your own site, Apple cannot stop you from telling your customers that those options exist, or from putting a button or a link. Neelai has a piece about whether button or link, why that matters. But Apple can't prevent you from putting a link in that sends people out to that option. So that's one of the things that it did seem like the judge was the most sympathetic to during the trial, and it's not super surprising that that was a ruling. And then the final thing is also
3:34 Speaker 01 not great for Epic. The judge ruled that the breach of contract, actually, yes, it illegally breached its contract with Apple when it violated its rules and got kicked off the store. Epic's saying that while the contract was unconscionable, the contract was violating the law, those claims all mostly got thrown out. So Epic is on the hook for money.
3:56 Speaker 02 How much money? Thirty percent of $12.1 million, which there are more digits, but I don't want to bore our listeners, which sort of gets you from when they put in a new system to October.
4:12 Speaker 02 And then anything that happened after November, we don't even know how much that is. But it's like millions of dollars, probably more than four is a good estimate.
4:20 Nilay Patel? And that basically is if you were doing it the way that Apple wanted, you would, that's the money you would have paid to Apple.
4:26 Speaker 02 It's actually, it's weird because like this is a period of time when Fortnite had been kicked off the App Store. So like realistically, had it still been on the App Store, they probably would have made more money. I mean, I have to assume, but this is like people who after it had been kicked out, were still using the version that Epic deployed that had the other payment system in it.
4:51 Nilay Patel? So the judge is like, you did this hot fix, you installed your other payment system, you got off the store, but there are still copies of Fortnite out there, there are people are paying you directly. And for this period of time, you, Apple, they're cut because this contract was not illegal.
5:04 Speaker 02 Yeah.
5:04 Nilay Patel? I think I understand that. Okay.
5:06 Speaker 01 And a sort of corollary to that is that the judge is not saying that Apple has to let Epic's account back on the store.
5:13 Nilay Patel? Yeah, and we should get into that because there's, there's quite a lot there to unpack. But let's start with what happened instead of what didn't happen. What didn't happen was, you know, the judge didn't find that Apple was a monopoly. There was a definition of the relevant market we can talk about. But one very important thing did happen, which the judge issued this injunction and said, "Apple is behaving anti-competitively. She hates this anti-steering rule." If you recall, the last day of the trial, Tim Cook was on the stand and the judge just went after him about this anti-steering stuff. It was not great for Apple. I think we, we kind of saw that she hated the anti-steering provision from the beginning. That's the rule. It's Apple Developer Rule 3.1.1.
5:59 Nilay Patel? It says, "You cannot have buttons or links or calls to action in your app or metadata." But it's like app descriptions and whatnot. That tell people that other purchase mechanisms are available. So if you, until recently, if you were Netflix, you could not even have like a line of text saying, sign up for Netflix on the web. If you were Amazon, you can say you can buy Kindle books on the web. Like, all that was prohibited.
6:23 Speaker 03 As of what, like a week and a half ago, Apple said that they would allow a link because of the ruling with the Japan Fair Trade Commission. And then now there's this, which is much more.
6:32 Nilay Patel? Right, so very specifically what happened here, the judge used the language from App Store Rule 3.1.1, like the specific set of words. And she said, "Apple, its officers, they're all enjoined and prevented from prohibiting developers from having buttons, external links in apps or their metadata that direct customers to other purchase options, in addition to the App Store."
6:56 Speaker 03 I'll just read the relevant thing. "Apple is, quote, 'permanently restrained and enjoined from prohibiting developers from including in their apps their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to in-app purchasing and communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.'"
7:19 Nilay Patel? So, this is a lot to unpack.
7:21 Speaker 03 Yep.
7:21 Nilay Patel? But fundamentally, it undoes a thing that many people are mad at. I don't know that this is the win that Epic wanted. Epic wanted a lot of things and they lost a lot of, they lost all those claims. But for the average developer who's just like, "Let people sign up on my store and then use this app," this solves that, that appears to solve that problem. Now, everything's gonna get appealed and so on and so forth, but she didn't like this rule. She wrote in her, or in her ruling, "I'm just getting rid of it." Like explicitly, it was like, "I'm just gonna cross out the offending rule." And that will introduce some price competition and more information into the App Store for customers.
8:02 Speaker 03 One big question for me, and this might be getting ahead of ourselves a little bit, is you just said that for the average developer that wants, et cetera, et cetera, purchase on my store, I don't think the average developer has their own store. The average developer, like, it's a lot of work, right? A bunch of people do. A bunch of big companies have got their own ways to subscribe or pay them directly, et cetera. But to me, like, the big question here is if this injunction stays and it doesn't get kicked out on appeal and whatever, who are going to be the winners? It's the people that make a ton of money through some sort of purchase mechanism, and now they're going to try and get it without the cut. We can have a conversation about where the money actually is and what the money is actually about in the App Store and Apple services.
