Epic v Apple Day 2 - Daily Pool Report


Nellis, Stephen (Reuters)
 

Greetings from the courtroom in Oakland, California from Stephen Nellis at Reuters and Mike Acton at MLex. As a reminder, Judge Yvonne Gonzalez Rogers  said tomorrow's proceedings will likely start off with some arguments from the attorneys over redacting expert testimony, so live testimony may not begin right on the dot at 8:15 a.m. PT. Your pilots tomorrow will be Leah Nylen of Politico again and Josh Sisco of The Information. Meantime, here's how day two went. 

Court is now in session at 8:15 a.m. PT.

Epic's Tim Sweeney, who is set to resume testifying today on cross examination by Apple, arrived in a blue plaid suit with striped shirt and blue-and-gold striped tie and milled about the lobby area outside the courtroom browsing historical pictures of the Bay Area. Apple's Phil Schiller arrived in a dark blue suit and dark blue tie and plain white dress shirt. Most of the legal teams are wearing black cloth masks or blue surgical masks, but Karen Dunn of Paul Weiss has arrived in a burgundy face mask. 

Richard Doren for Apple has donned a face shield as has Epic's Sweeney, as they will be up first. 

Judge Yvonne Gonzalez Rogers (YGR) opens up by thanking young lawyers for both sides “because even though they are not doing the questioning I know they are working hard.”  


Judge YGR asks for introductions of new folks. Here’s who is present for both sides: 


EPIC: 

Katherine Forrest, Cravath

Gary Bornstein, Cravath

Wes Earnhardt of Cravath 

Brendan Blake of Cravath 

Jin Niu of Cravath 

Tim Sweeney, Epic CEO  

Jason Rudd - Epic’s computer guy 
 

Apple:  

Richard Doren, Gibson Dunn 

Rachel Brass, Gibson DUnn

Karen Dunn, Paul Weiss 

Betty Yang, Gibson Dunn

Veronica Moye, Gibson Dunn

Phil Schiller, Apple 


In the gallery:  

Mike Acton and Stephen Nellis from the press pool   

Marc David Peters, who will represent Nvidia and Aashish Patel 

 

Next, Judge YGR then thanks the court staff for their efforts to give public access. She then dives into questions over materials that should have been sealed but my have been released over the weekend, saying that she is unlikely to seal things that have been accidentally released.  


I don’t at this point, with the genie out of the bottle, think that there’s a point in sealing them. If they are already released because of an error that was not the court’s error, the information is out there,” she said.  


Of documents over the weekend, she said, “I went home and I learned there were numbers I knew I had sealed, and now the public knew about them.”  


EPIC'S TIM SWEENEY RESUMES HIS TESTIMONY


Apple’s Richard Doren (RD) resumes questions of Tim Sweeney (TS). Because of difficulties in hearing Sweeney on the public audio, we have included a more stenographic representation of the exchanges than another witnesses.


RD: Would it surprises you to learn the vast majority of people who have downloaded Fortnite on iOS has never made a purchase in Fortnite on any platform?  


TS: We don’t sell features, we only sell items. This means players can’t buy better performance.  


RD: Do you know what percentage of people who download Fortnite on iOS only buy things on iOS? 


Sweeney: No.  


RD: Would it surprise you that it’s as low as 5%?  


Sweeney: Yes.  


RD: Are you blocking 95% of the players because of the 5% that make purchases? 


K Forrest objects.  


Sweeney: Epic did consider the impact on consumers.  


RD asks if Sweeney runs the company as one P&L, and Sweeney says he does.  


RD asks if Fortnite was first released on iOS, before Android and Switch. Sweeney says yes.  


RD engages in a line of questioning about whether Apple supported cross-platform progression and cross-wallet play. “If you could buy it elsewhere, as long as you can also buy it on the App Store, Apple is fine if people buy it elsewhere?”  


TS responds that this is correct.  


RD: “When a player did that, Apple would not receive any commission, correct?”  


TS: Yes.  


RD asks if cross platform and cross wallet play were allowed. He asks if Sony disallowed for up to a year after the launch of Fortnite on Sony. RD asks if TS got aggressive with Sony about the issues of cross platform play and cross wallet.  


TS: “Yes, we had significant negotiations throughout 2018.”  


RD discusses exhibit 3125 with TS.  


“Friendships are being torn apart by Sony’s segregation of players on competing platforms,” the email from Sweeney to a Sony executive, Phil Rosenberg, on June 1, 2018 reads.  


RD: Apple permitted cross platform play, correct? Sweeney replies yes.  

