Epic v Apple Day 11 - Daily Pool Report


Erin Griffith
 

Hello from Oakland. Here's today's full pool report.


Judge Yvonne Gonzalez Rogers (YGR) is wearing a shirt with a yellow collar and black mask.

 

For Epic:

Katherine Forrest

Tim Sweeney

Gary Bornstein 

Justin Clark 

Lauren Clause

Jessica Choi 

 

Apple: 

Richard Doren 

Heather Grenier

Kate Kaso Howard  

Jason Lo

Karen Dunn

Harry Phillips

 

On the stand today: 

James Mickens (expert witness)

Phil Schiller (Apple executive)

 

Some housekeeping issues: Katherine Forrest (KF) wants to reserve some time for the possibility of rebuttal evidence as needed and for closing agenda - “we’re super close” to having an agreement between the parties and are prepared to submit that later today. 

 

Judge says she’d really like to finish off on Monday - doesn’t mind adding a bit of time but would find it helpful. Not inclined to give you any more time if that means we roll into Tuesday. “Monday I’m good, Tuesday I’m not good. 

 

Epic and Apple agree w/ that.

 

Gary Bornstein says parties have all reached agreement on written testimonies and plans to submit later. One objection Epic has is that one of Apple’s witnesses, Loren Hitt, "made a substantive change" to his opinion without the ability to respond. 

 

Jason Lo says the change came up in cross-examination and the professor struck out 3 words for clarification. 

 

Judge denies Apple's request to delete the words. 


Jason Lo, lawyer at Gibson Dunn on behalf of Apple, questioned Professor James Mickens, professor of computer science at Harvard and expert witness for Epic. In general Mickens was amiable and quibbled at a lot of the binary “yes/no” questions with lots of responses along the lines of “that’s not quite right” or “not necessarily” and Lo was mildly combative and cut him off several times in clarification. Paraphrased unless quote marks.


Lo began by pressing on the fact that Prof. Micken’s opinions about Apple’s security and app screening process are not based on “factual” information, aka direct internal data.


Lo repeatedly asks whether Mickens had “factual” information. “Did you personally examine the 17 apps taken down?” in an article Mickens referenced in his written direct.


Mickens repeatedly says his opinion is not based on “internal Apple statistics” but instead “general computer science knowledge” and “empirical effectiveness.” 


At one point Lo interrupted to say that’s not what he asked.


Judge asks to pull up a visual of paragraph 78 of Prof. Mickens' testimony and an article in which some iPhones showed certain apps stored things like passwords without proper encryption. 


Lo asks whether anything in his written direct conducts an analysis of the total number of security incidents. 


Mickens says yes but it wasn’t necessary to create his conclusions. 


Lo references Mickens expert report - Appendix A - including 3 books by James Levin. 

“Is there a reason why you relied on 3 separate books by Mr. Levin?” 


Mickens says the third book is older and there’s a newer version. 


We see the book cover that says “Mac S C and iOS Internals.” 


We turn to page 80 of the book, which says: “In actuality, Apple’s application security is light years (if not parsecs) ahead of its peers.” 


Lo explains parsecs is a Star Wars reference.


Mickens points out this is a 2013 quote.


Lo: In 2018, Fortnite launched its sideloaded version on Android. Fortnite had a security vulnerability as part of that. 


Mickens: It was fixed very quickly 


Lo: Was that common in Android? 


Mickens: It was not an Android error, but a Fortnite error.


Lo: Was it carelessness on Epic’s part? 


Mickens: Not sure how to apportion blame. 


Lo asks if there is any place where Mickens takes into account the speed Apple remedied the issue


Mickens: It’s not relevant to my determination 


Lo: “When I asked about Epic’s security shortcomings you volunteered information about the speed, correct?” But Mickensdid not take the speed to fix security issues in account for his testimony on Apple’s security. 


Mickens says he did. 


Lo asks Mickensto point to the paragraph where he did. Mickens says he didn’t memorize the report. 


(This was a tense exchange.)


Lo makes a cat and mouse metaphor and says Mickens took “snapshots in a moment” where the cat won. 


YGR: “You mean the mouse?” 


Lo: Yes. 


Mickens says his report spoke “indirectly” to Apple’s strong security culture. YGR jumps in to ensure she heard him say the word “indirectly.” 


Lo compares Apple’s security to Fort Knox and Android’s to “the local bank.” Mickensagrees it is harder to break into Fort Knox. 


We pull up a chart of ZERODIUM payouts for security breaches that looks like a Periodic Table of elements - it shows that the highest price paid for a “zero day vulnerability” for iOS is $2m and Android is $2.5m. (The range of prices goes from 2.5m to 100k.) Micken’s testimony said that that gap means iOS is now easier to compromise. (Lo’s point being that they’re fairly close in price, therefore not that much less secure.)


We are now talking about Micken’s claim that sideloading is safe on Macs so therefore should be allowed on iPhones.


We go back to the Levin book that Mickenscited 3x in his expert report which Lo argues contradicts that claim. The Levin book says “viruses and malware are rare on OS X” [the name for Apple’s OS at the time]

Lo reads: “indeed OS X and to an extent Linus remain healthy in part simply because they do not attract much attention from malware “providers.” 


Levin’s argument was there were fewer attackers because there were fewer Mac OS users. Therefore… greatest # of devices = most attacks. 