8:43 Speaker 03 And to me, this is like, this is a big win for people that make money off of whales who spend a lot of money on games. And I'm not sure what it means for the, you know, quote unquote, average developer.
8:52 Nilay Patel? Well, so I'm thinking of your Basecamp's. Remember, a huge App Store controversy
8:57 Speaker 03 Yeah.
8:58 Nilay Patel? was Basecamp and the new email service, Hay, and Apple demanded in-app purchases, 30%. It went back and forth.
9:04 Speaker 03 They've already said they're making a new version of Hay right now.
9:06 Nilay Patel? Yeah, of course they have.
9:08 Speaker 01 We should, at some point, talk about the fact that, about offering in-app purchases at all, because that is actually a separate issue that the judge was much less sympathetic toward.
9:17 Nilay Patel? What do you mean?
9:18 Speaker 01 So, the issue with Hay, from what I remember, was that they wanted to not put in-app purchases in at all, right?
9:24 Nilay Patel? Well, it changed over time. So first, they put out the app, and Apple said, to even put this app on the store, we are requiring you to have in-app purchases when people sign up. And the Basecamp folks said, no. I mean, David Hanam, our handsome, was on the show talking about it. The Basecamp folks said, no, we don't want to pay you that money. People can sign up on our website. There was a back and forth. Apple sort of caved in some way. They said they can be both. This is true of Netflix, for example. It's true of the Kindle app. You can buy things elsewhere, and you can show up, and you can have the app in the store, but you are not allowed to, like, tell people in that app that you can pay for things elsewhere.
10:05 Nilay Patel? And this was like the root of that controversy. So now you can definitely tell people you can sign up elsewhere. That much is clear, assuming that Apple doesn't appeal and get a stay on this injunction and all that. But that much is clear from this order. I'm not, the in-app purchase, like, in general, like, stuff you buy in Fortnite, a little less clear, but... Like the plain text of the rules, they cannot prohibit you from telling your customers that you have another payment mechanism.
10:30 Speaker 02 Yeah, so I do think one of the interesting things about like the uncertainty created by this is there's this balancing act, right, of like if you're able to sidestep Apple's cut, then you get an extra 30%, right? Like that part is clear. And then there's this question of how, one way or another, Apple's in-app payment system is probably going to end up being easier because it's Apple and there's like 10 different kinds of home field advantage. But how much extra friction is it going to be to point people outside the store?
11:11 Speaker 02 And if it's way less than 30% of the money that you're losing to friction, then the whole economics of the model start to shift. That's like a lot of things have to happen for that to be true, but it kind of is on the table now, which I think is why, when I saw the injunction, I was like this, like that's why it seems like a big deal. Because while they didn't just say, this is a monopoly, you can't do it, Tim Cook has to go right to jail, they did sort of start to cut away at the foundations of it in a way that makes like one of the central elements of the modern tech landscape seem really uncertain.
11:55 Nilay Patel? Eddie, what did you mean by the difference between in-app purchases?
11:57 Speaker 01 So there are sort of three separate issues. If you're, say like you're making an app and you sell a nice digital hat or like some kind of in-app purchase and you have three sort of ways that you could go to make people pay for it. One of them, you use Apple's payment method and you just route through it purely.
12:22 Speaker 01 Two, you use Apple's payment method, but you can also like send people to your website and tell them to buy our hats elsewhere. And then three, you don't use Apple's in-app purchase method. You force them. You say, look, you can log into our app on iOS and use this thing, but you have to buy it somewhere else. You cannot use the in-app purchasing system. We will not consent to paying the Apple tax whatsoever.
12:46 Speaker 03 My sense of the reading is the third one is not going to happen. Like, Apple will still be allowed to demand that in-app purchases be an option, but I could be wrong.
12:55 Speaker 01 Yes, no, that's what I'm, that is what I was getting to, is that the judge is very strongly against anti-steering rules and very strongly in favor of Apple being able to make you make in-app purchasing an option. There is a whole section of the opinion that's about how Epic had been trying to push for allowing third-party payment options, like right inside the app, as opposed to routing you through a web browser or whatever. And the opinion is just very, very negative on them, on the idea that, that you should sort of cut Apple out of the equation altogether. That it basically, it says, look, if you're playing in Apple's garden,
13:35 Speaker 01 Apple is entitled to the money that it would make offering these sort of in-app purchases. You cannot just split them off and say, yeah, well, I want to route through Stripe and pay less. You have to use the, you have to offer the purchasing system as an option. But you can also have your own alternative that's not using any part of Apple's in-app purchasing system, and Apple can't stop you from telling people that you're doing that.