RD asks if Epic reached an agreement with Sony on cross platform play by September 2018. 


TS replies that yes, Epic did. 


RD asks about cross wallet transactions, which still remain barred on PlayStation.  


TS says that Sony still does not allow V bucks bought outside Sony on Playstation 


RD asks similar series of questions about Nintendo Switch. 


TS says Epic does not support use of V bucks bought out side Switch being used on Switch.  


RD asks if console players have a monopoly on game distribution on their platform.  


TS says he’s aware of one exception. He understands that Nintendo allows Switch games to be sold by one third-party retailer.  


RD: But other than that, do you agree console makers have monopoly on game distribution?  


TS agrees.  


SWEENEY'S CROSS EXAMINATION CONTINUES, JUDGE YGR BREAKS IN WITH QUESTIONS


Doren asks TS about a gaming conference - the D.I.C.E. summit in 2012 hosted by the Academy of Interactive Arts & Sciences at which Sweeney was named to the academy’s hall of fame and gave a speech about platforms. RD asks if TS recalls being named to the hall of fame, and TS replies that he does not recall. “A belated congratulations,” Doren said.  

RD later begins to question TS about Apple’s “Metal” API and a collaboration between the two companies at Apple’s Worldwide Developer Conference, or WWDC, where Sweeney gave a quote to Apple to use in Apple’s presentation.

RD introduces an email from January 2018 between TS and Microsoft’s Phil Spencer, chief of Microsoft’s gaming business. Email exhibit is DX-4036.

In the email to Spencer, Sweeney wanted Microsoft to commit to cross platform play.  

TS says: “Microsoft did not have a very clear position. They often spoke publicly in support of cross-platform. Epic wanted to eliminate the ambiguity with Microsoft.”  

RD asks if TS tried to use Apple’s forthcoming allowance of cross platform play in the game’s upcoming iOS launch to pressure Microsoft to also commit to cross platform play.  

RD returns again to Sweeney’s email from June 2018 in which Sweeney said he does not believe Sony’s ban on cross platform play is not legal and in which TS says that Apple, Google, Microsoft and Nintendo would support cross platform play.  

RD then introduces a March 21, 2019 interview from the magazine Eurogamer of Sweeney. The first question in the interview is about Google’s Stadia streaming service. RD points to part of Sweeney’s response saying Unreal Engine will support Google Stadia. (Exhibit 3199)  

RD asks if a streaming service can give even a small device good game play. TS says yes.  

TS says that “Unreal Engine is currently supporting Stadia.”  

RD: Digital gaming is a very dynamic world, isn’t it?  

TS: “It changes over time.”  

RD: Do you agree a great game will succeed wherever it’s sold?  

TS: I was referring to competing PC game stores.  

JUDGE YGR ASKS: “Are you saying that great games in some other context will not succeed?”

TS: “The competition I was referring to was game customers across PC game store.s”  

JUDGE YGR asks: “Does that mean the oppose is true in other contexts?  

TS: “It varies by platform, your honor.”  

JUDGE YGR: But does that your statement doesn’t apply in other platforms? “Are you saying your statement is not applicable in the other contexts that you’ve not identified?”  

TS is not clear precisely what statement she means.  

RD comes back to read it again from the Eurogamer interview. He reads “A great game will succeed wherever it’s sold” it reads in part.  

TS: “The question I was answering was” about PC games on PC stores, he says. He says those game store must be able to “freely compete” among each other.  


COURT GOES INTO FIRST RECESS, JUDGE YGR HAS MORE QUESTIONS FOR SWEENEY 

Apple’s Doren continues to cross examine Sweeney. As a side note: The two have continued their exchanges through clear face shields, as they did yesterday.  

RD begins to ask TS about the Coalition for App Fairness, which Epic belongs to, and its members, as well as Epic’s own Epic Games store. RD asks whether Spotify is now on Epic’s game store, as well as other non-gaming apps like iHeartMedia.  

RD: It was important to you to get all these transactions completed before this trial?  

TS: “Yes, that was one of my motivations.... I wanted for Epic to demonstrate that we welcomed apps from other stores on our store.”  

RD asks if Epic committed minimum guarantees for apps on Epic’s own stores. TS agrees that Epic did so.

TS: “I don’t expect to recoup those minimum guarantees from the games” themselves, but may recoup the guarantees some other way.  

RD asks whether Epic expects to lose hundreds of millions of dollars on the Epic Games store.  