Mickens doesn’t necessarily agree with that analysis. 

“From the security POV that’s a difference without distinction.” 


Lo: Are there fewer attempted attacks on Macs vs. iOS because of the number of devices? 

Mickens: Apple doesn’t think that way - it doesn’t advertise its devices “as being less secure because there are fewer attacks.”  


Epic objects to use of document because not sure of the “non-hearsay purpose.” 


YGR: ”I thought each side - each witness's experts were relying on a certain amount of hearsay” that’s what the lawyers told her antitrust economists do. Allows it. 


Back to the ZERODIUM periodic table. 


Lo: Android has a higher payout than iOS - a reasonable interpretation of this data is that iOS is easier to compromise than Android phones


We turn back to a similar chart for desktops and servers. Two squares are orange for Mac OS, which are among the lowest paying “zero day” payouts. One says Safari RCE+LPE $100k. That’s 5% of the highest payout for iOS (which was $2 million). 


Mickens agrees its certainly less $ for Mac than iOS. 


Lo asks if it suggests iOS is more secure than Mac OS? 


Mickens: My logic was looking at a particular mobile category. Both sides are worried about, well, “iOS must be so much more secure.” 


Lo: Did you know the information on page 4 was there? Did you notice that when doing your analysis? 


Mickens: I did. 


Lo: So you saw it… but made a decision not to include that in your analysis. 


Mickens: “I thought it wasn’t relevant to my determination.” 


Lo asks if the relative security and popularity of IOS explains the difference in prices. Mickenssays “not necessarily.” Lo pulls up a new section of ZERODIUM document that explicitly states that the size of payments depends on popularity and security level of each software system. 


Moves Exhibit 5561 into evidence. 


Lo: “We’ve talked Star Wars, let’s talk enterprise now.” 


We look at a chart from Mickens’ written testimony describing on-device security. 


Lo notes that Mickens is a “former Microsoft guy” in a hypothetical and Mickens smiles and nods.


We are debating the difference between quality assurance (QA) and security issues. Lo says Apple’s attempt to search for features that could harm a user is a QA issue and quotes from Mickens’ report that says “‘enjoyable’ is defined from the perspective of Apple not from some universally accepted understanding of QA properties.”


“I think you’re taking some of these quotes out of context.” Nothing in the report or my testimony has said that trying to screen for these things is bad.


We look at another chart where I can actually see the annotation: “MICKENS DWR Sections V, VII” - it compares Off Device security on an app, on-device security for iOS and on-device security for hardware. 


Lo: If iOS distribution was opened up to third party developers - they would be able to do so running on the iOS operating system provided by Apple? 

Mickens: “Not necessarily.”



Now we’re talkin’ bout porn, pirated software, and other bad things that Apple prevents from its App Store. Lo asks: “Which policy should prevail” were Apple forced to change its app distribution methods?


Micken basically says he has not provided an opinion but that Apple should be allowed to prevent pirated software on its platform. Mickens also says there is a spectrum and Lo is assuming that this case will result in a “maximalist”  environment but there is a middle ground. 

 

Judge YGR jumps in: Have you provided an opinion with respect to some middle ground?

Mickens says he has not. 


We go to graph 79 of Micken’s written direct. Lo points out his definition of security for his analysis does not include “copycat apps, scam apps and review fraud,” which cites an article from the Verge on Feb 8, 2021  https://www.theverge.com/2021/2/8/22272849/apple-app-store-scams-ios-fraud-reviews-ratings-flicktype


Lo is saying page 25 of Micken’s written direct is supported by that. 


YGR is not following. “Pages 21-27 support Opinion 11 and nothing else?”

Mickens: “Perhaps I misunderstood what the page numbers meant?” 

YGR: Do I not understand how your entire direct testimony is structured - you have a number of opinions and the cross reference for the opinions gives me the page numbers. Do I need to strike paragraphs from your report because they don’t in fact support what you tell me in paragraph 11? 

Mickens says no, the citations are correct.

Lo asks us to just move on. 


Back to Mickens testimony: Point #80 refers to financial fraud via thumbprint via 2 fitness apps. Mickens says yes, financial fraud is one problematic aspect. 


(The overall point is that Mickens has excluded frauds and fake reviews from his analysis of Apple’s App Store security.)


 We are looking at a news article from Tom’s Guide. The article quotes a security researcher named “Bowne” who says that companies are not likely to fix security flaws. Is that the world that Mickens/Epic is advocating for? Mickens says no. Concludes Lo's session around 9:40.


Justin Clarke began questioning Prof. Mickens around 9:40.


Regarding previous q on porn: Are there technical engineering solutions that could be implemented to solve this problem [in the scenario of Epic winning the case that would allow Apple to make decisions over apps being good/bad]? Mickens says yes. 


YGR: “Where is that in your written direct?” 

Clarke says: This is in response to something Apple raised. 

YGR is not happy: “There’s nothing new in this case. It sounds like a new opinion. So it wasn’t in your direct. So now I’m getting something new.” 

Clarke also points to graphs 22 and 23 of expert report, not written direct. 


Mickens: “Just to be clear, I personally am not advocating a specific solution whereby there is no content moderation.” 


Clarke: Any technical reason you couldn’t do that? 

Mickens: No. Disney, for example, would be highly incentivised for reputational reason to make sure no harmful content made its way into that App Store. 