13:59 Nilay Patel? Yeah, and this, to me, comes to the, the most Vergecast part of this entire opinion, which is the difference between buttons and links. Plus arguing about commas if we really want to. Plus arguing about commas. So, the injunction takes the language from Apple's rules. And a thing that has poisoned all of our brains about modern computing is that Apple writes its rules, and Apple selectively enforces its rules, and there's no precedent, and it really comes down to whatever Phil Schiller thinks that day. So, we have long lived in the shadow of these rules that mean whatever Apple wants them to. So you read the injunction, and it's Apple's language, and you're like, well, then Apple will find a way to get around it.
14:40 Speaker 03 Yep.
14:42 Nilay Patel? It's like the instinctive, reflexive reaction to this. And the thing that like really occurred to me was, wait, this isn't Apple's rule anymore. It's the same words, but now it's the court's rule. This is the judge's rule. She took the language and she wants to cross out that rule. Like specifically says, I get rid of the offending provision. And she wants a narrow remedy. This is to Addie's point about, you know, she thinks she doesn't want to change the App Store monetization model. She doesn't want to get, she thinks these are both big, rich companies that are acting like children. It's like very obvious through this entire ruling that she doesn't like them and she thinks they're playing around. But she's like, this part, I can see it right here, how anti-competitive this is.
15:27 Nilay Patel? She refers to it over and over again as an incipient antitrust violation. It's not there yet, but it's growing into one.
15:34 Speaker 01 Yeah, I think the thing that really gets, that makes her specifically angry at anti-steering is that there are these financial systems already in place. And all Apple is doing is saying, you can't make consumers aware of their options.
15:47 Nilay Patel? Yeah, and she finds that very bad. And she, if you're the person who's tweeted us about the analogies to Walmart and Target, like, she thinks that analogy is stupid. She's like, Apple has constructed a black box of information and consumers don't know it. Like, she's mad about it. But the thing she did to like execute her anger is she took Apple's language and she just changed it from, you cannot, to Apple is prohibited from saying you cannot. Right. Like just mechanically, that's what's happening on the page. We're also used to Apple interpreting its rules any way it wants. And now that it's the court's rule, the court gets to interpret that rule however it wants.
16:28 Nilay Patel? And courts are like, they're pretty organized in how they interpret their own rules. Like that's what precedent is and like originalism is like a thing, like there's a, like law students are taught how to read this stuff. So if you read it, it says, you can have a button, an external link, or another call to action that directs customers to payment mechanisms in addition to in-app purchases.
16:56 Nilay Patel? One of the cardinal rules of construction is that if you specify two things.
17:02 Speaker 03 Yeah.
17:03 Nilay Patel? Everyone assume, you have to assume that there's a reason that they're different.
17:07 Speaker 03 That there are actually two distinct things there.
17:10 Nilay Patel? Yeah, like when the Supreme Court interprets Congress, right? Like their favorite trick is like, Congress in its infinite wisdom, obviously had two great things here for a reason. And it's like 99% of time it's a dunk, but it's also like the cardinal rule of construction. So now you've got two things. You have a button and you have an external link.
17:32 Speaker 03 Yeah.
17:32 Speaker 02 And what you're asking, Neelai, is why did the injunction push that button?
17:38 Nilay Patel? Yeah. Well, it's just like, you know, when I say it's like the most Verge cast thing in the world, it's like, what is the difference between a button? Like, the thrilling sequel to What is a Game is here, everyone. It drops on Disney Plus in just a week. To me, when you say a button that directs you to a payment mechanism, what you are describing is the checkout button. You can, you can put all your Fortnite hats in the cart and you can go to buy it and you can either in-app purchase with Apple, or you can press a button that takes you to a payment mechanism. That's a checkout button and that is in the app. And so now you, you can find a way, just from the plain text of this,
18:21 Nilay Patel? to put in-app purchases that aren't Apple's in-app purchases in your app.
18:25 Speaker 01 Wait, how do you interpret in addition to in-app purchasing?
18:29 Nilay Patel? You've got to have both buttons.
18:30 Speaker 01 It seems like what they're saying is you're allowed to direct people to purchasing mechanisms if those purchasing mechanisms are not in-app purchases. And yes, that is ill-defined, but that is another thing it seems like the court could argue over.
18:45 Nilay Patel? It doesn't specify whether it's in the app or not. And so like, I'm, I'm the brain worm, right? And when Neelai was like saying, oh, here, here it is. I was like, but no, Apple, Apple gets to decide. And so they could, they could decide that, yes, you have to have a button that directs you to a purchasing mechanism, but there's nothing that requires that purchasing, purchasing mechanism to be in the app. They could be a button that takes you to Safari and he was like, well, that's a link.
19:06 Speaker 03 Well, so that's an external link. So, but, but what if it's just like the way it looks like it looks like a button, but it still takes you to safari? Is that, does that, is that a button?
19:15 Nilay Patel? What if it pops a web view?
19:17 Speaker 03 Or pops a web view? Yeah.