Now K. Forrest breaks in to raise an issue of possible confidential information in a document about a third-party deal, that Forrest says they’ve only been made aware of this morning. Doren says this is the first he has heard about it. Judge YGR says she has been sealing references to revenue sharing agreements. She will allow sealing of “particular numbers” or “any kind of specialized negotiated terms” but otherwise wants to proceed with the line of questions.

The media gallery cannot see the full document now, and RD is reading from it.  

The document comes from September 2019 from David Wallerstein, a Tencent executive who has taken a seat on Epic’s board. The document says the board is reviewing large minimum guarantee outlays being made by Epic to games in its store.  

In a reply email to Wallerstein, TS wrote (according to RD’s reading of the document) “Obviously the direct ROI...is super crappy” for the minimum guarantees to developers on the Epic Store, but the larger goal of the minimum guarantees is to bring users into the Epic Games store and create a large lifetime value of customers from the Epic Games store.  

RD how turns to an October 2019 review of the performance and strategy of the Epic Game store (exhibit DX-4361). It shows a 5 year profit and loss forecast as of that time, with an “aggressive pursuit” model and a “winding down” model depending on how much Epic invested to promote growth, or if it gave up the store and just paid off the minimum guarantees to developers.  

We now dive into the report itself. By 2024, under the aggressive pursuit model, Epic projected a $15 million profit, but a cumulative loss (over the course of the investment into the store) of a $854mln. The store will still be in a cumulative loss state for $719mln in 2027. In the winding down model, there would be $36mln profit for 2024 but cumulative loss of $654mln, while 2027 has a cumulative loss of $642mln.  

RD asks about what kind of expenses it would include in the models. TS says “there’s a people cost running into the tens of millions of dollars” in the model. RD asks if there are engineering costs. TS says he does not know if engineering costs are included in “people.”  

JUDGE YGR moves DX-3818 into evidence, though waiting for K Forrest to weigh in on sealing after lunch, but DX-4361 is moved to evidence.  

RD now asks TS about the “Project Liberty” planning for the hot fix launch in May 2020. It focuses on a conversation between Mark Rein, an Epic co-founder, and Dan Vogel, the company’s chief operating officer. Vogel raised concerns implementing a V bucks price cut “without us looking like the baddies.”  

RD asks TS whether he was focused on this planning for Project Liberty. “I was focusing on various other things,” TS said. Vogel “played a major role in the planning of the price drop.”  

RD continues reading. Vogel had raised concerns about “Fortnite” being blocked.  

TS says that he was “not certain” that Apple and Google would block Fortnite, but that Vogel appeared to be certain FN would be blocked.

Now RD moves back to the June 30, 2020 4 a.m. email to Tim Cook and Phil Schiller et al, laying out Epic’s demands. (DX-4477) He points out a spot where it looks like Sweeney forgot to change “Google” to Apple and asks if it was a “form demand letter.”

TS: “This was a fairly customized, specific policy of each platform that differed.”

RD now asks about a July 2020 board update presentation gave about Project Liberty. He highlights one line where the presentation saying: “Solve this problem now before AR takes off and that rate is set at 30%.” RD asks whether TS believes Apple will be a major augmented reality player.  

TS: “I expected Apple to be a significant AR market participant in the future.”

The presentation says that Epic’s revenue had declined in 2019 vs 2018. Total gross revenue for 2Q19 (ending June) was $1.1 billion, down 27% YoY from 2018. In 3Q19, Fortnite was projected to make $802 million, down 28% from an initial forecast of $1.1 billion, because of softening player conversion.  

RD asks if the day after the version of “Fortnite” with the secret hotfix code was approved by Apple, in August 2020, TS sent a note to Microsoft. He bring up an email from Sweeney to Microsoft’s Phil Spencer. DX-4579 is exhibit. Sweeney says there’s an “extraordinary opportunity” coming to show the value of Windows and Xbox versus platforms.  

TS testifies: “I was presenting it as an opportunity to Microsoft.”  

RD now moves into the PR campaign Epic launched after flipping the switch on the “hot fix” on August 13, 2020 and the “Nineteen Eighty Fortnite” video parodying Apple’s “1984” ad.  

The court reporter stumbles on the “Nineteen Eighty Fortnite” name and asks for a clarification.  

RD then asks about the “#FreeFortnite Cup” public relations campaign in which Epic told players what other platforms they could play on if frozen out of Chapter 2, Season 4 updates on iOS.  

Sweeney says: “We were just hoping our customers found a way to continue playing,” Sweeney says.

RD: “Today, an iPhone user can use the Safari browser” to purhcase V Bucks that can be used on Xbox, correct?  