Clarke: Would Apple have technical ways to remove malware or bad content even if iOS is opened up to third party App Stores? 

Mickens says yes. “Apple could fundamentally turn off the spigot, if you will.” “That’s all compatible with a third party App Store.” 


Clarke asks Mickens about the Levin book - notes that some of Lo’s points were about things that were written about older versions of Apple’s operating systems. 

Mickens: “Apple does have a reputation for security and that is not undeserved.” But other companies are achieving similar levels of high security.


We put Exhibit PDX 81.1 on the screen -- it is a list of Mickens’ summary of conclusions. Asks if ZERODIUM periodic table changes any of his summary and he says no. 


Clarke makes the implication that the growth in the number of apps makes Apple’s review process less secure because the review process does not scale.  

Mickens: “This is a palace where allowing third party app stores would actually spur more competition here.” “It might also lead to more innovation in the way app stores screen for security issues.” 


Mickens: “What we’re seeing here are 3 points in a design spectrum for app stores. These are not the only 3 visual points.” Mickens makes the general point that Apple’s App Store system isn’t the only way mobile apps could be distributed.  


The image on the screen shows three blocks: “App store” - ”third party distribution (notarization)” and “third party distribution (unreviewed + unnotarized)” 


Mickens regarding Apple’s questions about not having access to internal Apple data: 

The security system has developed a variety of techniques to analyze closed systems. 

Mickens: “This is accepted in the community and it’s actually accepted by Apple, who runs a bug bounty program that allows outsiders to analyze Apple’s partially closed source software and hardware. So even apple understands that one does not have to be an apple employee to understand the security implications of Apple products.” 


YGR: Which company does it better?

Mickens: “Well, it’s tough in general. It’s tough in general.” He says he was tasked with evaluating the security and he notes that opening up the app store for third party distribution channels “Couldn't be punting on the security issues because those are mostly enforced by the OS which are mostly 


YGR presses again: “But in the industry today is there anyone who does it better?”

He says not definitively. 


Jason Lo back to redirect hammering the question of whether Mickens has offered an opinion on how this should all work if Epic wins: Sesame St. and Itch.io. both have app stores. Should they be allowed to do whatever they want? Note that Lo is saying it as “itchio” and not “itch dot I O.” 


Mickens says there is a middle ground between closed system and “absolute mayhem where anything goes.” 

Mickens: Ultimately it’s the court who decides. Court should consult with experts on content moderation and security.

Lo: “You’re not offering advice or expert opinions on that issue." 

Mickens: "If we look at Mac OS which currently already supports 3 diff models." 

Lo interrupts and presses again and Mickens pushes back with another "no, not quite."


Lo: "If Epic were able to prevail, should companies like Itchio be able to distribute on Mac iOS or is that for the judge to decide on her own without anything from you?" 


Mickens: "My opinion is there is a spectrum of possibilities from an engineering and security perspective." 

Lo: Have you offered an opinion?"

"I’m trying to offer it now." 

Lo: "I’m not asking you offer it now." Asks again.  

Mickens: "No, because my task was to evaluate the security of the iphone." 

Mickens done at 10:07. 


Katherine Forrest says Epic has no further witnesses called. 


Richard Dorn calls Phil Schiller to the stand at 10:09


Phil Schiller took the stand at 10:09.  


Judge YGR makes a comment to the effect of Schiller looking a bit different on the stand. She's seen him in a mask every day at the Apple table but now he's wearing a clear face shield.


Schiller is wearing a dark suit, striped tie, silver hair combed to side.  


Richard Doren is questioning.  


Schiller describes his 30-year tenure at Apple. He has been an Apple Fellow since this past August. Before that, he was SVP of Worldwide Marketing, a position held for 20 years. 


Schiller explained his return to Apple in ‘97 and the re-org that saved the company. Apple began operating “much as a start-up.” Before, each group maintained its own P&L statement, but Apple began using one P&L for the entire company.  


Schiller is effusive in his excitement over the “many” benefits to a unified P&L. “Now we work together as one team” and don’t compete with each other. This is related to previous testimony about Apple's refusal to break out App Store profits.


At 10:15 the court goes to recess for a short break. 


PS. I forgot to note that before the trial started, Tim Sweeney was pacing around in circles in the lobby and I eavesdropped on some small talk with the lawyers. Sweeney told a legal aide he went for a hike in Marin over the weekend and discussed his accommodations (an apartment in Oakland) with Katherine Forrest, who is staying in an Airbnb. 




Court resumed around 10:36


Richard Doren begins questioning Phil Schiller, Apple fellow, about the introduction with the iPhone. Pulls up a press release introducing the iPhone in 2007. Release describes it as a “revolutionary mobile phone.” 


Schiller: They wanted a next gen phone, an upgrade to the iPod - “If anyone is going to kill the iPod, we should do it ourselves” - and also, also Blackberries etc., weren’t that great at the Internet. 


Schiller describes how difficult it was to develop and the concerns over whether it would work.  


Schiller: “One, it had to be a phone.” It sounds simple… but “other applications or uses can’t get in the way of that capability.” It also had to be small and work with wireless networks. 

“Most important of all is the security and privacy issues. You’re carrying this around in your pocket.” 


Schiller: “These are highly personal devices with a growing amount of information available everywhere you go roaming on other networks everywhere you go.” 


Schiller: Apple does not license iOS data to third parties. Apple is not a hardware or software company but a product company. 