19:19 Nilay Patel? Like, there's, there's a inherent murkiness to this that maybe Epic isn't gonna chase down or whatever, but there's a lot of app developers out there and they're all looking, and there's a lot of game, like shady game developers out there who are like, I can get my 30% and they are all going to try. And the thing that is going to happen is Apple can make a rule, you know, like, kind of the, the sense I'm getting is Apple's like, okay, cross out this rule, we'll just make a new rule. But if you feel like Apple has violated this somehow, you get to complain, you get to file a motion to the judge and the judge is the one who will enforce it and potentially levy sanctions or remedies
19:59 Nilay Patel? or whatever against Apple. So there's, for the first time ever, this one corner of the App Store is no longer under Apple's control in terms of interpreting this rule. It's kicked out to the other process, the American judicial system, which is hilarious because the App Store has never been kicked out to that process before.
20:20 Speaker 01 It's also worth noting that this applies, that Google also has it much more recently put in anti-steering rules, and it seems like almost all the same logic would apply to Google.
20:31 Nilay Patel? Yeah, I mean, I think that case is gonna break much worse for Google.
20:35 Speaker 01 Oh, the other parts can also break worse for it, but specifically if you're mad about anti-steering and you're a developer and you want to sue Apple, it's, you can probably levy a lot of the same reasoning against Google and I'm curious what Google is going to do with those revisions now.
20:48 Speaker 03 Well, and Google had, was planning on imminently like cracking down on some of that stuff on developers really soon. And now, who knows what they're gonna do? That would be, that would be a bad look.
20:58 Nilay Patel? Yeah. So that's like the thing that happened. And I think this is the, to me, it, here's the big ambiguity that's resulted out of it. Now, I think we all know that Apple is going to appeal this, try to get a stay on this injunction. They've already walked it back for reader apps because of the JFTC settlement. They're allowed to have one link.
21:20 Nilay Patel? That's the whole settlement, like a five-year investigation from the government of Japan. And Apple's like, we'll give you one link. So like, it's already breaking in that way. Let's talk about the places where Apple won. So Addy, they, they won all of the claims against Epic. But kind of the first place where the judge diverged was defining the market that you could say that Apple was being a monopoly in, right?
21:43 Speaker 01 Yeah, so basically, she says, Apple, both sides are wrong. Apple is less wrong. So Epic has been trying to define this like market that Apple has a monopoly on as really sort of broadly computing apps. And Apple's been trying to define it as fairly broadly games. And the judge says, no, the thing that we have to consider whether Apple has a monopoly in is mobile games specifically, is like mobile gaming as an ecosystem.
22:14 Nilay Patel? Digital mobile gaming transactions is the, the market that is, was specifically defined here, not all of iOS apps, not all of gaming, not what is a game, but digital mobile gaming transactions is the market that, that she went with, which neither, neither one of Apple or Epic wanted. They wanted some, they wanted their own definition.
22:33 Speaker 01 And just to be clear, the injunction, this is separate from the injunction. The injunction doesn't say just game developers. The injunction says developers in general.
22:40 Nilay Patel? Right, right.
22:41 Speaker 02 One of the interesting things about this is I, and I think this is, so this is the first big like tech antitrust case that we've seen. And like, I think what you see from this is it's really, really hard to define a market in which one of these companies is a monopoly, right? Whether it's Amazon or Google or Facebook. I mean, we're going to have all these conversations, but it's a lot easier to just say this specific thing you're doing is illegal. And here's a court order saying you can't do it anymore.
23:14 Nilay Patel? Yes.
23:15 Speaker 02 And like, I think if you're, if the question is like, what do we do about Facebook? Like, how do we define personal social networking services? It's like, no, just say, Facebook, you're doing this bad thing. Don't stop. You have to stop.
23:30 Nilay Patel? I mean, I do think from like the, we are all armchair antitrust experts here. Welcome to Vergecast.
23:38 Nilay Patel? But like a very instructive piece of this is, you know, the spin from both sides is about how you're going to define the market when you go into a case like this. And in this case, the judge was like, now I'm going to define my own. And then she kind of ended with, and because I defined my own, I didn't see enough evidence at trial to say Apple's monopoly in this market that I defined later and didn't tell them about.
24:03 Nilay Patel? And it's like, well, that sucks for them, right? Like, she's very much like, there wasn't enough. At one point, she says, it's not, it wouldn't be impossible for Epic to prove this case, but I just didn't see enough evidence in this market. And it's like, well, you didn't, did you tell them?
24:17 Speaker 01 She did go through, like, the thing I did like about this ruling is that she basically went through every argument, even if she thought that the other argument before it had been disproven. So you will actually find pretty much anything that came up in trial, she opined about. She hated all their expert witnesses, by the way, just, just thought they were, they chose poorly in one instance.