TS: Yes.  

RD now asks Sweeny whether, if Fortnite was still on the iPhone, a player could buy V Bucks in the Safari we browser on iPhone and then go over to the Fortnite app to use them.  

TS says yes, that would be the case now.

JUDGE YGR ASKS: “Why wasn’t that an option before August of last year?

TS replies: “It wasn’t a very attractive option to our customers.”  

JUDGE YGR asks: “Did you have the technological ability, or you simply hadn’t programmed it?  

TS REPLIES: “We hadn’t programmed it yet.”

JUDGE YGR asks: “It was an option for you, but you simply chose not to do it?”  

TS replies “Correct.”  

RD asks if TS has given away Android devices he has been given and uses an iPhone. Sweeney replies yes.  

RD asks: “Do you prefer the iPhone?”

TS replies: Yes.  

RS asks whether privacy and security are among the reasons that Sweeney uses an iPhone. TS says yes.

Richard Doren wraps up his questions at 10:07 a.m., having cross examined for nearly two hours.  

SWEENY GOES ON RE-DIRECT EXAMINATION BY FORREST

Katherine Forrest (KF) of Cravath now takes up questioning Sweeney on re-direct. They are mostly clean-up questions to add things to the record. She ony has 8 minutes before the court takes a break.  

KF: Does Epic Games Inc have any relationship to Unreal Engine? Does it have a financial interest?  

TS: Yes, it’s all integrated.  

TS says that facets of The Unreal Engine have been distributed on iOS for two years and that it does not involve game play.  

KF asks about House Party. Does it involve game play? TS says no. She also asks about distribution etc and TS says House Party is distributed on iOS.  

KF asks how the cost structure of being a publisher, where Epic had a 40/60 split with developers.  

“Publisher’s generally bear the majority of the costs of creation of software. A publisher will generally have a higher cost structure” than a distributor, Sweeney said.  

KF asks whether those publisher services are the same or different from the Epic Game store as a digital distributor.  

TS: “The services that Epic provides as a digital distributor in the Epic Games store are entirely different” than what it offered as a publisher.  

KF now asks whether Epic knows what rates Microsoft charges for game distribution, and similar questions for Nintendo, Sony. Sweeney says that he does not know how much those companies charge game makers, and only knows what Epic pays.  

KF now asks about how the talks with console makers like Microsoft go.  

TS says that “There will be significant negotiations on a wide range of topics,” including Microsoft marketing help, technical issues with the products and other aspects of a deal.  

KF asks if Epic negotiates with the console makers and look at those agreements “holistically.” She asks if it is true with regard to Nintendo, Sony and Microsoft, and Sweeney says yes.  

The court takes recess for 20 minutes, to resume at 10:35 a.m. 

AFTER THE FIRST RECESS, WITH MORE QUESTIONS FROM JUDGE YGR

K Forrest (KF) resumed her re-direct examination of Tim Sweeney (TS) at 10:35 a.m. PT. Side note, she has kept her mask on rather than wear a face shield, and wore a long black jacket and black and white dress with horizontal stripes. (Unlike Leah at Politico, I'm terrible at fashion.) 

GAMING CONSOLES AS GENERAL COMPUTERS:  

KF asks how consoles differ from smart phones. She seems to be making the point that consoles are not general computing devices and you can’t do things like get to your bank account on them. But Judge YGR does not understand the line of questioning.  

KF says she is trying to show that what is at stake in the case is Apple’s control over the distribution of all varieties of apps, like banking apps, rather than just game apps. “Our contention in this case is that all apps are at issue, not just a game app, and therefore the distinction is relevant,” KF tells Judge YGR.  

Judge YGR still does not understand the point of the line of questions but lets it proceed.  

TS says that game consoles like an Xbox are not really general purpose computing devices.  

KF makes the point, via questions, that consoles are not portable. You can’t take them with you.  

KF hands Sweeney an iPhone.  

TS describes it for the court, noting that it has a celluar data connection.  

Then KF hands him a Nintendo Switch and a controller for it.

TS describes them, and then KF asks them to hook them up to each other. He struggles to do it.

“As you can see, I’m not a Switch player,” he says.  

“Now the whole world knows,” Judge YGR says.  

“Given time, I’m sure I could” fit the two items together.  

Now KF asks him about whether you could use the Switch on a train. TS says yes, but you’d need a WiFi connection.

JUDGE YGR ASKS: “I thought the Switch was all one unit?”  

TS says yes, you can use it without the controller.  

