Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 1 of 142
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` VOLUME 16
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`
`
`Pages 4053 - 4193
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`UNITED STATES DISTRICT COURT
`
`NORTHERN DISTRICT OF CALIFORNIA
`
`Before The Honorable YVONNE GONZALEZ ROGERS, Judge
`
`)
`EPIC GAMES, INC.,
` )
` Plaintiff,
`) NO. C-20-5640 YGR
` )
` vs. ) Monday, May 24, 2021
` )
`APPLE, INC., ) Oakland, California
`)
`) BENCH TRIAL
` Defendant.
`____________________________)
`APPLE, INC.,
`)
`) CLOSING ARGUMENTS
`)
` Counterclaimant,
` vs. )
`)
`)
`)
`)
` Counter-Defendant.
`____________________________)
`
`EPIC GAMES, Inc.,
`
`
`
`REPORTER'S TRANSCRIPT OF PROCEEDINGS
`
`
`APPEARANCES:
`
`For Plaintiff: CRAVATH, SWAINE & MOORE, LLP
` 825 Eighth Avenue
` New York, New York 10019
` BY: KATHERINE B. FORREST, ESQUIRE
` GARY A. BORNSTEIN, ESQUIRE
`YONATAN EVEN, ESQUIRE
`(Appearances continued.)
`
`Reported By: Diane E. Skillman, CSR 4909, RPR, FCRR
` Pamela Batalo-Hebel, CSR 3593, RMR, FCRR
`
`
`TRANSCRIPT PRODUCED BY COMPUTER-AIDED TRANSCRIPTION
`
`
`
`
`
` VOLUME 16
`
`
`
`Pages 4053 - 4193
`
`UNITED STATES DISTRICT COURT
`
`NORTHERN DISTRICT OF CALIFORNIA
`
`Before The Honorable YVONNE GONZALEZ ROGERS, Judge
`
`)
`EPIC GAMES, INC.,
` )
` Plaintiff,
`) NO. C-20-5640 YGR
` )
` vs. ) Monday, May 24, 2021
` )
`APPLE, INC., ) Oakland, California
`)
`) BENCH TRIAL
` Defendant.
`____________________________)
`APPLE, INC.,
`)
`) CLOSING ARGUMENTS
`)
` Counterclaimant,
` vs. )
`)
`)
`)
`)
` Counter-Defendant.
`____________________________)
`
`EPIC GAMES, Inc.,
`
`
`
`REPORTER'S TRANSCRIPT OF PROCEEDINGS
`
`
`APPEARANCES:
`
`For Plaintiff: CRAVATH, SWAINE & MOORE, LLP
` 825 Eighth Avenue
` New York, New York 10019
` BY: KATHERINE B. FORREST, ESQUIRE
` GARY A. BORNSTEIN, ESQUIRE
`YONATAN EVEN, ESQUIRE
`(Appearances continued.)
`
`Reported By: Diane E. Skillman, CSR 4909, RPR, FCRR
` Pamela Batalo-Hebel, CSR 3593, RMR, FCRR
`
`
`TRANSCRIPT PRODUCED BY COMPUTER-AIDED TRANSCRIPTION
`
`
`
`
`
`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 2 of 142
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`4054
`
`CRAVATH, SWAINE & MOORE, LLP
`For Plaintiff:
` 825 Eighth Avenue
` New York, New York 10019
` BY: LAUREN A. MOSKOWITZ, ESQUIRE
`JUSTIN C. CLARKE, ESQUIRE
`W. WES EARNHARDT, ESQUIRE
`BRENDAN BLAKE, ESQUIRE
`JIN NIU, ESQUIRE
`BRENT BYARS, ESQUIRE
`
`
`
`
`
`For Defendant: GIBSON, DUNN & CRUTCHER
` 333 South Grand Avenue
` Los Angeles, California 90071
` BY: RICHARD J. DOREN, ESQUIRE
`DAN SWANSON, ESQUIRE
`CYNTHIA RICHMAN, ESQUIRE
`RACHEL BRASS, ESQUIRE
`
`
`
`
`
`
`GIBSON, DUNN & CRUTCHER, LLP
`2001 Ross Avenue, Suite 1100
`Dallas, Texas 75201
` BY: VERONICA S. MOYE, ESQUIRE
`
`PAUL WEISS RIFKIND
`WHARTON & GARRISON LLP
`2001 K STREET, NW
`Washington, DC 20006
` BY: KAREN DUNN, ESQUIRE
`JESSICA E. PHILLIPS, ESQUIRE
`
`For Defendant:
`
`PAUL WEISS RIFKIND
`WHARTON & GARRISON LLP
`943 Steiner Street
`San Francisco, California 94117
` BY: ARPINE LAWYER, ESQUIRE
`
`
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 3 of 142
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`4055
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`Defendant's Exhibits:
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`Withdrawn
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`Page
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`Vol.