24:38 Nilay Patel? Can you briefly just mention the, the dunk on the expert witness that brought up Windows Mobile?
24:44 Speaker 01 Oh, yeah. During the argument about like whether there was enough competition in mobile markets, there was an Apple expert who had done a survey and that survey included was asking people what devices they were using. And a significant number of these people reported that they were using a Windows phone. Windows has not made phones for nigh on a decade. She says it has a 0% market share, she notes. Not a great thing for the judge to be saying about your expert witnesses.
25:19 Nilay Patel? So there, there are many dunks throughout this. I would say it's true. Apple won a long, like Epic asked for a lot of things and Apple won most of those things. Like, Russell, I think you, you were looking at a list earlier.
25:32 Speaker 02 Yeah, yeah. Well, so there was sort of, I mean, this is basically the charges Addy went through at the beginning of, okay, are we gonna? Allow, you know, is it illegal for Apple to set the 30% commission rate? That's, no, that's legal. Apple can set all these rules. One of the interesting ones is, you know, I mean, Epic really wanted to challenge Apple's ability to sort of be the sole source of software for the iPhone, right? I mean, that's, that's kind of the, the dream. And that didn't happen, right? In, like, there's this entire class of sort of app stores within an app.
26:14 Speaker 02 And there's a version of this where Apple, I mean, where Epic sort of brings in brilliant and convincing sort of expert witnesses. And it ends with a huge defeat for Apple. And suddenly you can have your mini game store app on the iPhone. That did not happen. Like, this, this does not change the math for that category of apps.
26:37 Nilay Patel? This doesn't open up the Epic Game Store, or Steam, or X-Cloud, or
26:41 Speaker 02 Exactly.
26:41 Nilay Patel? Stadia, or anything?
26:42 Speaker 02 Yeah, yeah, which, which I mean, is significant. I think it's in part, part of the reason where like, there's like this split between people who are like, Apple got everything they wanted. I think I had sort of discounted a lot of the claims Epic made upfront. Because there were so many of them, and they were so far reaching, that I, I just wasn't really expecting them to win on most of this. And so when they didn't, it's like, well, yeah, of course.
27:15 Nilay Patel? So what's interesting to me here is Epic didn't win. Judges are not, say for the Supreme Court, judges do not love just like creating new laws, right? And so she knows that there are bills in Congress. Most of the reaction to this case, regardless of what side of the aisle you're on, is like, well, you should pass my bill. Yeah, right. Like she's aware of the broader context. She's makes reference in this case several times the fact that there are other cases, huge cases against the App Store. At one point, she's like Epic has no interest in those cases. They just like did this sneaky thing and they ran to court and they never explained why they did that. And she's like, not happy about that. But she found this narrow thing. But to Addy's point, along the way, she took seriously all of
27:59 Nilay Patel? the arguments. And then just throughout this ruling, issues just brutal evisceration of Apple's arguments again and again and again and again. And that to me is like, you know, it might be hard to prove that you're violating the antitrust law and we need to like remake society around your dominance. But there's nothing stopping the judge from being like, yeah, you kind of suck, though.
28:25 Nilay Patel? Right? Like, I'll just read a couple of them. Nothing other than legal action seems to motivate Apple to reconsider pricing and reduce rates. She's just like, there's no competition here. We I you're not even fooling me. It takes this. Apple started with a proposition, the 30%. That proposition revealed itself to be incredibly profitable, and there appears to be no market forces to test the proposition or motivate a change. It is impossible to say that Apple's 30% commission reflects the fair market value of its services. I'm reading these sentences where the judge is just utterly unconvinced that Apple is providing any value in exchange for this 30%. And she is utterly unconvinced that there's any competition for this rate at
29:06 Nilay Patel? all. And I'm thinking about, well, Apple's facing more court fights, right? It has a Supreme Court fight, a class action with app developers, it has bills in Congress, it has the EU, the ever looming threat of EU regulation, ineffective EU regulation is always there for you. These findings are kind of like devastating from this judge in that context. Right, the aura of the App Store and how good it is and how worth it it is is kind of just like pulled down by the judge saying Apple's slow innovations stems from its low investment in the App Store. Sean Hollister wrote a piece for us last week about what
29:47 Nilay Patel? Apple could do to fix the App Store. And it's like, number one thing was hire more reviewers. There are only 500 reviewers on the store. Like, there's just a piece of this part where, yep, she didn't find, went all the way bad, but she's very clear that Apple doesn't invest in this store. It's charging a huge premium with that 30%, and that 30% isn't justified. And that's the foundation for a lot of other angst to come, I think.