KF asks more questions about cross-platform play.  

“Even on a closed platform, it is still possible to have cross-platform play.”  

KF now returns to the Eurogamer interview to clarify it.  

TS says that the interview didn’t pertain to mobile platforms, so that when he said developers have power, it meant on PCs. That doesn’t apply to iOS.  

TS says “Apple has complete control over what games and other apps can be distributed on iOS and wields that to make arbitrary policies and decisions, such that Apple has all of the power and the control on iOS.”  

NEW TOPIC: NON GAME EXPERIENCES IN FORTNITE  

KF asks about non game experiences in Fortnite and whether you have to play the game to see things like concerts. TS says the first concert was the musician “Marshmello.” “Was there competitive game play at the Marshmello concert?”

JUDGE YGR breaks in to ask whether Fortnite players go to these events as themselves or as their game avatars. “When someone is a Fortnite user and they go to one of these concerts, they are still in persona? It’s not like we are going on Zoom with friends and you go into a meeting room. People are in there in their game mode, aren’t they?”

Tim Sweeney says yes.  

JUDGE YGR: “Do you have any data to suggest that anybody goes to the concerts that aren’t already ‘Fortnite’ players?”

TS says that some players who haven’t played in some time do come back for concerts.  

JUDGE YGR asks but isn’t it all in the game context? “There are some movies about this, aren’t there?” and she mentions “Ready Player One.” “Because I’m not a gamer, that’s the one that comes to mind.” She asks, “Would that movie be the most readily available example of what is going on?” in the Fortnite universe.  

TS says yes, and “Snow Crash” is also a story that gets at this experience of an in-game reality.  

JUDGE YGR then asks whether they’re monetizing the time that friends spend in this 3D word. TS replies that yes, that is the case.  

KF then goes into asking whether Game play is required to attend a concert.  

JUDGE YGR asks whether people don’t play games all the time that aren’t competitive against each other. She mentions “Candy Crush.” “Is everything that you sell people playing against each other?”  

TS says no, there’s no “game mechanics” in much of the Fortnite universe.  

JUDGE YGR: “How would you define a game?”  

TS: “I think a game involves some sort of win or loss or a score progression whether it’s an individual or a social group of competitors, as opposed to some open ended creative experience,” like some of the other Fortnite experiences. In those experiences,  Sweeny says, “There’s no score. You’re never done, and you never win.”  

Judge YRG sighs. “Alright, go ahead.”  

NEW TOPIC – ARKIT AND WEBKIT  

KF then moves on to ask about two of Apple’s developer tools, WebKit (for making web apps) and ARKit (for making native augmented reality apps). She asks whether Apple makes ARKit available as part of WebKit, and Sweeney says Apple does not.  

TS replies: “It means that a web app can’t compete with a native app in terms of augmented reality,” Sweeney said. “It means it can’t even exist.”  

NEW TOPIC – FORTNITE AS A CREATOR PLATFORM, IMPULSE PURCHAES  

KF now asks about the evolution of Fortnite to becoming more of a platform to let people create experiences and distribute those creations to other users on the "metaverse.”  

TS: “These fees are an existential issue to the development of the metaverse in general. Fortnite is increasingly a creator-driven platform. Companies and individuals besides Epic are working to distribute to users. We are early in development of a creator-based Fortnite economy,” TS says.  

TS goes on: “Epic is trying to build a metaverse where the majority of the profit should go to the creators themselves,” he said. “With Apple taking 30% off the top, it makes it very, very difficult for Epic and creators to exist in this world.”  

TS then talks about “customer friction associated with selling an item outside of an app”

JUDGE YGR breaks in to ask about how old many of the users are on the Fortnite platform. “Do you know the numbers in terms of the ages of the individuals who use Fortnite?”

TS: “We don’t track customer age.”

JUDGE YGR: “Do you have an understanding generally whether a majority of the people who use your product are young people?”

TS says the game has an age rating off 13 plus.  

JUDGE YRG wants to know why young people need to be allowed to make impulse purchases. “Why is this so inconvenient, that someone can’t make what I would call, as a parent, an impulse purchase?”

TS replies that “most platforms have parental controls” preventing cash purchases.

Judge YGR presses the question further, asking why Epic wants to sell V-bucks accounts without those controls: “What you are really asking for is the ability to have impulse purchases.”  

TS replies: “Yes, customer convenience is a huge factor in this.”  

KF wraps up her re-direct at 11:18 a.m., about 40 minutes.  