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 4 of 142
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`4056
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`Monday, May 24, 2021
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`7:57 a.m.
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`P R O C E E D I N G S
`
`o0o
`
`THE CLERK: Please rise. Court is in session. The
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`Honorable Yvonne Gonzalez Rogers presiding.
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`THE COURT: Good morning, everyone.
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`EVERYONE: Good morning, Your Honor.
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`THE CLERK: Please be seated.
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`THE COURT: Okay. Let's go on the record.
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`THE CLERK: Calling Civil action 20-5640 Epic Games,
`
`Inc. versus Apple, Inc.
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`Counsel, please state your appearances. The mics are on
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`at the table.
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`MS. FORREST: Good morning, Your Honor. Katherine
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`Forrest for Epic.
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`THE COURT: Good morning.
`
`MR. BORNSTEIN: Good morning. Gary Bornstein for
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`Epic, Your Honor.
`
`THE COURT: Good morning.
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`MR. CLARKE: Good morning, Your Honor. Justin Clarke
`
`for Epic.
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`MS. MOSKOWITZ: Good morning, Your Honor, Lauren
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`Moskowitz for Epic.
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`THE COURT: Mr. Sweeney, good morning, sir.
`
`MR. SWEENEY: Good morning, Your Honor.
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 5 of 142
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`4057
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`THE COURT: I have, it looks like, Mr. Niu.
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`MR. NIU: Good morning, Your Honor. Jin Niu For
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`Epic.
`
`THE COURT: Ms. Kloss.
`
`MS. KLOSS: Good morning, Your Honor.
`
`THE COURT: Mr. Rudd, good morning.
`
`MR. RUDD: Good morning, Your Honor.
`
`THE COURT: And there are more in the back.
`
`Ms. Forrest, maybe you can introduce them as they stand.
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`MS. FORREST: Yes. Brendan Blake -- Your Honor, let
`
`me also say that the first two -- the first two rows we have
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`our beachmasters who are the people who have handled the
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`logistics. They have been extraordinary.
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`We have next to them, Jill Greenfield over here who has
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`been doing a lot of the expert work. Brendan Blake doing
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`everything. Paul Riehle, our local counsel here, you may
`
`recognize from other matters.
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`Behind him, Brent Byars who you've seen doing
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`examinations. Colin Herd who has been support for many of the
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`witnesses. And Dan Ottaunick who's also been support for many
`
`of the witnesses. And I think I've got our folks.
`
`THE COURT: Way in the back you've got someone way in
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`the back, Ms. Forrest. Yes, no?
`
`MS. FORREST: Those, Your Honor, back there are two
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`of our paralegals who are wearing masks and obscuring their --
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 6 of 142
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`4058
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`Benjamin Rodriguez and Austin.
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`THE COURT: Good morning, Ms. Behringer. Come on
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`forward.
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`MS. BEHRINGER: Thank you.