Schiller says Google and MSFT license their operating systems to other devices. Apple does not. If they did that, they would need to support a variety of other products (screens, vendors etc) and “in our opinion it reduces the quality and reduces the speed of innovation.” 

“You just can’t be as fast and efficient at innovating and you just can’t built as high of quality, in our opinion.” 


Schiller has some friction with the mic on his suit around 10:45, repeats himself about his view of the competitive landscape for mobile phones and names a bunch of large tech companies including Amazon and Huawei. 


What about app store competitors? Schiller names Steam and Handango and says they charge 30% commission. 


He describes the market for physical software where developers had to pay for retail distribution. 


Schiller on the apps available in the first gen iPhone: We wanted to have built-in native apps from Apple and the security and privacy risk of opening it up to other native apps was too great and not something we could solve. So we offered up the idea of web apps. There wasn’t time to consider third party APIs and tools and distribution. And didn’t know how to solve the risk of security and privacy for iphone users. 


Doren asks: Is there anything wrong with jailbreaking?

Schiller: “Yeah, there is a lot that I see wrong with it.” The software becomes incredibly unstable and unreliable. Might not work when updated and give access into the system in places that were not intended and risk privacy and security of users. Also put the functioning of the iPhone itself at risk. 


EXHIBIT 4566 - It is Apple’s external news site that shows a 2007 news item announcing the App store SDK - they announced it months in advance so developers could start working on official apps instead of those for jailbreaking. Schiller notes that such an announcement is not common. Includes a quote from Steve Jobs saying he was excited about welcoming “hundreds” of apps. Above that is a story from E! Online promoting buying iTunes music via Wifi on the iPhone. 


The idea is to convey how carefully Apple was rolling this out and how the phone is different and more crucial to get right, security-wise, than a computer. 

As a sidenote, Epic’s table is using PC laptops except Sweeney who is on a Mac. Apple lawyers also on Macs of course. Both reporters in the media gallery are LOUDLY clacking away on the Macbook Pro’s notorious butterfly keyboards. 


Exhibit PX0880  - A transcript of the launch event from the developer SDK. We go to page 20 where Steve Jobs speaks. Jobs points out that the App Store is designed to solve the distribution problem for every mobile developer, big and small. 


Schiller says it was important to treat all developers the same. That philosophy has never changed, he says. From the outset it was important that the App Store would be the only way to distribute apps, he says. 


Schiller: Over the years, the ways and methods bad actors have tried to get at users and their data have increased dramatically. 


From the beginning developers picked the price of their apps. 


Doren says Apple’s choice of 99c for iTunes songs helped grow the market for digital music but realized that didn’t work for apps. The announcement transcript shops that Apple began the 70/30 commission split from the beginning.  


Quote from Schiller in the transcript promoting the app store for “two classes” of developers - free and paid app developers. No commission on free apps. 


Schiller says “we believe” Apple’s 30% commission is still competitive. 

Schiller says developers of free apps did not have to pay for anything else.  


YGR jumps in: Did they pay for the SDKs? 


Schiller clarifies… Well we have 2 programs and a majority of developers don’t pay. Then we have the $99 program. 


Schiller discusses the risk of launching the App Store. Says the company didn’t create a forecast for it when it launched. 


Back to the transcript: In response to a Q&A in March 2008, quoting Jobs saying “this is not an open source project, this is a for-profit project.” 


We look at PX417 - Emails from Schiller to Eddy Cue and Steve Jobs July 2011. Email starts “Food for Thought: Do we think our 70/30 split will last forever?” 


Schiller then outlines a future of $1bn in profits and suggests ratcheting down the split, acknowledging it is “controversial.” 


Schiller says he was discussing a 2011 WSJ article that describes a future in which HTML5 threatens the App Store and Flash (heh). 


Have other app stores launched since the App Store?

Schiller: Yes, Amazon, MSFT, Google Play, Samsung etc. He considers the game consoles competitors as well.


Back to the announcement transcript: PX0880 - Page 21 - Jobs says there will be app review and it will cut out porn, privacy invaders and malicious apps. 


We see a screenshot for Exhibit DX-4287 which is a video of the App Store announcement. Other categories that Apple planned to moderate in its App Store included “bandwidth hog” and “illegal” and “unforeseen,” the latter of which Schiller points to because it was “rapidly evolving.” 



Continued examination of Phil Schiller by Richard Doren. Note: Doren said his questioning of Schiller will likely last the full day. “He may be on cross by the end of the day.”  


We pull up PX-0882, a 2008 email between Schiller and Scott Forstall. Yahoo asked Apple to allow it to distribute its own widgets on iPhone. Schiller’s email says “it is a horrible idea.” 

Email says opening up the App Store to further app stores is “the same as throwing out the whole plan we have in place.” 


This email was referenced in the Epic opening arguments as part of Apple’s plan to create a monopoly. Schiller says it was about its plan to simply launch the App Store SDK for developers. 


Schiller says that at the time 2m iPhones had been sold and 500 apps were available in the App Store. 


How much did it cost to join Apple’s developer program? Schiller says $3500 and he wanted to make it more affordable and available to developers, especially younger developers. 


We pull up PX2618 - Apple’s developer agreement. 


Schiller says the terms are standardized and large developers are not allowed to negotiate more favorable terms than smaller ones. 


