A few weeks after the federal court of appeals said Apple had to loosen the grip of the company's chief executive Tim Cook, his top lieutenant debated what to do.
For over a decade, Apple has requested apps to use the App Store payment system, collecting up to 30% commissions on app sales. Now, in 2023, the court had ordered that the app avoid Apple's payments and allow online consumers to go directly. Mr. Cook wanted to know. Can Apple continue to claim committees on the sale of them without violating court orders?
Phil Schiller, who overseen the App Store, was worried that the new fees could be illegal. He supported online sales without the Apple Committee. Luca Maestri, who oversaw the company's finances, opposed. He supported charging a 27% commission on online sales to protect the company's business.
Mr. Cook was on Maestri's side, and Apple tried to justify the choice. A federal judge said in his angry ruling last week he “manufactured” independent economic research to justify the decision. It withheld thousands of documents based on the claims of privileges of lawyers and clients. And at least one of the executives lied to the witness position.
The judge's ruling, witness testimony this year and company documents released Thursday show the extraordinary steps Apple has placed on maintaining every penny it has collected in the App Store. The decision by Judge Yvonne Gonzalez Rogers, who heard the first lawsuit brought on by video game company Epic Games in 2020, could overshadow Apple's business over the years, and could undermine credibility as the legal scrutiny of the business has been strengthened.
The company is also trying to avoid half a dozen other legal challenges, including the Department of Justice antitrust, which maintains the Department of Justice antitrust law, class action lawsuits from US APP developers, and anti-competitive investigations of APP stores by the European Union, the UK, Spain and potential China.
“If you burn credibility with the court, the next judge will be much less willing to forgive,” said Mark A. Remley, Stanford University professor of antitrust and technical law. In Apple's future cases, “it's easy for a judge to jump to the conclusion that people are lying,” he said.
Google has shown that corporate behavior can cast a shadow over high stakes legal process. Last month, in an antitrust case relating to its advertising technology, the judge said the company's efforts to hide communication raised questions about whether it would follow court remedies for its actions.
Apple is suing the judge's ruling for Gonzalez Rogers. Apple said Wednesday that it showed the contemptious findings were “unjust” when demanding delays in the court's order. The company declined to comment further on this article.
Fortnite developer Epic sued Apple in 2020, accusing developers of violating antitrust laws by forcing developers to use the App Store payment system. Judge Gonzalez Rogers ruled in favor of Apple, realising that it wasn't an exclusive, as Epic argued. However, she said Apple violated California competition laws and ordered the company to purchase software and services outside the App Store, including links and buttons in the app.
Apple has created the code name project Wisconsin to accommodate orders. We have looked into two different solutions. The first allows the app to include links for online purchases at restricted locations with no fees. Second, it allows the app to provide those links to where it provided them, but forces you to pay a 27% sales commission.
With no links and fees, Apple estimated that it could lose over hundreds of millions of dollars, and even over a billion dollars. With a 27% fee, you lose little.
Cook met with the team in June 2023. He reviewed committee options ranging from 20-27%. He also evaluated an analysis showing that Apple's payment system would leave his payment system if there was a 27% fee, and, ultimately, he approved a plan to limit where the app would place the link for online purchases, whilst choosing that rate.
Apple then hired an analytics group of economic consultants to produce reports that Apple could use to justify fees. The report concluded that Apple's developer tools and distribution services are worth more than 30% of the app's revenue.
Apple has also created a screen to surprise online purchases. Cook asked the team to fix the warning to highlight Apple's privacy and security. “Instead of stopping business with Apple, Apple is not responsible for the privacy or security of purchases made over the web,” he said.
When Apple revealed its 27% committee in January 2024, Epic filed a claim to court that Apple was not complying with the judge's orders. Judge Gonzalez Rogers brought Apple and the epic back to court. Vice President of Treasury Alex Roman testified that Apple had finalized the committee on January 16, 2024. Executives testified that the analysis group's report helped set the committee's fees.
Judge Gonzalez Rogers questioned whether Apple was telling the truth and asked the company to provide documentation on the plan. I created 89,000 documents, a third of them claimed to be confidential. The court said those claims were “basic” and that Apple forced them to take over more than half of the documents.
The documents revealed that Rome lied under oath, that the analysis group's report was “false” and that Apple “willfully” ignored the court's order, said Judge Gonzalez Rogers. She called it “concealment.”
Her ruling will give ammunition to prosecutors, regulators and judges for Apple's defense strategy in half a dozen similar cases around the world, according to several antitrust and technical law professors and lawyers.
When the company attempts to edit or withhold documents, prosecutors and judges can point out that these strategies have been found to be “tactics to delay lawsuits” in the case of epic games, these experts said. When Apple executives testified, prosecutors and judges were able to question their credibility as they discovered that the company “conceals the truth.”
In other cases against Apple, such as the Department of Justice antitrust cases, Colin Kass, an antitrust lawyer for Proskauer Rose, said Colin Kass, a court and regulator seeking Apple documents, will begin the process by saying, “I won't open the door and try out the stupid little game I've used in the past.”
The company is skeptical of both the Department of Justice's lawsuit and defense, said Rebecca Ho Allensworth, a law professor at Vanderbilt University who studies antitrust. In the past, Apple has said that it shows green bubbles in Android owner messages because it is not safe to communicate across smartphone systems. However, she said these claims may be viewed as unreliable after the grand ruling.
Allensworth said judges' opinions could also change the practices of the App Store by imposing resolves such as the European Union, the UK and Spain on Apple, in order for regulators and courts to find numbers safe.
“Apple is acting like it's beyond the law,” she said. “This sends a signal that Apple doesn't.”