`
`THE COURT: All right. Well, welcome to the
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`courtroom. As I said, we are in the final stretches here, so
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`I'm being very lax with the rules. And I'm sure the Chief
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`won't get too mad at me.
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`Okay. So the Apple side. Mr. Doren, good morning.
`
`MR. DOREN: Good morning, Your Honor. We are also
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`joined today by Kate Adams from Apple.
`
`MS. ADAMS: Good morning, Your Honor.
`
`THE COURT: Mr. Schiller --
`
`MR. SCHILLER: Good morning.
`
`THE COURT: -- I would not forget you, sir.
`
`MR. SCHILLER: Thank you.
`
`MS. DUNN: Good morning, Your Honor. Karen Dunn for
`
`Apple.
`
`THE COURT: Good morning.
`
`MR. SWANSON: Good morning, Your Honor. Dan Swanson
`
`for Apple.
`
`THE COURT: Good morning.
`
`MS. MOYE: Good morning, Your Honor. Veronica Moye
`
`for Apple.
`
`THE COURT: Good morning.
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 7 of 142
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`4059
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`We have Mr. Spalding.
`
`MR. SPALDING: Good morning, Your Honor.
`
`THE COURT: And Mr. Eltiste isn't here today. Just
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`for fun?
`
`MR. SPALDING: Just me today.
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`THE COURT: Who else do we have back there?
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`MS. YANG: Good morning, Your Honor. Betty Yang for
`
`Apple.
`
`THE COURT: Okay.
`
`MR. DOREN: Your Honor, Heather Grenier, from Apple.
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`THE COURT: Yes, good morning.
`
`MR. DOREN: And Cindy Richman counsel for Apple here.
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`She's with us of course and Mark Perry.
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`THE COURT: Ah, illusive Mark Perry.
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`MR. PERRY: Good morning, Your Honor.
`
`THE COURT: Good morning. I see you at the very top
`
`of all the filings, but I've never seen you here in person.
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`MR. PERRY: That's why I sit in the back, Your Honor.
`
`THE COURT: Welcome to the courtroom. And then I
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`believe we have the same -- let's see.
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`Ms. Manifold.
`
`MS. MANIFOLD: Good morning, Your Honor.
`
`THE COURT: Good morning. And Dorothy Atkin from Law
`
`360, good morning.
`
`And Elizabeth Lopatto from Verge.
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 8 of 142
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`4060
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`I think I have everyone.
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`Good morning, Ms. Behringer.
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`MS. BEHRINGER: Good morning, Your Honor.
`
`THE COURT: Vicki Behringer has been a courtroom
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`artist for this District for a very long time, and I'm pleased
`
`that the Wall Street Journal was able to recognize some of --
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`or at least one of your drawings. It's an art that is -- if
`
`we move into something more real, then we may not have
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`courtroom artists anymore, but I certainly have enjoyed having
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`her in the courtroom in this trial and other trials.
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`Thank you for being here.
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`MS. BEHRINGER: Thank you, Your Honor. It has been a
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`pleasure. And it has been a pleasure to sketch all of you.
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`THE COURT: Okay. So are you going to have multiple
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`people do this argument or -- Ms. Forrest?
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`MS. FORREST: Your Honor, for Epic, it will be Gary
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`Bornstein.
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`THE COURT: All alone, Mr. Bornstein. They are
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`leaving you out to dry, high or low, whatever it is.
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`MR. BORNSTEIN: With tremendous support before this
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`moment.
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`THE COURT: I'm sure.
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`MR. DOREN: Your Honor, while Mr. Bornstein is last
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`to the mast, on this side I will be handling remedies,
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`Mr. Swanson will be handling market definition and market
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 9 of 142
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`4061
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`power, and Ms. Moye will be handling conduct and effects.
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`THE COURT: Okay. So it takes three of them,
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`Mr. Bornstein.
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`MR. BORNSTEIN: We are used to being outnumbered in
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`this case, Your Honor.
