Schiller fails to convince skeptical judge over Apple's App Store fees

AppleInsider

Judge Yvonne Gonzalez-Rogers remains unconvinced of Apple's rationale for claiming it is complying with her original order, following testimony from Apple Fellow Phil Schiller.

Epic continues to belittle Apple's app store practices while mirroring them in its own store

As part of the ongoing complaint from Epic Games questioning Apple's compliance with the judge's original orders, Schiller and another executive tried to explain how the company arrived at its recent 27 percent commission fee change.

They also refuted the judge's assertion that there is "no data" that the effective commission rate for developers is, on average, lower. Apple has a number of exceptions, including ongoing subscriptions and no commission at all for free apps, that result in an overall lower fee burden.

Phil Schiller testifies

Schiller defended the fees by saying the change is a good-faith attempt to comply with the order, Bloomberg reported. He reminded the judge that the original order established that Apple had a right to charge a fee, even when developers opted-out of Apple's own in-app payment system.

Schiller was one of the three executives, including CEO Tim Cook and CFO Luca Maestri, who settled on the 27 percent fee for developers opting to use other payment processors. The change was down slightly from the original 30 percent fee.

Schiller also said that he wasn't personally opposed to the outbound link requirement. His view contradicts Apple's previous defense that outbound linking would "detract from the user experience."

He noted that "the world has changed, and linking out is being required" in the EU and other regions. "I do not have a preference against link-out. I want to make the solution safe for our customers, that is what I'm focused on," he told the court.

App Store exec admits outside analysts weighed in

Following Schiller's first day of testimony, App Store Senior Director of Business Management Carson Oliver saw the judge becoming more skeptical of Apple's fee rate. Oliver admitted under questioning that Apple did hire an outside firm, Analysis Group, to recommend a new fee baseline.

Gonzalez-Rogers pointed out that Analysis Group found that the lowest acceptable rate would be just 12.3 percent. "And yet you are charging 27 percent," the judge noted. "How do you justify the other 15 percent you are charging?" she added.

Oliver said that part of the justification comes from the additional services Apple provides. He said this includes discovery of apps, distribution, developer tools, and platform technology -- along with additional privacy and data security measures -- that aren't comparable to other online app markets.

He added that Apple's own lowest possible average would actually be around 17 percent. Apple's overall average taking into account all developers -- including the ones who pay nothing -- is lower than 27 percent, he testified.

App Stores in many countries are feeling the effects of recent US and EU court rulings

Oliver also told the judge that the Analysis Group looked at other app and digital service marketplaces to help them determine a range. This included developer storefronts from Microsoft, Alphabet's Google, Etsy, and Shopify among others. The average value of fees charged at other merchants varied wildly, from 12.3 percent to a high as 92 percent, depending on various factors.

The judge did not seem to accept that an overall lower average commission across all developers was a valid basis for charging 27 percent for initial in-app purchases. She said that the executive group's claim of a lower effective rate is "a big assumption" and not supported by data, a charge Carson replied was "not true."

Schiller will be called back to the stand to resume his testimony in the case when the hearing resumes, on May 22.



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omasou

Apple, tell her to pound sand.

I seriously doubt that she can specify what she thinks is a fair fee. If she can then perhaps she should tell UPS, FedEx and USPS what she thinks is a fair cost for shipping /s

jdw

Summary of the Conversation:

Activist Judge: "How can you justify making more profits than companies barely scraping by?"

Apple: "We seek to be here 10-20 years from now and therefore seek the profits necessary to achieve that."

Activist Judge: "I personally think you should make only profit necessary to barely remain in business, and I honestly don't care what your investors think."

chasm

It seems to me that Apple and the judge are arguing at cross purposes.

Apple is saying "it's not 27 percent for every purchase, every time, and most developers don't pay anything at all. The AVERAGE for developers who do pay is substantially lower."

The judge seems to still believe the opposite -- that every in-app purchase in the App Store incurs a fee of 27 percent, no exceptions. Or at least, nothing in the quotes Bloomberg provided suggest that she's getting what Apple is saying. Hopefully Phil can find another way to say what he and the other guy are saying. Maybe tell the judge what the average markup is on most consumer goods? (hint: it's way higher)

That said, I actually do think Apple could afford to trim a point or two off that fee and it wouldn't kill them. But it sure seems like she's dying to tell Apple what the percentage should be, but that's outside of her job.