And another exhibit, number not given, which is Apple’s Xcode and SDK agreement. Schiller says developers who use this are required to accept Apple’s IP terms that are embedded. Over 30 million developers have agreed to these contracts, Schiller says. 


We pull up PX2619 - Apple’s developer program license agreement, which gives developers access to additional tools, APIs, more data, and resources and technologies. With this one they get push notifications, Apple wallet + Pay, TestFlight, App Store analytics. Again no negotiating and required for all developers. Costs $99 a year. Education, nonprofits, govt, are free. 


Doren: “Are you familiar with the Worldwide Developer Conference?” 

Schiller: “Yes, I, I run it.” 


Schiller talks about how much Apple does for developers. The WWDC keynotes get 25-50m views online. It costs apple $50m a year to put it on and covers the costs for developers “particularly now that it’s all online.” Apple is also creating a developer center in Cupertino. Apple also has school programs. And one called “developer accelerator” for assistance and learning. 


Notes that these investments were not “charged” to the App Store - going back to the P&L point from earlier. 


Schiller discusses paid vs free app percentages. Says a lot of paid apps earn money with advertising. Apple earns no money from ads. Apple doesn’t take a commission on e-commerce sales, for example, because Apple has no idea if the item was delivered and decided not to get involved in those transactions. 


Schiller says in 2019 there was more than 400bn worth of sales of physical goods via the App Store. Judge YGR jumps in to clarify: “billion with a B?” 


We’re now looking at an email from Dec 2008 from Ron Okamoto to Schiller and Greg Joswiak and Schiller with a "keynote preso" about app commerce business models at Sony, xBox, Nintendo and Sony Playstation. 


Schiller said he viewed those stores as competitive and wanted Apple’s commerce model to look similar. 


Schiller explains that “preso” is short for "presentation.” 


Pulls up PX0888.3 - part of the “preso” 

 

An image of 4 categories: Subscription, Download & Install, In-App and Hybrid with some notes below each. Doren highlights that “download and & install” is most common. The next page says that that model is easy and least invasive, but it is “least optimal” because paying up-front for a game is not ideal. 


We skip to page 25 of the "preso" and then slide 18: Megaman 9 and Rock band 2 - these are examples of in-app purchase that the App Store did not yet permit. 


Back to page 25 of the "preso": titled “What Developers are Asking. Under headings titled Subscription and In-App Commerce, we get snippets of what The Weather Channel, EA, Zynga and other developers wanted, including subscriptions and in-app commerce.


Slide 27: Summarizing the preso’s summary, Schiller says “The app store’s “download & install” model is still widely supported on consoles and in-app purchases is new with no clear leader to compare to. Third, developers thought an in-app purchase model would put Apple in an App Store leadership position.  


We go to Slide 29 - “What Developers Want'' with a chart proposing a model for Apple to launch payment APIs. Going through each point (scalable, billing, micro and macro price points, security, ability to allow developers to manage implementation) in excruciating detail. 


YGR asks if Okamoto (who made the "preso") is testifying and Doren says no - “he’s retired.” 


We go to Slide 30 which includes more developers’ requests for commerce, including “micro-transactions.” Schiller says that has become a business model for various games including Fortnite. Schiller says Apple began engineering and store work to start thils. 


We pull up DX-4192 - It is a transcript of a presentation in March 2009 Apple event announcing a “developer beta” of the 3.0 version of the operating system. Schiller was not a speaker but attended. 


Doren quotes Joswiak saying that 50k iPhone developers have joined its programs, with 25k apps in the App Store. Doren quotes Scott Forstall saying over 800m apps have been downloaded. Also iPhone sales hit a total of 17m by then. 


Epic lawyers begin passing around a note. 


Doren quotes Forstall discussing Apple’s plans to announce “in-app purchase.”  


Forrest objects that Dorren testifying on Forestall’s statements are “hearsay.” Doren has Schiller testify that he took part in the creation of the document and argues the document is a business record and Schiller is testifying independently of the document. 


Doren shows that the 70/30 split was announced for paid apps only. Schiller testifies that it was soon expanded to free download + paid in-app content apps as well. 


Schiller says it took work from the engineering team and App Store team to build it. Schiller says none of that was charged to the App Store. 


Schiller defines “Freemium” and “paymium” (where you pay up front but still buy more things inside). Schiller says roughly 6% of apps are paid up front. [He also said another stat I missed the first part of, I think was that 17% of apps are freemium + paymium, please check the transcript if using for anything.] 


Why would a developer use freemium rather than paymium? Schiller says on average the developer can grow customers 10x by going from paymium to freemium. 


Schiller says Apple has never marketed IAP as a separate product. 

Doren says the phrase “IAP APIs” about a dozen times in the following line of questioning: 

-Apple has a formal process for developing and marketing new products, which Schiller developed. 

-It describes who is involved in the development and the phases a product goes through. 

-The “IAP API” has never done this, Schiller says. 

-IAP is not a product, Schiller says, “It is a feature of the App Store.”  


Forrest objects to a question she says is speculative about Apple’s IAP. 

YGR sustains and says “It’s also leading.” 


Schiller says Apple has 5,000 customer service people who work with customers about getting refunds on in-app purchases. They work under the “Apple care” division. Schiller says last summer Apple launched a product that allows developers to know when Apple has given a customer a refund. 