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`MR. DOREN: As I look around the courtroom, I find
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`myself doubting that, Your Honor.
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`THE COURT: Let's just say that, you know, as I was
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`thinking about it, clearly either set of teams could be
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`representing the other party. Both sides are incredibly well
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`represented here in this case, and win or lose, you all at
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`least get to put that on your résumé.
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`Anyway, well, this is what I have -- this is where I'll
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`start. I have questions which I assure you I will ask during
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`the course of these proceedings because I'm not capable to not
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`ask them if I have them.
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`But I do want to hear from you in terms of what you
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`think -- I'll give you two choices, that is, you tell me what
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`are the two issues that are on the top of your mind that you
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`would like time really to argue.
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`So, Mr. Bornstein, we'll start with you. Just give me
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`your issues. What are the top two issues you would like to
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`discuss?
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`remedies.
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`MR. BORNSTEIN: Your Honor, market definition and
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 10 of 142
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`4062
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`THE COURT: All right. And Mr. Doren?
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`MR. DOREN: Your Honor, those seem like a good
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`starting place for us as well.
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`THE COURT: Okay. Ms. Moye is doing conduct,
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`Mr. Doren, you said you're doing remedies.
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`MR. DOREN: Yes, Your Honor.
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`THE COURT: So it's Mr. Swanson. All right. Well,
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`both of you can approach the two microphones, please.
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`MR. BORNSTEIN: Your Honor, we have a set of slides
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`that contain both confidential and public information. And so
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`with your permission, I would pass up a copy that has the
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`nonpublic information when we get to those portions. If we
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`get to these portions, Your Honor can review them.
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`THE COURT: I think that -- do you have slides as
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`well?
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`MR. SWANSON: We do, Your Honor.
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`THE COURT: I think probably the best thing to do
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`then is -- because we don't tend to go -- I don't tend to go
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`back and forth very much, and -- or I tend to go back and
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`forth. So I don't want to have us necessarily wait on
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`Ms. Stone's ability to have the hot seat operator go back and
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`forth unless it is necessary.
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`So let's turn on the Elmo. And with the Elmo, you will be
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`able to just open up your binders. You can pop that, whatever
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`slide it is you want, on there and everybody can see it.
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 11 of 142
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`4063
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`So -- see? It works. It's old school. Do you not -- I
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`started off in a courtroom where we had to put the -- there
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`was no place for the jury, the judge, and the lawyers to see
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`the screen for the overhead all in the same place. Someone
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`was always blocked. So these federal courtrooms are wonderful
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`for trial cases.
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`Ms. Stone, why don't you show them how to use that before
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`we get started. Can you show them how to use the Elmo?
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`MR. DOREN: Your Honor, while counsel are relearning
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`how to use -- I guess my mic is not on.
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`THE CLERK: Let me put --
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`MR. DOREN: While counsel is relearning how to use an
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`Elmo, I just wanted to note that while we are fine starting
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`with these two issues, we do want to be sure to address
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`conduct and effects. Thank you.
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`(Pause in the proceedings.)
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`THE COURT: Did you see that, Ms. Moye? The little
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`thing on the front makes it smaller and larger, the little
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`wheel.
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`MS. MOYE: Yes.
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`THE COURT: It's not a little wheel like
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`Mr. Schiller's wheel on the iPod.
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`You know, Mr. Schiller, I will tell you a funny story:
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`That when I tried to a jury the iPod case, it had been so long
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`since I had seen an iPod that the clerks brought in the
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 12 of 142
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`4064
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`physical iPod and I tried to turn it on. I said, where's the
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`music? They are like, no, you have to have ear buds in. I
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`said, okay. Totally forgot about that. Such old technology
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`back then.
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`Okay. So I have your two books. Well, let's get started
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`with you, Mr. Bornstein. And let's start with the foremarket.
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`MR. BORNSTEIN: Sure, Your Honor. Happy to start
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`that way in terms of our perspective on the right way to walk
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`through the market.