30:13 Speaker 02 Yeah, and I think there is, in some ways, the idea that judges sort of, you know, we see over and over again, sort of rolling her eyes at both sides, is not great news for Apple. I mean, this was, and I would also, just to make it about tech and antitrust generally, like, this is a unique case in that it's a tech company suing another tech company. And there is this sort of culture clash of like, rich tech people encountering the like regulatory and legal apparatus. But there are lots of cases where it's just federal prosecutors bringing an antitrust case against Google, or this FTC case against
30:54 Speaker 02 Facebook. And like, they, in those cases, the prosecutors are gonna be speaking the judge's language. They're sort of culturally similar, and the the culture clash will be working directly against the companies.
31:08 Nilay Patel? Yeah. And to be clear, the judge dunked on Epic too. At one point, she's like, well, Epic does all this stuff too. Like, Epic has contracts that are bad. Epic forces people into deals that don't, like, she was not buying it from that side of it.
31:21 Speaker 02 Well, and I think, I mean, the drama that Epic used to introduce this of, we're gonna put the hotfix out, and then we have this 1984 ad, and like, everything's all ready to go. Like, it was sort of done like a product rollout. And the reason people don't introduce lawsuits that way generally, I think, is that judges like, aren't, it doesn't endear you to the judge, which is ultimately what's important. And like, I think it's just a big factor in this, is that Epic was, Epic's a tech company, they were acting like a tech company.
31:54 Nilay Patel? Yeah. So that's like, one set of, just, I don't know, I don't know what you would call them, dunks on Apple. There's another one that's kind of important here, which is about security. And, you know, one of Apple's big justification for running the store was this is how we keep people secure. It is maybe the biggest justification they use. And, you know, at a point during the trial, they brought out Craig Federighi, and he explained why the Mac and iOS are different. He basically said the Mac isn't as secure. Dieter, you've got the quote.
32:23 Speaker 03 So the judge writes, "Mr. Federighi's Mac malware opinions may appear plausible, but they appear to have emerged for the first time at trial, which suggests he is stretching the truth for the sake of the argument."
32:35 Nilay Patel? Which seems pretty brutal.
32:37 Speaker 01 It was very satisfying also after the part where he's like, "You shouldn't, you don't want a car if you're buying a Mac. This is like a car that you just have to drive on the roads."
32:45 Nilay Patel? Uh huh.
32:45 Speaker 01 But the thing is that Apple kind of won that war.
32:49 Nilay Patel? Right.
32:49 Speaker 01 Federighi lost the battle, but ultimately, here's what the judge said about Apple's security justification. "The court finds Apple's security justification to be a valid and non-protectual," means it's not just made up, "business reason for restricting app distribution. Centralized app distribution enables Apple to conduct app review, and human review in particular helps protect security." And then she lists a sort of number of ways that Apple brought up that it would be able to sort of provide better security with human review in the App Store. "By providing these protections, Apple provides a safe and trusted user experience on iOS, which encourages both users and developers to transact freely and is mutually beneficial. As a result, Apple's conduct enhances consumer appeal."
33:34 Speaker 01 So in other words, it's not anti-consumer, it's not violating antitrust law, it's actually a pro-consumer thing that Apple is restricting these apps.
33:42 Nilay Patel? Yeah, so like, she didn't buy the specific, she can imagine a world in which the iPhone could be made safe and effective, but is still allows some sort of loading of apps like you do on the Mac, but that doesn't mean that like, it has to be that way, that she also recognizes that the current model of the App Store does in fact have some security benefits. Yeah, and I think what, again, to kind of like Russell's point, Epic is making this argument that the security thing is a lie, and they're only using it as justification to protect their monopoly. And the judge is like, well, I'm looking at it. It's not, it's like, not a lie. They mean it. And you could come up with other solutions. But this is like a real benefit of the store. It does not prove that, if they were lying, it would
34:24 Nilay Patel? prove that they're a monopoly. But there's no lie here. This is a sort of back and forth, I think. We're gonna see with Google, to some extent, because Google does allow side-loading, and the way they prevent their other app stores is contractual agreements, which we've already seen come out. Apple's just like, running its business. It's very, I think it was a very hard road for Epic to prove that everything Apple does internally is in bad faith. Whereas when you have like, layers of contracts between Google and carriers and Samsung, like, you can prove like, maybe it's not in bad faith, but they're doing the bad thing. And I think that's gonna be a really big split in this case. Okay, let's, let's wrap it up with some just basics. Is Fortnite gonna be back in the App Store?
35:05 Speaker 02 So, we don't 100% know, but probably not. Like, going in, Apple had said, "Look, we'd love to have Fortnite back on the store if they'll abide by our rules." And Fortnite said, "Your rules are illegal. We hate you." And like, this ruling, this injunction, did not really resolve that. There is a way, if you are so motivated, to sort of point to these external payment systems and get around the specific 30%. But the, the fix that Epic deployed to Fortnite that started all this out, is still sort of, Apple is allowed
35:46 Speaker 02 to say you can't do that. Epic is in breach of contract, right? That's what the judge found. Epic could back down and say, "We really want Fortnite to be on iOS again," and sort of be on the App Store again, "and we'll take this out that the judge left us." But Tim Sweeney is not talking like he really wants to do that. He's, he wants to appeal, he wants to fight, he sees this as a bigger issue. So, it seems like that standoff is gonna keep being a problem.