Schiller describes something called the “reader rule.” Essentially if you acquired the customer on your own and the user can log in with their account and get access to all the content they paid for and agreeing that you don’t need to do that from the store so there is no requirement to use IAP. Apple gets no commission for those subscriptions. Put in place, Schiller believes, in 2009.  


Schiller says you pay for an NYT subscription you can log into the NYT app and get the content. If you purchase the subscription within the app, you pay via IAP. If you change devices --


Forrester objects as “foundation” - YGR overrules. 


-- NYT could allow you to transfer it. Or you would have to cancel the subscription and start a new one on the new device. 


Schiller says in 2016 Apple changed its commission pricing to drop to 85/15 on the second year of the subscription. He says Apple did that to encourage developers to “maintain that content” in future years.


Schiller says the Apple TV Team created a “video partner program” a few years back to consolidate TV / video services together into “one experience” for users. The Apple TV team asked the App Store to lower commissions for developers to encourage them to join. In some circumstances, video partner program members don’t use IAP - in particular, cable providers with existing movie rental businesses with their customers. Amazon Prime is one of those. Canal+ (a French company) and one other I didn’t catch. 


Does Apple support “cross wallet” play? Schiller says yes, it’s been many years and was prompted by game developers asking for it, not by Epic.


At 12:34 we went into recess until 1:15.



We returned to session at 1:15. The judge noted that Doren was at the podium, Schiller was on the stand, and “Ms. Forrest is writing furiously.” Forrest froze, looked over and ultimately went back to writing slightly less furiously. Epic lawyers were also busily passing around binders and using those small sticker arrows throughout the examination. 


Doren pulls up Exhibit Dx-5627 - an email from Todd Teresi regarding a developer program


Schiller is on the email chain and said he proposed some programs to help “indie” developers and startup developers. “We had a number of different explorations.” It ultimately led to Apple’s small business developer program. 


Schiller says he was worried about money laundering - and suspected that if Apple lowered its commission below 15% for small businesses that it would lead to an increase in money laundering. 


Apple has told developers about this program “everywhere we could” since last December. Schiller said. Tens of thousands of small developers have enrolled. It’s a minority of those eligible. 


Talking about Apple’s app store search ads - when the program was first developed, we heard that it was expensive to buy ads on Facebook and other places. 


How does the pricing model work? Schiller says there is an auction and developers bid on it but is not the expert on the ads business. The apps are organic search. 


Doren notes that Sweeney complained about the notion that if someone searches for Fortnite there may be an ad that comes up before that. Said advertising for a competitor’s terms is called “conquesting” and claims it “helps” small developers compete with the likes of bigger developers like Epic.


YGR jumps in: How do I know Apple is fairly competing in that same market for search? Does Apple just not compete? 


Schiller: That’s right, we do not allow search ads for Apple’s products. 


Has Apple ever told Epic that it cannot charge less for Vbucks? Schiller says no. 


Doren pulls Exhibit PX 2790 - App Store review guidelines 

 

Doren points to Section 3.1.1. Regarding in-App Purchases says that apps cannot direct customers to purchasing mechanisms outside of IAP., as well as 3.1.3, which says apps cannot encourage users, via text, email or any other way, to use a purchasing method other than IAP.  


Schiller: If you were going to a nice retail store - Nordstrom’s - to buy a pair of Levis, you don’t expect to see a tag on it that says you can buy a pair of these at Macy’s. Refers to “reader rule” which says it’s ok if you already got the customer, but if Apple enabled you to get the customer, it is not fair to then direct them elsewhere. 


Has Mr. Schiller ever played Fortnite? 

“Absolutely, quite a bit”

Schiller says he stopped playing after the lawsuit / hotfix last August. 


We pull up Exhibit Dx5567

It is an email that Schiller got from Epic when he signed up in March 2018, which said the game was exactly the same as it was on the other gaming consoles.

Schiller said it did not violate Apple’s terms. 


YGR: But what if it said, you can buy Vbucks cheaper from your PC? 


Schiller? Not if it is sent generally to the user base. If It’s literally just me, Phil Schiller, that would be [a violation]. “Broad communications we’ve never had a concern with. It’s just the targeting of a brand new user.” 

Schiller says he’s gotten emails from Fortnite ever since he signed up. 


We look at Exhibit DX 5555 - it is another marketing email from Epic on April 29, 2021 to Schiller. 

There is a button with FIFA / soccer trophies, etc. It says “Get the battle pass” and it invites users to make purchases at Epic’s website. 


YGR: I thought I heard testimony that Apple doesn’t allow developers to have each others’ email addresses. 

Apple says you can get the email addresses, you just have to ask them for it. 


Why doesn’t Apple want to do a store within a store, as Epic is asking? 

Schiller goes through all the reasons Apple has said a million times. 

No ability to moderate. No parental controls. No integration with Apple’s systems. Lack of consistency of information about each app (age ratings, reviews, privacy info etc). 


Doren brings up Itch.io and pronounces it Itch dot I O. Schiller says Itch.io’s app store would not be acceptable to Apple. 


Doren brings up the ERV: Apple’s executive review board. Schiller says It was created at the start of the App Store to deal with issues or challenges that arise in the App Store. The ERV gets weekly reports on various cases and discusses them and modifies guidelines “at least yearly” when Apple runs into situations that are new or gets feedback from developers. Cross platform play was an example of that in recent years. 