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`For the foremarket, we don't think there's a tremendous
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`amount to discuss. We have testimony that we got in --
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`finally from Mr. Cook on Friday that, in fact, Apple does
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`compete on the operating system side against Google, at
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`transcript pages 3891 to -92.
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`THE COURT: So they compete on the OS but they
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`also -- obviously they compete for -- in mobile devices on
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`phones, right?
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`MR. BORNSTEIN: They do --
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`THE COURT: You don't disagree with that, do you?
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`MR. BORNSTEIN: I do not disagree that they compete
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`for the sale of phones, no.
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`But the competition in terms of the decision that gets
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`made by developers is what operating system am I going to
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`write for. Am I going to write for iOS? Am I going to write
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`for Android? It is, I think, not disputed based on the
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 13 of 142
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`4065
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`testimony of both side's experts that these days most
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`developers write for both.
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`The reason they do that is that's the only way they can
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`reach a broad, sufficiently broad spectrum of consumers. And
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`that is a function of the fact that consumers will either be
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`on iOS or on Android, and rarely switch between the two.
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`THE COURT: Okay. So, Mr. Swanson, is there no issue
`
`on the foremarket?
`
`MR. SWANSON: There's a big issue on the foremarket,
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`Your Honor, because we don't regard it as a relevant market.
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`There's no claim in this case that Apple has monopolized the
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`smartphone OS market. There's no claim that Apple has
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`restrained trade. In a smartphone OS market, device
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`competition is pertinent in this case.
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`The term "duopoly" has been thrown around. But in device
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`competition, Apple faces multiple enormous companies that have
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`worldwide scope and scale: Samsung, LG, Allway, Wappo. If we
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`were to restrict attention to the operating system market that
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`Dr. Evans has defined, if you count up the operating systems,
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`Apple has a 15 or 16 percent share of operating systems in the
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`global-minus-China market that he defines. And for every
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`single iPhone that Apple sells, Dr. Evans' market, Android
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`manufacturers, of which there are many, sell five or six.
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`So -- but the larger point is, the issue to focus on from
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`our standpoint is, the plaintiff's claim, what are the
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 14 of 142
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`4066
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`restraints that would keep Apple --
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`THE COURT: So are you saying that I have to find a
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`monopoly both in the foremarket and the aftermarket?
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`MR. SWANSON: No. I would say that --
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`THE COURT: Can you -- can we both agree on that?
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`That is, there can be a foremarket and only monopolistic
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`conduct in the aftermarket?
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`MR. SWANSON: I would say, as Professor Schmalensee
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`does, that it's a red herring. The question is, what keeps
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`Apple from raising commissions in the App Store.
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`And the issue of device competition is out there, but
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`those are not the direct brands that we look to and that our
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`experts define the market to be that restrain Apple from doing
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`that in this industry.
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`The other brands are the console stores, the Steam store,
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`Google Play store, Samsung Galaxy store, the other stores that
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`are on PCs and Macs. That's the issue. Device competition
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`can be a constraint, but it is these other constraints that
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`are the first question for the Court in deciding whether or
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`not Epic's single brand iOS-only market is a viable market.
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`And single brand markets are legal unicorns in talking about
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`operating system competition is a distraction from the key
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`question before the Court.
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`THE COURT: All right. Mr. Bornstein.
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`MR. BORNSTEIN: Well, first I'll note that in that
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 15 of 142
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`4067
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`answer to Your Honor's question, not a word was said about
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`developer-side competition. We have agreement here that we
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`are dealing with two-sided markets. And all we heard was a
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`discussion about the consumer side and not the developer side.
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`I think it is inarguable that developers write for
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`Android. They don't write for Samsung. They don't write for
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`LG. They don't write for Allway. They don't write for Wappo
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`and Devo. So on the developer side it's clear that it is a
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`smartphone operating system market.