But if she orders Apple to reconfigure the App Store fee and provide data behind the revised price, Apple will appeal to explain that no other App Store is bound by her ruling, and win.

mikethemartian

Did he tell the court that the reason was “courage”?

mikethemartian

omasou said:

Apple, tell her to pound sand.

I seriously doubt that she can specify what she thinks is a fair fee. If she can then perhaps she should tell UPS, FedEx and USPS what she thinks is a fair cost for shipping /s

The USPS package rates are regulated.

macxpress

mikethemartian said:

omasou said:

Apple, tell her to pound sand.

I seriously doubt that she can specify what she thinks is a fair fee. If she can then perhaps she should tell UPS, FedEx and USPS what she thinks is a fair cost for shipping /s

The USPS package rates are regulated.

And FedEx/UPS?

davidw

mikethemartian said:

omasou said:

Apple, tell her to pound sand.

I seriously doubt that she can specify what she thinks is a fair fee. If she can then perhaps she should tell UPS, FedEx and USPS what she thinks is a fair cost for shipping /s

The USPS package rates are regulated.

The USPS is a government regulated monopoly. When the government grant a company a "monopoly" they regulate the rates that the company can charge the public. Your first clue should have been the "US" in USPS. Plus the Postmaster General is cabinet position appointed by the POTUS. Even though the USPS is now suppose to be self funding ( it was once funded by taxpayers money.), the USPS is still considered to be a "public service" regulated by the Federal government.

https://about.usps.com/what/strategic-plans/postal-act-2006/universal-postal-service.htm

https://www.investopedia.com/ask/answers/032615/are-monopolies-always-bad.asp

The original ATT rates were government regulated (and very affordable). ATT was granted a "monopoly" by the US government and thus their rates were regulated by the government. Most public utilities, like gas and electric service companies, rates are government regulated by the PUC because they were handed a "monopoly" in the region they serve. I bet your garbage collection company has to go through your local government to raise rates. That's because they were handed a government "monopoly" in the area they serve. What local citizens wants to hear the sound of  garbage trucks picking up trash in their neighborhood, every morning of the week, because there are 5 local trash companies serving the area?  Local cable companies are often handed local government monopolies because municipalities do not want several cable companies tearing up their streets or putting up their own poles, to run their cables to the homes they serve.

https://www.epa.gov/sites/default/files/2016-03/documents/background_paper.pdf

lam92103

Apple can charge whatever they want, but then they have to allow other app stores.

StrangeDays

mikethemartian said:

Did he tell the court that the reason was “courage”?

Funny folks like to lock Schiller but reality is where they lead others follow. Nobody even cares about lack of headphone jacks anymore. 

foregoneconclusion

The judge can't do anything regarding fees. As Schiller correctly points out, the original court order didn't require Apple to provide everything for free or attempt to set a range of fees that Apple was legally allowed to charge. These hearings are supposed to be about the original court order and nothing else. 

Stabitha_Christie

jdw said:

Summary of the Conversation:

Activist Judge: "How can you justify making more profits than companies barely scraping by?"

Apple: "We seek to be here 10-20 years from now and therefore seek the profits necessary to achieve that."

Activist Judge: "I personally think you should make only profit necessary to barely remain in business, and I honestly don't care what your investors think."

I’m embarrassed on your behalf. 

Judge Gonzales-Rogers has rules in Apple’s favor on  all but one count. Her ruling stated that Apple wasn’t a monopoly,  that the 30% cut, while high, was legal and that that Apple could charge a cut even if the purchase was made outside of the store. She even went as far as to say making a lot of money isn’t illegal. 

That you ignored her entire ruling and made up  a factually incorrect narrative to personally attack the judge is just sad. 

avon b7

Stabitha_Christie said:

jdw said:

Summary of the Conversation:

Activist Judge: "How can you justify making more profits than companies barely scraping by?"

Apple: "We seek to be here 10-20 years from now and therefore seek the profits necessary to achieve that."

Activist Judge: "I personally think you should make only profit necessary to barely remain in business, and I honestly don't care what your investors think."

I’m embarrassed on your behalf. 

Judge Gonzales-Rogers has rules in Apple’s favor on  all but one count. Her ruling stated that Apple wasn’t a monopoly,  that the 30% cut, while high, was legal and that that Apple could charge a cut even if the purchase was made outside of the store. She even went as far as to say making a lot of money isn’t illegal. 