YGR asks if other App Stores publish their guidelines and Schiller says he’s not sure.  


Doren asks Schiller what Roblox is and he says it’s a game. This type of game, where lots of games exist inside a game “is a new phenomenon in our industry.” 


Schiller elaborates: The games inside Roblox aren’t required to go through App Review. The developer of the Roblox App is the Roblox corporation. The content within it must follow the App Store guidelines. Creators are able to create games within the Roblox app and those are added to Roblox and are released as content within the app. 


Switching to Epic: Schiller says users within Fortnite are able to create things inside the app as long as Epic is responsible for making sure all of its users are following the App Store rules.


Schiller says the “creator vs developer” debate is a discussion within the ERV. Stresses that it is a new phenomenon and Apple is trying to “apply the same philosophy we’ve applied from the beginning.” 


Schiller says the “FEAR team” within Apple handles “Fraud Engineering Algorithms and Risk.” That includes piracy, spam, fraud, potential risks of new features Apple is working on. This is different from the App Review team which has “the goal of trying to help developers get on the store.” 


Schiller gives the example of how the FEAR team will see a big boom in fraudulent accounts in one region, for example. Eric Friedman heads up the Fear team. 


Exhibit PX-0250: 

An email from Friedman from 2013 who says “App Review is bringing a plastic butter knife to a gun fight. Investment will have to be made in making that process more robust or they will keep getting rolled.” 


Forrest objects. Forrest wants to know if Schiller can speak to this particular document because he’s not on it. YGR tells Doren to “lay some foundation.” 


Dorren pulls from elsewhere in the email chain, where a different executive is raising the issue of Chinese developers padding their ratings. Phillip Shoemaker says that behavior would be rejected in App Review. 


Doren gets a note from his legal team and goes back to Roblox. Is all creator content using tools and content that are approved through App Review? Schiller says yes. 


Schiller says the App Store has exceeded his expectations from 2008 about how it would be. 


Exhibit DX - 4608 A transcript from a 2009 Apple event. 


Doren points out that Steve Jobs said Apple sold 30 million iPhones in a little over two years and attributes it to the App Store, which had 75,000 apps. 


Schiller testifies that today there are: 

-Over 1bn App Store users 

-500m+ weekly app store visitors 

-2m apps 

-280k are games


Schiller said that around 2017 - he isn’t 100% sure - Apple embarked on a cleanup operation to get rid of apps that hadn’t been updated in years or had extremely low download numbers. It was ongoing, and roughly 2m+ apps have been removed. 



Continued examination of Apple fellow Phil Schiller by Apple lawyer Richard Doren. 


Doren brings up “Switching costs.” 


“Since 2010, what has happened with switching costs?”  


Forrest objects. 


Doren says “I’ll admit it was a lazy question.” 


Doren asks if it has become easier to switch devices since 2010. Schiller says yes, because of the magic of the cloud. Also, OEMs, ie, Apple, Samsung, Google, etc, have developed tools to help users switch over from other operating systems. 


Schiller says Apple has invested in tools to help people switch from Android. Has Apple created tools to help Apple users switch to Android? Schiller dodges and says the tools usually come from the company trying to lure a company over from another OS but overall it is easier to switch. 


Doren pulls up PX-0079 

It is a Goldman Sachs analyst report from June 19, 2013 about switching from iPhone to Android.


Schiller had emailed this report to other Apple execs at the time, noting that iTunes and iCloud “figured pretty big” in the ability to switch.  


Forrest objects because Schiller denied remembering this email in his deposition. Dorren says he’s asking about what is discussed in it, not about his recollection of it. Judge YGR allows him to continue. 


Doren and Schiller make a big point of the fact that the technology has changed since the writing of the report in 2013. (For example, “DRM,” or markings on iTunes files, is outdated technology, as would the paid version of a music management app.) 


The analyst describes the “pain in the neck factor” and Doren asks if it has lessened since this report. Forrester objects and YGR sustains. Schiller goes back to the cloud point. 


Doren pulls up Exhibit PX-0892

It is an October 2010  email from Steve Jobs titled “Top 100 - A” to the executive team. It is a draft agenda Jobs shared asking for input. The “Top 100” meeting covers the next year coming up. The fourth item says “2011: Holy War with Google,” noting all the ways Apple will compete with Google and is described as the primary reason for this Top 100 meeting.


Jobs stresses the move to the cloud and says Apple is in danger of hanging on “to old paradigm too long (innovators dilemma).”


Jobs further writes that if Apple ties all of its products together it will “further lock customers into our ecosystem.” 


Schiller says this is about having your calendar, email and contacts synced on all your devices, and if Apple can do that, Apple would have a better platform customers would want to stay with. 


On the next page, an item called “MobileMe” - which was Apple’s service to begin creating a cloud-based infrastructure. Doren and Schiller discuss further points by Jobs expressing that Google was way ahead of Apple on the move to cloud. 


Schiller: “It sounds simple today, the idea that your calendar, contacts and mail all sync to your phone?” But at that time, he said, “we didn’t have that.”  


Schiller says he is a gamer. (“I think so.”) 

He has an Xbox, a Nintendo Switch, his various Apple devices, one or two other consoles I didn’t catch, as well as a dedicated VR auto racing simulator rig.


Doren notes that that qualifies him as a gamer. 


Schiller says the App Store competes with Steam and the Microsoft Windows Store. 