36:15 Nilay Patel? It's what's fun, I mean, and Tim Sweeney is, he holds himself out as a very idealistic person, so I kind of get it, but... You buy things in Fortnite with V bucks, right? Like a link in Fortnite that's like buy V bucks for cheaper on the Epic web store that just opens. That's money. Like, isn't money better than not money?
36:34 Speaker 02 But what about, what about freedom? Can you put a price on freedom? I mean, I, one of the things that came out over the course of the trial, which we've talked about in the past, is just like, Tim Sweeney has been banging this drum for a long time and like sending aggressive emails to Tim Cook's personal email and stuff. And like, I mean, I don't think it's a calculated thing for him. And also like Fortnite as a financial product does not have to be on iOS. Like, it's just extremely lucrative. Epic will be fine as a company without Fortnite being on iOS. And so it's a very expensive hobby, but like, he could just keep doing this.
37:19 Nilay Patel? So he's going to appeal. He's loudly said he's going to appeal. He thinks he can get everything he wanted. It seems all but certain that Apple will appeal this injunction and ask for a stay so it will never come into effect. We are all here but grizzled veterans of Apple versus Samsung and Google versus Oracle. War is forever. War never changes. Never changes. I mean, are we expecting a decade here?
37:45 Speaker 01 This whole thing has unfolded pretty quickly, like weirdly quickly. It could be a while, but I don't know. It seems like, for one thing, we don't have all of the really weird questions about, well, can they bring this case at all? Is there some kind of thing that will let them get thrown out, the case get thrown out because they don't have standing? Like, I've been sort of surprised compared to, say, one of the other big cases with Apple, which is Apple versus Pepper, which is, is an antitrust case nominally, but is largely about like, are developers customers?
38:15 Nilay Patel? Oh, customers of Apple's various distribution and payment products.
38:19 Speaker 01 Right, if they're not customers, then they can't sue. There's something with Ticketmaster.
38:22 Nilay Patel? Oh, God.
38:23 Speaker 01 The thing this case has going about it is that the judgment is actually about the issues people care about.
38:30 Speaker 03 That's true. I don't think it's gonna be a decade just because we've seen the pace of Apple being forced to make changes increase. I did like the timeline of all the changes and it's like every year, then there's like a period of like two years where nothing happens and then it's like every year again and then it's every six months. And then basically since last summer, the cadence has been increasing, just bang, bang, bang, they're having to make little changes and...
38:54 Speaker 02 Is this Moore's Law? Is this is Moore's Law at work?
38:58 Speaker 03 There's like the pressure of possible regulation, maybe, is just like it's pushing it a little bit. And Apple's had to make these sort of like tiny little rear guard actions, backpedals, and they're trying to like, at some point they'll be able to stop. And I think that there's gonna be some shift. And I think that the anti-steering thing, I don't know, call me naive, but I think that when it's all said and done, that's gone. And I think that this is the moment where it's like, yep, it's gone. There's gonna be appeals and whatever, but I don't think we're looking at that, you know, I don't think it'll be there in two years. Like, they already did the link. It's not that much further to like add a button, right? Question mark? What is a button, Dieter?
39:39 Nilay Patel? I would connect this to my next question, which it is, obviously, we're doing an emergency Vergecast, we think this is important. It is, I mean, it's a, it's an antitrust case between two gigantic companies, sure. But there are bills in Congress. And what you want is for there to be laws, not a series of court cases that can go haywire at all times. And so, Russell, this is my next question is, it seems like the reaction is, well, this sucks for everyone, pass my bill.
40:09 Speaker 02 Yeah, I mean, right. It would be nice to have a functioning legislative body in this country. Like, that would be good. I will also say, like, one of the, so one of the big questions I'm thinking about is like, what comes next, right? Like, Apple is going to rewrite its App Store rules with an eye towards this ruling, and probably someone's gonna sue over that, even independent of the appeal of, on this injunction specifically, right? So, one way to do this, if you want to like regulate a company, if you're AT&T and you want to do some new spectrum thing, you can like... Get coffee with someone at the FCC and say, what is your perspective on this? Right? Like the SEC, we see this with finance all the time.
40:54 Speaker 02 You can like have an actual conversation where you try to figure out what makes sense to do. But like, Apple can't do that with the judge in this case. You have to like litigate. And then if you really want to like work the edges of what's possible. I mean, I just see a lot of, the winner here is really like Wilson Sancini. Like it's the big, it's the law firms that are going to be, I do think it's going to take the next decade to figure this out. And because I don't think Congress is going to take it off their plate.