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`In terms of whether it is relevant, there are extensive
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`allegations in our complaint about operating system side
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`competition and switching costs between iOS and Android, and
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`we believe for all the reasons we have laid out for the
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`entirety of the case that the foremarket/aftermarket framework
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`is the right way to think about this.
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`There is some discussion in the conclusions of law from
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`Apple that the aftermarket is kind of a brand new invention,
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`it wasn't previously disclosed, but it's discussed in Your
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`Honor's preliminary injunction opinion. It has been in this
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`case since the fall.
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`And in terms of why the foremarket/aftermarket framework
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`is the right one, is because, as with razors and razor blades
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`or copiers and copier parts, there's a purchase of a durable
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`good or a decision by a developer to write for a particular
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`operating system and make that investment followed by a
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 16 of 142
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`4068
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`subsequent market that happens down the line where the
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`developers and users, each of whom has made the decision to
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`enter the foremarket, then get matched with one another
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`through the app distribution services that Apple provides, and
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`right now that only Apple provides.
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`So it's not at all a distraction or a diversion to say
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`that we need to look in the first instance at the first
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`decision that consumers and developers make. As Your Honor
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`said in the preliminary injunction opinion, one of the things
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`that you do is you look at the commercial realities. And
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`that's something that the parties have actually agreed on in
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`the January 22 filing is, that reviewing the commercial
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`realities of the situation, including in connection with
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`whether you analyze a single brand market, is the right way to
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`go about about it. That's page 13 of the January 22
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`submission where there's agreement between the parties on that
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`point. And here, the commercial reality is that developers
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`make a decision and they write to an operating system,
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`typically both --
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`THE COURT: So in a developer-side competition,
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`though, you say developer-side competition. With whom
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`specifically are they competing?
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`MR. BORNSTEIN: The developers are not competing with
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`each other, Your Honor. The developers are making a decision
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`to write for iOS or for Android. iOS and Android are
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 17 of 142
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`4069
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`competing with one another. The developer is the consumer and
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`this two-sided platform, the operating system is a two-sided
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`platform. It has consumers and it has developers.
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`The consumers decide between iOS or Android when they
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`purchase their device. They are then locked in at least for
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`two years or three years, and then when they make a new
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`purchase for a new device, they often stay with the operating
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`system they have chosen. That's the consumer side of this
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`two-sided market.
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`The other side of the two-sided market on the operating
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`system level are the developers who are writing their apps for
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`use on a particular operating system.
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`So the developers are not competing with one another in
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`this description. I'm talking about the developers of the
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`customers of the operating system. They are one side of the
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`two-sided market.
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`THE COURT: So are they customers or not,
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`Mr. Swanson?
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`MR. SWANSON: The developers are a form of customer
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`in a two-sided transaction platform. This is a two-sided
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`transaction market, and I'm glad Mr. Bornstein raised
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`developers because developers develop games across all the
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`platforms. They develop for all three: Consoles, they
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`develop for the Windows operating system, a variety of devices
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`that host stores on tablets and laptops and desktops that run
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 18 of 142
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`4070
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`that system, macOS developers develop for that.
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`This is the game transaction, the digital game transaction
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`market that Apple's experts have defined. These are -- this
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`is a market defined by substitution options for both consumers
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`and developers.
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`And I would be remiss if I didn't point out that the -- I
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`do think it is a red herring, if we are starting out and
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`asking the question of device substitution, then we've reached
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`the conclusion very quickly that consoles -- the consumers
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`don't switch between consoles. So on this approach to the
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`market, every console would be a monopolist.
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`We know that this approach to the market is very
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`litigation driven. It is also designed to allow Epic to sue
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`Google as a monopolist. Apple is a monopolist. Google is a
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`monopolist. All the consoles are monopolists. That's not an
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`appropriate approach as the Supreme Court and the Ninth
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`Circuit have taught; we look at substitution, we look at
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`reasonable interchangeability and we see game, game apps that
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`are available across all of these platforms. We see consumers
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`who own all of these devices by and large, certainly have
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`access to them. There has been a ton of evidence like that in
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`this case, and we have seen developers who develop across
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`these platforms. And that's the nature of competition.