RE-CROSS EXAMINATION OF SWEENEY BY APPLE  

Richard Doren of Apple takes the podium for re-cross examination. He ends it at 11:23 a.m. PT.  

JUDGE YGR ASKS DIRECT QIUESTIONS.  

Judge YGR has a series of direct questions of her own.  

Judge: “Do you have any understanding of the economics of developers who engage in apps that relate to food?”

Sweeney: “No"  

Judge: “Do you have any understanding of the economics with respect to developers who have apps related to maps or GPS?”

Sweeney “I do not.”

Judge YGR asks the same question for coupons, weather, dating and instant messenger apps.  

JUDGE YGR: “So you don’t have any idea how what you are asking for would impact any of the developers who engage in those other categories of apps, is that right?”

SWEENEY: “I personally do not

Sweeney exits the stand at 11:27 a.m. PT.  

But then Judge YGR has one more question for Sweeney and calls him back.

JUDGE YGR: “You’re asking the court for equitable relief. Part of the equitable relief I already provided was that Apple keep Unreal Engine open. What is your backup plan if I don’t?”

SWEENEY “If Apple’s actions are lawful, that means Apple would have the right to remove Epic from the developer program for any reason at all, or no reason at all. If Apple cut us out then, we would not be able to support the iOS platform.”  

Sweeney re-exits the stand at 11:28 a.m.

EPIC CALLS THIRD-PARTY WITNESSES 

Epic Games calls Benjamin Simon, founder and CEO of Yoga Buddhi Co, who is sworn in at 11:30 a.m. and is questioned by Wes Earnhardt of Cravath. Simon, wearing a dark blue suit and white shirt, testifies through a face shield, while Earnhardt, wearing a gray-brown suit, ask questions through a mask.

Key Quotes:  

The Down Dog Yoga app has to have higher prices on Apple’s App Store to help cover the costs of Apple’s commissions. Web subscriptions are cheaper.  

Simon says that about 50% of the company’s iOS users subscribe via in-app purchases even though those are more expensive because Apple prevents Down Dog from telling iOS users about the cheaper price for a web subscription. On Android, where Down Dog is allowed to show a link to its website, only 10% of users use in-a—purchases.  

But in iOS: “Because we can’t advertise the website offer in our app, we end up having about roughly have of our users subscribe at the in-app price.”  

Google did once remove Down Dog for telling users about its cheaper prices on the web. Simon said Down Dog disagreed with Google’s interpretation of the rule, and Google reinstated Down Dog. But then Google later decided it would implement an interpretation similar to Apple’s rule and would start enforcing it.  

Down Dog ran an experiment on Android in August, removing the link to the lower prices on its website. “If we didn’t include the link, we saw roughly the same proportion of users using in-app purchase as we do on iOS,” Simon said. “Overall, there was a 28% reduction in the number of subscribers,” after implementing the Android change, Simon said, likely due to higher prices but also because some customers may want a direct billing relationship with Down Dog.  

Earnhardt moves on to asking about how refunds and other customer relations work – when iOS in-app customers come to Down Dog, the app must send them to Apple for a refund for any in-app purchases. Simon says that Apple handles refunds for in-app purchases. Judge YGR asks about how refunds work when Apple handles them. Simon says Apple has a long delay before they get payments – typically 45-60 days. So if there is a refund via Apple, Down Dog never sees the funds due to the processing delay, Simon says.  

Earnhardt says the way Apple handles those refunds causes problems with customer service. “We have a much more generous refund policy” for direct payments than Apple does, and Apple does not allow for specific refunds like giving a discount for a promotion that went into effect after a user has subscribed, Simon says.

Earnhardt asks who provides a better payment processing service: Apple or Stripe? Stripe, Simon answers. In Apple’s system “it is perhaps slightly easier for users to go through the payment flow, versus looking up their credit card number,” but does not justify Apple’s higher fees than Stripe.

Simon testifies that Apple blocked Down Dog because of how the app wanted to implement free trials. Apple imposes rules on free trials, requiring developers to use in-app purchases to offer a free trial. After the user signs up, but before they can take a yoga app in the class, they must go through Apple’s payment flow, even though they won’t be charged until later, when it ends. Users can’t unsubscribe from in-app payments in the app – they must go to their Apple settings.  

“We wanted to offer a truly free trial, and only after the free trial would we prompt you to subscribe,” Simon said. “In general, we don’t want to make our money for users who forget to unsubscribe.”  

Down Dog didn’t think they were in violation by offering such a free trial, but then Apple’s App Store reviewers said that they were and blocked the app. Simon waited several days for a call back from Apple, but then tweeted after he was frustrated.  