Schiller testifies--in his capacity as a gamer--that MSFT’s Windows Store is not as robust as its Xbox store.


Testifying as an Apple business executive, he said he had only recently learned about MSFT’s reduced commission announcement, that the announcement was not yet effective, and that it did not come from the Xbox division. 


Schiller is asked to describe his discussions with Microsoft about their game streaming service. Schiller said he would love to have them stream games to users on our platform as long as they follow the rules that others have to follow. Each game would have to be separately submitted because when a user goes to look for a game, they want to see the product page, age ratings, privacy policy, parental controls, other features, etc. “As a store we want to provide that information to the users.” 


Judge YGR: So how is this different now from Netflix? 


Schiller: Netflix flows all the content through its app, we are not reviewing the content, just the features of the app. The Xbox cloud is a separate app, and users do much more than just view video, they play games. Secondly, the App Store is not a movie store. It is an apps and games store. 


Worth noting Schiller has been very relaxed throughout his testimony but there was tension in his voice on this response to the judge. 


The judge jumps in again to ask more clarifying questions about how MSFT/XBox’s streaming apps would appear in the App Store. 


Schiller says Apple suggested to MSFT that they should go directly through the App store for these streaming apps. But MSFT also had the option to go through Safari and do web streaming. 


Doren changes the topic to R&D. 


Schiller says Apple spent around $500m in 2005 on R&D. Last year Apple spent $18 billion on R&D. Schiller says Apple has spent roughly $100bn(!) in R&D between 2005 and now. 


Doren shows a “demonstrative” slide titled “Innovations and Investments” which lists the following items:  


Hardware: 

2007 Accelerometer 

2010: Gyroscope

2014: Taptic Engine

2016: Stereo Speakers

2017: Neural Engine

2020: LiDAR


Cellular:

2008: 3g

2012: 4g LTE

2020: 5G 


They are iPhone specs. Schiller goes through each item on the list and describes how these features, introduced in the years listed, helped developers make their apps better. He also specifically notes how each of them helped game developers.


Doren shows a demo of an app called “magicplan” from a company called Sensopia that uses Lidar technology to create floor plans via an iPhone. Schiller describes how the app uses the technology and notes that it is brand new as of last year.


In general the mood in the room is getting a bit antsy and tired as the day drags on through a detailed description of the evolution from 3G to 5G. The latest Forrest objection (“leading”) was not particularly energetic, Doren offered to “slow things down” almost as a threat and Judge YGR sighed when she told him to “change the form.”


Schiller, however, is enthusiastic to discuss the technical details of Apple’s investments in 5G. 


Another demonstrative lists more “Innovations and Investments.” This one is a list of every year for the past decade with all the improvements Apple has made in its custom chip technology. 


In 2010 Apple’s A4 Chip was the first Apple-designed chip. It typically issues new chips every year, Schiller says. In 2020, the A14 chip introduced more machine learning and better performance and battery. 


There is another “Innovations & Investments” demonstrative. This one shows a bunch of Apple’s developer tools, including SDK, Core Motion (2010), SpiteKit (2013), Metal (2014), GameplayKit (2015), ReplayKit (2015) ARKit (2017), Core ML (2017), RealityKit (2019), Reality Composer (2019). Schiller goes in detail about each of these, too. 


The general thrust of this part of the testimony is that Fortnite would not have been able to launch on the App Store back in 2010, but Apple’s vast investment in technology made that possible.  


Schiller says he and his colleagues at Apple considered Metal to be an improvement over OpenGL or other tools they had used. It is named after the idea of “close to the metal” which means operating as close to the chip’s physical capabilities. 


He said Apple brought Epic in to look at a preview of Metal. 

Doren: Did, in fact, Epic do something incredible with it? 

Schiller says they did and Apple invited Epic to take part in helping them launch Metal. 


Exhibit DX-3462 is a video of Tim Sweeney on stage at WWDC in 2014 showing off some of the possibilities of Apple’s Metal software with something called “Epic’s Zen Garden.”


Schiller says “We were proud to include them on our stage and have them take part in it with us.” 


Schiller says Apple also asked Epic to place its demo on the Apple App Store for users to experience “because it was so beautiful.” 


We break at 3:13. Tomorrow will begin with Doren and Schiller.


But wait, Judge YGR has a question for Tim Sweeney, noting “it doesn’t have to be under oath.”  


“We’ve been in this trial now for over a fortnight,” she said. “What does that name mean to you? How did you come up with the name Fortnite for your game?” 


Sweeney explains the origin of the game - it came out of a “game jam” where employees experimented with building their own games. 

“It had a day and night cycle - every hour you go from day to night.” The clock is running so players must create forts during the day to hide from the zombies at night. 


YGR: “So fort-related, as opposed to two week-related?” 


Sweeney says yes. 


YGR: “I wasn’t going to have any other real opportunity to ask, so why not.” 


Judge YGR also tells the lawyers that with jury trials she always meets with jurors afterwards to see what the experience is like. Since this is a bench trial she said she would get coffee on Tuesday morning with some of the junior lawyers on the case, and both sides are very eager to participate. 


Judge YGR adds that she is impressed by the diversity she’s seen working on this case, particularly the number of women. She told the legal teams they should take pictures of themselves. “Given how many of these cases I’ve presided over, this is very different from what I have seen in the past and I think it’s a terrific example of what I’ve seen for the future.”


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