Monopoly Round-Up: Apple Spanked in Antitrust Suit

A few months ago, Judge Yvonne Gonzalez Rogers ordered Apple to change its app store rules. They didn't. Now she's very angry. Plus, the Antitrust Division is gearing up to go at Big Medicine.

Today’s monopoly round-up is full of news, as usual. Before that, I’ll be going into depth on a little noticed hearing last week where a judge spanked Apple for failing to comply with her order in an antitrust case. It’s been a bad week for the phone giant, with a horrific ad that Apple put out and then apologized for, a public embarrassment showing how out of touch their executives have become. But the hearing, though not widely followed, could be much costlier.

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The fight over competition policy doesn’t always break down on partisan lines, because it splits business. Since the late 2010s, there has been a civil war between big tech and everyone else in commerce. In some cases, big tech’s business opponents aren’t small, but are multi-billion dollar firms angry at the trillion dollar gatekeepers who control their markets. In 2020, video game maker Epic Games kicked off this tussle, suing both Apple and Google for taking a 30% cut of revenue from app makers who were trying to distribute on Android or the iPhone.

The two cases had somewhat different outcomes. Epic’s attack on Google was easier, because it’s pretty clear Google was arbitrary in how it managed the Android ecosystem. Epic Games won on Federal antitrust charges, with a jury finding the search giant liable for monopolization. A judge is about to determine the remedy there, and it will probably be what Epic Games is asking for, which is the right to open a rival app store on Android phones.

Apple was a trickier case, because Apple’s ecosystem has always been closed, so it’s hard to argue that the closed nature of the system was monopolization instead of a product design decision. Nevertheless, Epic Games also won against Apple, not on Federal antitrust claims, but on a single count of violating a state law against unfair competition.

U.S. District Judge Yvonne Gonzalez Rogers in 2021 rejected Epic's antitrust claims against Apple. But the judge found that Apple violated California's unfair competition law by barring developers from "steering" users to make digital purchases that bypass Apple's in-app system, which Epic contends could save them money with lower commissions.

I never really talk about how Apple has lost an antitrust suit, because they escaped liability on the Federal charges, but that’s a mistake on my part. Apple did lose, and it’s important to note that both Google and Apple are now under the thumb of a judge because of legal losses in competition cases. In the case of Apple, we already know the remedy, which is somewhat modest. Judge Gonzalez Rogers required the phone giant to allow developers to communicate with consumers in the app store through buttons and links so that consumers would know there are other ways to pay for apps.

This order seems simple enough. Only, when Apple released its new guidelines on how it would comply, its process was unusable. To date, not a single app developer is using the alternative payment model that Apple set up. And this is because, according to Epic Games, Apple refused to comply with what the judge ordered. Instead of just letting app developers talk to users, it charged a 27% commission on any sales outside of Apple’s own payment system, which is equivalent to the old 30% fee when you add in the credit card processing fee. It also put up scare screens when a user clicks on a link to go to an app developers website, and created a cumbersome application procedure, with rules prohibiting app developers from telling users why they should buy from them directly, like that it might be cheaper. Here’s one of the scare screens:

Epic Games appealed to Judge Gonzalez Rogers, accusing Apple of malicious compliance with the order. And the judge found sufficient grounds to do a hearing on whether that was the case, which is to say, whether Apple is in contempt of court. Last week, there were several days where she heard from witnesses, a sort of mini-trial, on whether Apple was engaged in bad faith.

And man, was Judge Gonzalez Rogers angry. It’s clear, after listening to some of the hearings, that Apple leaders simply decided the financial risk of fully complying was more costly than giving the middle finger to a judge. They were so arrogant they didn’t bother to even think of excuses for why they were choosing the specific compliance path they did.

This twitter thread has some of the blow-by-blows, but the gist is that Apple executives sat in court and pretty much told the judge that they were trying to flout her order and maintain their business model. And she wasn’t having it. For instance, at one point she asked a key Apple witness, “Where in the injunction did I say you could add all sorts of requirements?” At other points she near accused Apple witnesses of lying, and said a number of times that if a witness couldn’t explain why Apple was doing what it was doing, she would assume it was to prevent or minimize competition.

That said, it’s not clear what she’s going to do. She could rule for Apple, which seems unlikely. She could rule for Epic Games, but allow Apple to continue charging 27%, which would be a win for Apple. Or she could say that Apple doesn’t get to charge and has to allow links without encumbrances. That would be a multi-billion dollar annual loss of revenue, largely due to arrogance.

It wouldn’t be the first time that it happened to a monopolist. And now the good and bad news of the week…