“Four hours after we tweeted, we got a phone call from Apple,” though Simon missed it. The next morning, he connected with Apple, who said the issue had been escalated and the decision reversed.  

Simon said he decided to tweet his frustration because “I hate auto-renewing free trials, and I thought on this issue, we would be able to get user support.”  

Simon says the Apple has also rejected the Down Dog app for the ways it integrates with Apple Health. Apple requires developers to say in the app description in the App Store that the app works with Apple Health. He said app updates were blocked when Apple’s reviewers could not find the Health integration that was mentioned in the app description. Simon said his team realized from screen shots provided by Apple’s reviewers that the reviewers were using iPads, which do not support the Apple Health system.  

“We then had to explain to Apple’s own reviewers that Apple has decided not to support Apple Health on iPads,” Simon said, adding that blockage caused “arbitrary delays” of unrelated features.  

Simon also said the Down Dog app was blocked during the COVID-19 pandemic because it wanted to make the app free for users because of the pandemic, but Apple had said it was not allowed to use phrases like “lockdown” or other COVID-19 related terms.  

“The next day, Apple released their own COVID-19 app that would allow you to check your symptoms, which was featured on the front page of the App Store,” Simon said.

Simon said he does not believe Apple treats all app developers equally because Apple has an editorial team that selects specific apps to feature prominently in the App Store. “The most obvious example is the mere presence of the editorial team and the featured apps in the App Store,” Simon said.  

Simon said that Apple’s guidelines suggest against complaining publicly about Apple’ App Store review guidelines. “If you run to the press and trash us, it never helps. That was in the guidelines,” he said.  

APPLE CROSS EXAMINES SIMON 

Representing Apple, Meredith Dearborn Paul, Weiss begins cross examining Benjamin Simon at 1:18 p.m. PT.  

In 2020, Down Dog earned $10 million from iOS users, up dramatically from years before.

Simon says it is not possible to make an app that will open on iPhones without using Apple’s SDK. He also says that most of the company’s code is no longer in Apple’s Swift programming language. He says the company still uses the XCode programming tool provided by Apple but that “is because of Apple’s restrictions” and not any technical reasons.  
 
Simon testifies that the company uses “TestFlight” - an Apple app for testing new apps – but only does so because Apple does not allow any other method of loading software to iPhones.  

In 2021, for three days, Simon said he added a link subscribe on Down Dog’s website. Simon said he knew this violated Apple’s rule and did not tell Apple the truth when Apple asked about the link and Simon said that the link had only been intended to show up in the Android version of the app.  

Down Dog earlier this year included a message telling users about Apple’s app store policy, but the apps have remained on the store.  

Dearborn Paul ends here cross examination at 1:34 p.m. and Earnhardt resumes with a re-direct.  

Earnhardt asks what limits Down Dog faces developing for the web. He said that certain functions, like swiping a clock-like circle with a finger, do not work well on web apps.  

Earnhardt asks whether Down Dog negotiated its license agreement with Apple.  

Judge YGR breaks in with a question for Simon: “Do you find that objectionable that Apple has millions of developers and has one set of terms? Do you negotiate the various terms of agreements with your customers?”

Simon: “No.”  

Judge YGR “Do you find that objectionable?”

Simon: “Not necessarily.”

Judge YGR: “Yes or no.”  

Simon: “No.”  

Earnhardt ends re-direct of Simon at 1:39 p.m. Dearborn Paul declines any further questions on re-cross.  

Judge YGR has some detailed questions about the balance of users and numbers for Down Dog. She asks whether they can purchase a subscription through Safari on the iPhone browser.

Simon answers that yes, users can.  

“Oh they can?” Judge YGR asks.

Simon says: “We’re just not allowed to link to that from the app.”  

Judge YGR asks whether it’s easy for users to do that.  

Simon replies that it is. Users must log into PayPal or get their credit card number out, but they most also usually re-enter a password to authorize an in-app purchase. “It’s not clear whether it’s actually a smoother process” to purchase in the app, he says.  

Judge YGR asks how long Down Dog had the 30% commission messaging in the app. Simon responds that it was about four months.  

Judge YGR asks whether Down Dog saw traffic changes over that time. Simon says they did not, but only had a link to the lower priced subscription live in the app for three days. Judge YGR asks if he saw traffic patterns change during those days. Simon says it was hard to say because the company also had a sale going on, but that the link likely had a negligible effect.  

Judge YGR excuses Simon from the stand at 1:44 p.m. PT.  