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`And the key question is, can Apple raise the commission in
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`the App Store for game app transactions? What are the
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 19 of 142
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`4071
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`constraints? Those constraints in the first instance are to
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`look at the other online stores that consumers and developers
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`can switch to, and to take account of indirect network effects
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`that the AmEx decision, the Supreme Court has taught act as a
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`constraint on any platform that tries to raise price.
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`You have to look at the impact that flows from both sides,
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`the ability of developers to move somewhere else, the ability
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`of consumers to switch somewhere else.
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`THE COURT: Mr. Bornstein, the relevant market has to
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`include substitutes.
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`MR. BORNSTEIN: I agree, Your Honor.
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`THE COURT: So if your definition is -- seems to not,
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`at least on its face, include substitutes.
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`MR. BORNSTEIN: On that one I disagree, Your Honor.
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`THE COURT: Okay. That's why I'm giving you the
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`opportunity to explain that.
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`MR. BORNSTEIN: Yes. So a few things.
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`First of all, I think it's critical that we make clear
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`what the product is in this market. So in order to assess
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`what the substitutes are, we have to have agreement on
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`substitute for what.
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`And Mr. Swanson now, and Apple consistently throughout the
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`case, has been talking about game transactions. And we have,
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`I think, a disagreement on whether that's appropriate and even
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`what that means.
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 20 of 142
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`4072
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`The market that we have defined, and we believe to be the
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`appropriate market, is a market for app distribution. That
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`means, at least for purposes of the -- some of the
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`restrictions in the case, the ones about the App Store being
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`the exclusive way to get apps on the phone. And when I say
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`app distribution, I mean getting an app on the phone.
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`It's not the in-app purchase that happens down the line.
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`It's not buying Agent Peely. It's not buying coffee from
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`Starbucks. It's actually getting the Fortnite app, getting
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`the Starbucks app. There is no substitute for getting the
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`Fortnite app, or the Starbucks app or the Netflix app on your
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`phone other than through an iOS app distribution path.
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`And --
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`that way.
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`THE COURT: But that's only because you defined it
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`MR. BORNSTEIN: Well, we defined it that way, Your
`
`Honor, because we think that's an appropriate definition --
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`THE COURT: Is there any definition that gets to the
`
`problem where the product market has actual economic
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`substitutes?
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`MR. BORNSTEIN: Well, Your Honor, our view, based on
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`the economic work that our folks have done, as we have said,
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`based on the commercial realities of the situation is, there
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`is no economic substitute for getting an app on the phone.
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`There are certainly substitutes for the App Store --
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 21 of 142
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`4073
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`THE COURT: Okay. Look, so you agree that your
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`market definition does not include economic substitutes but
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`your argument is that it can't because that doesn't reflect
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`reality.
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`MR. BORNSTEIN: I disagree with that articulation,
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`Your Honor.
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`THE COURT: Tell me exactly what the economic
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`substitutes are.
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`MR. BORNSTEIN: The economic substitutes for the App
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`Store would be direct distribution onto an iPhone and would be
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`an alternative app store if it were permitted to be on the
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`iPhone.
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`We do not believe, and we think we have proven, that
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`distribution of an app on an Android device or distribution of
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`an app on a console is not an economic substitute. We agree
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`that economic substitute should be included, but we do not
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`believe those are economic substitutes because you would not
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`see switching in sufficient numbers in terms of app
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`distribution to constrain Apple's conduct. In other words, if
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`Apple were to raise price for app distribution, you would not
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`see a sufficient number of people switching over to an Android
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`device, getting apps over on a console.