41:24 Nilay Patel? Well, I'm just, I mean, I, you know.
41:26 Speaker 01 We also have Epic versus Google to worry about.
41:28 Nilay Patel? Yeah. I think that one's going to just go very badly for Google. That is my prediction. But I don't know, man. I'm looking at like Amy Klobuchar released a statement. It's like, this just proves that it's an anti-competitive mess. We should pass the bill. And then Ken Buck was like, this proves, he's a Republican. He's like, this proves that it's an anti-competitive mess. We should pass my bill. They're the same bill. Like the whole point of those bills, right? Is like, they were all introduced in a bipartisan way. Like, it's a rarity that this happens, that both sides are like, what we should do is pass a law. And they are actually talking about the same law. I just like, that doesn't usually happen. Usually it's like, one side's like, you should pass my bill that all lights should be green. And the other side's like, I agree.
42:11 Nilay Patel? My bill says all lights should be blue and all Americans should wear a yellow filter over their eyes, saying that it makes them green. And obviously, we're saying the same thing.
42:20 Speaker 02 Yeah. The fact that you have an R, like a Republican on board and a Democrat on board, does not necessarily mean that you have like a majority of people on board. And this is, I mean, this is a whole other like podcast that we should get McKenna in here. But like, I do think one of the things you see as you try to actually push those is There are a lot of Democrats who are very close with the tech lobby and are extremely skeptical about efforts to regulate this. And also, I mean, you know, we've talked about the Clovis our bail on this, like, there are a lot of critics of it. I think getting that coalition together to actually get it over the line, it's gonna be tricky. And I think what you're
43:02 Speaker 02 gonna end up seeing is, it's gotta be so, the courts have to make it so painful for Apple and these other companies, that they finally cry uncle and say, look, better to have some law than just have to keep litigating this for the next 15 years. And I mean, I don't know if we're at that point yet. Apple looks at this and they're like, we won. Pop the champagne.
43:25 Nilay Patel? I mean, I would say that Apple is definitely acting more like it won than it didn't. Epic is acting more like it lost than it didn't.
43:32 Speaker 02 Yep.
43:32 Nilay Patel? But, just the, the dam has, for me, has just like completely burst. Like, I saw it, I don't remember who it was, I apologize that I can't remember, but this trial's been more revelatory than remedial. Like, it's a, it's a good quote. Like, it's fixed very little, but it has revealed an awful lot. And I think that those revelations are just gonna keep echoing through all of the stuff that is happening. Like, we know that Apple just talks about lock-in. I've read the emails. We've published a lot of them. We know that Apple's like, we can't put iMessage on Android, because people will not give their kids their phones and lock them into our ecosystem for the rest of their lives. They just say it. We've read it. And I think that stuff is gonna just keep, whether or not Epic gets slightly
44:16 Nilay Patel? more money than it would have otherwise, like, that kind of stuff is just gonna keep echoing into everything else that happens. That's my, maybe that's my hope, but it feels like what is happening. Like, the bloom is off the rose. Is that the phrase?
44:30 Speaker 02 Yeah, yeah.
44:31 Nilay Patel? I got one right. I was gonna say the shine is off the rose, so that doesn't make any sense. The bloom is off the rose, Rappel. They're in a negative trust situation with their developers, and hopefully that inspires them to make more and better changes over time. Okay. I said 30 minutes, it's been like 52.
44:47 Nilay Patel? Are you saying we went over? Did we go over? We went over. We went over our own emergency Verchast. Thank you all for coming on. Thank you for listening to this emergency edition of Verchast. I'm sure we're going to end up doing more of these when Epic versus Google kicks off. So get ready. All right, that's it. That's Verchast. Bye, y'all.
45:24 Speaker 04 This episode is brought to you by On Investing, an original podcast from Charles Schwab. Each week, hosts Lizanne Saunders, Schwab's chief investment strategist, and Colin Martin, head of fixed income research and strategy for the Schwab Center for Financial Research, bring you fresh insights on what's happening in the markets and why, and what the implications might be for your portfolio. Join Colin and Lizanne as they explore questions like, how do you evaluate corporate bonds that look interesting? And what sectors are on the move right now? Download the latest episode and subscribe at schwab.com/oninvesting or wherever you get your podcasts.
46:09 Speaker 04 This episode is brought to you by On Investing, an original podcast from Charles Schwab. Each week, hosts Lizanne Saunders, Schwab's chief investment strategist, and Colin Martin, head of fixed income research and strategy for the Schwab Center for Financial Research, bring you fresh insights on what's happening in the markets and why, and what the implications might be for your portfolio. Join Colin and Lizanne as they explore questions like, how do you evaluate corporate bonds that look interesting? And what sectors are on the move right now? Download the latest episode and subscribe at schwab.com/oninvesting or wherever you get your podcasts.
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