EPIC CALL'S NVIDIA'S PATEl, COURTS CONCLUDES FOR THE DAY

Epic Games calls Aashish Patel, director of product management at Nvidia, who is sworn in at 1:45 p.m. Cravath’s Earnhardt begins the questioning. Patel wears a dark grey suit, white shirt, gray and dark red tie, and speaks through a mask with sheer sort of material through which you can see the movements of his mouth.  

Patel explains how Nvidia’s GeForce now streaming game service. It lives in the cloud and streams games down to a device. Nvidia does not actually offer the games for purchase – users much purchase the game in an App Store or a game store. Then they must come back to GeForce Now to play.

“Only once that App Store or game store verifies the game, is the user allowed to play the game,” Patel says.  

The computers in the cloud are similar to PCs. They cannot run Xbox, PlayStation or Nintendo games.  

GeForce Now can stream to either a browser or a native application. However, “the native application affords us a lot more control on video and quality.”  

Patel says “We had written an invested in a native application. We submitted it to Apple for review. A few days or a few weeks later, Apple rescinded their approval.”  

Patel says it would have been GeForce Now’s preference to be a native app.  

Patel says the web-based version that Nvidia offers now is more difficult for users to use compared to a native app.  

Native apps give Nvidia more control over things like latency. Latency hurts game play because it can cause problems such as turning too late in a racing game, despite the user having made the move at the right time.  

Patel said that Nvidia used “a combination of our engineering teams as well as user interface design teams” to make a native iOS app that cost time and money to make.  

Apple rescinded its approval of the iOS app and “provided a pointer to their application guidelines and said the application was not” in compliance. He does not remember exactly which guideline but believes it was related to remote desktop services.  

Earnhardt point to an Apple App Store guideline that allows for streaming games but says each title must be submitted as a separate app. To comply, Patel said, “We would have to take the 850 games that we have a license for and create individual app store apps and submit them for approval.”  

Nvida does not own the rights to those games, so it cannot do that, Patel said.  

Patel said that Nvidia faces streaming game app competition from Google’s Stadia and others.  

Patel says that GeForce Now faces limits on game play versus playing a game on a device. There are bandwidth requirements. And GeForce Now capacity is limited and sometimes must ask users to wait to play later.  

After several questions about other technical constrains, at 2:28 p.m. Earnhardt turns Patel over to cross examination by Apple’s attorney. Earnhardt had wanted to asked some questions related to sealed material but Judge YGR declined and said the court would hear the cross examination first.  

Apple attorney Jay P. Srinivasan, wearing a dark brown suit with subtle pinstripes, takes up Patel on cross examination. He first presses Patel on whether he is a neutral observer and asks about several critical re-tweets about Apple.  

Srinivasan also asks Patel whether some users might get a better experience via streaming if they have local machines that are less powerful than the cloud machines. Patel replies that some users may get a better experience.  

Patel says that as Nvidia expect its user base to increase and that “our goal is to steadily increase capacity as the business grows.” “We strive to have very low to zero wait time for paying users,” he said.

Patel has permission to add some 2,500 additional games to the GeForce Now lineup. “Fortnite is a popular title on GeForce Now. League of Legends is a popular....CyberPunk in the top 10.”  

Srinivasan turns to positive press reviews and asks about latency and some of the technical issues. Srinivas asks whether latency is a major issue for users.  

“Bandwidth has increased, and that does help the service have better quality,” Patel said.  

Srinivasan moves on to GeForce Now on iOS. He asked Patel about the positive reviews the browser version has received. Srinivas points to one review of GeForce Now for Safari on iOS that said games were “smoother than a slab of butter wrapped in silk.”  

“I have not read that specific review,” Patel responds, but he read other reviews, and while “that one has a lot of adjectives that I am not used to,” he remembered that most of them were positive.  

Srinivasan presses Patel on whether Nvidia pays anything to Apple for GeForce Now. Patel said Nvidia does not pay anything to Apple to enable to deliver the GeForce Now service, which Nvidia monetizes, through the Safari browsers.

At 3:05 p.m., Judge YGR has decided to stop the cross examination and move to seal the courtroom. She also wants to talk to counsel about their motions to strike expert testimony, and she may have to handle that tomorrow first thing. She doesn’t want to bore the public. “People might not be really be interested in listening to that kind of legal argument,” she said. “If you call in and you just hear lawyers arguing, it will be because of those pending motions.”  

Best,

Stephen Nellis

415.606.5922 - works for Signal, Confide and other services
stephen.nellis@...
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@stephennellis
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