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`THE COURT: The other issue is that your formulation
`
`seems to ignore the reality that customers choose an
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`ecosystem, right? I mean, there's a lot of evidence in this
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 22 of 142
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`4074
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`trial that in the foremarket of devices, it is Apple's
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`business strategy to create a particular kind of ecosystem
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`that is incredibly attractive to its purchasers, it's
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`consumers.
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`And so if those consumers choose to enter into that
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`ecosystem, then your economic substitutes, as you've just
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`defined them, destroy the ecosystem into which they have made
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`a choice to enter. Just like if you buy the Xbox, or you buy
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`into, you know, a variety of these particular walled-off
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`gardens, you know that that is what you are buying into and
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`you choose to make that decision.
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`Now, there seems to be competition that is -- and that's
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`why I said it's somewhat of a dynamic area right now because
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`competition is good, and people are trying to figure out ways,
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`right, to access those consumer choices. But your economic
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`substitutes destroy that consumer choice.
`
`MR. BORNSTEIN: I'm not sure I understand the idea of
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`destroying the consumer choice. What I think Your Honor is
`
`saying, and let me know if I'm off base on this, is the
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`suggestion that people are making an informed decision to say
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`I want to go in and buy an Apple device and I know that if I
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`make that choice, I'm going to be locked into all of these
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`downstream consequences.
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`THE COURT: Let's talk about knowledge and whether
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`it's required under Eastman Kodak and some of the circuits
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 23 of 142
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`4075
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`that have followed.
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`Is it?
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`MR. BORNSTEIN: In terms of defining a proper single
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`brand market?
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`THE COURT: Correct.
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`MR. BORNSTEIN: So my understanding certainly of
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`Newcal, which is the leading Ninth Circuit case applying
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`Kodak, is that there are four factors that the Court will look
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`at.
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`Some of them, I think, are not in dispute, but I'll go --
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`it's whether the restraint is only in the aftermarket. It's
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`whether the aftermarket is derivative of the foremarket. It's
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`whether the power that the monopolist has as a result of
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`contracts that people willingly enter into, and in the last
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`one, which is where I think Your Honor's question goes to, is
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`the question of whether foremarket competition adequately
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`disciplines conduct in the aftermarket, and knowledge is a
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`piece of that.
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`And Kodak says and Newcal says that when there are
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`information costs and when there are switching costs, then it
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`is harder for the foremarket competition to discipline what
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`happens in the aftermarket.
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`So to make that concrete here, for example, when people
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`buy an iPhone, join the ecosystem as Your Honor described it,
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`they don't know what the costs are going to be that they are
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`Case 4:20-cv-05640-YGR Document 760 Filed 05/26/21 Page 24 of 142
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`4076
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`going to incur for app distribution and in-app purchases.
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`THE COURT: You are assuming that. We actually don't
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`have any evidence on that topic, do we?
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`MR. BORNSTEIN: We do, Your Honor. We have evidence
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`in the deposition of Mr. Cue who was asked that question, as I
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`recall, in terms of whether people are aware or whether Apple
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`makes efforts to inform people of this. And he said they do
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`not.
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`And then we also have, I think, irrefutably the idea that
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`the costs that people incur for app distribution and in-app
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`purchase commissions are dwarfed by the costs that they incur
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`in deciding to buy an iPhone, for example.
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`And the economic evidence is pretty straightforward that
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`if you are thinking about a thousand dollar purchase of an
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`iPhone, then you are going to not be as interested in the
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`30 percent commission that you might pay on, you know, a bunch
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`of 99-cent in-app purchases or a $5 app at some point in the
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`future when you don't know how many you are going to buy, you
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`don't know what they cost because, I would say, perhaps until
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`this trial, there wasn't a lot of attention to the 30 percent
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`charge that was out there and the regulatory proceedings that
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`have been going on as well. And people also don't have just
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`the base of information they need about the costs that they
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`are getting into in terms of the aftermarket costs.
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`THE COURT: But isn't that -- but there is no
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`Case 4:20-cv-05640
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