That you ignored her entire ruling and made up  a factually incorrect narrative to personally attack the judge is just sad. 

I think you should expand on 'wasn't a monopoly' because her ruling, IIRC, was severely conditioned by how Epic brought its arguments to court. Wasn't it all specific to video games?

And I may be mistaken on this but didn't she go as far as to say if the case had been brought to court in a different manner, her ruling may have changed?

And an open question: was it limited to law in California? 

gatorguy

avon b7 said:

Stabitha_Christie said:

jdw said:

Summary of the Conversation:

Activist Judge: "How can you justify making more profits than companies barely scraping by?"

Apple: "We seek to be here 10-20 years from now and therefore seek the profits necessary to achieve that."

Activist Judge: "I personally think you should make only profit necessary to barely remain in business, and I honestly don't care what your investors think."

I’m embarrassed on your behalf. 

Judge Gonzales-Rogers has rules in Apple’s favor on  all but one count. Her ruling stated that Apple wasn’t a monopoly,  that the 30% cut, while high, was legal and that that Apple could charge a cut even if the purchase was made outside of the store. She even went as far as to say making a lot of money isn’t illegal. 

That you ignored her entire ruling and made up  a factually incorrect narrative to personally attack the judge is just sad. 

I think you should expand on 'wasn't a monopoly' because her ruling, IIRC, was severely conditioned by how Epic brought its arguments to court. Wasn't it all specific to video games?

And I may be mistaken on this but didn't she go as far as to say if the case had been brought to court in a different manner, her ruling may have changed?

And an open question: was it limited to law in California? 

You are correct. She did not rule that Apple was not operating as a monopoly, but that based on the focused argument Epic made they were not. She implied Epic was making the wrong argument. 

omasou

mikethemartian said:

omasou said:

Apple, tell her to pound sand.

I seriously doubt that she can specify what she thinks is a fair fee. If she can then perhaps she should tell UPS, FedEx and USPS what she thinks is a fair cost for shipping /s

The USPS package rates are regulated.

They may be regulated but that hasn't stopped the price from increasing almost yearly and for what? All they deliver me junk mail and filers.

omasou

lam92103 said:

Apple can charge whatever they want, but then they have to allow other app stores.

Epic said they wanted to make their own app store. Well go ahead. It's up to Epic, not Apple, to create a competitive app store and/or attract other developers.

chasm

omasou said:

Epic said they wanted to make their own app store. Well go ahead. It's up to Epic, not Apple, to create a competitive app store and/or attract other developers.

They didn't want to really.

What they ACTUALLY wanted was to live rent-free in Apple's App Store, for Apple to do their advertising and promoting for them, and to pay Apple diddly-squat for access to their platform, secure payment technology, App Store, whatever info they scrape from their Apple customers -- free!

They didn't get that, and now they are discovering that setting up your own App Store on the scale Apple offers is VERY expensive, especially after all the fines they've paid the US government for collecting info on minors and other actual lawbreaking.

jdw

Stabitha_Christie said:

jdw said:

Summary of the Conversation:

Activist Judge: "How can you justify making more profits than companies barely scraping by?"

Apple: "We seek to be here 10-20 years from now and therefore seek the profits necessary to achieve that."

Activist Judge: "I personally think you should make only profit necessary to barely remain in business, and I honestly don't care what your investors think."

I’m embarrassed on your behalf. 

Judge Gonzales-Rogers has rules in Apple’s favor on  all but one count. Her ruling stated that Apple wasn’t a monopoly,  that the 30% cut, while high, was legal and that that Apple could charge a cut even if the purchase was made outside of the store. She even went as far as to say making a lot of money isn’t illegal. 

That you ignored her entire ruling and made up  a factually incorrect narrative to personally attack the judge is just sad. 

First of all, you state a 30% cut is "high" (either based on your own personal belief and/or what you've found stated in the courts), but I disagree it is high.  I would call it "normal" for any good business who wants to stay in business in the long term.

Second, I'm not sure why you're embarrassed on my account when you merely have chosen to disagree.  And the basis of your disagreement assumes the judge makes all the right decisions as per your citing of her having "ruled in Apple's favor on all but one count."  Your statement seeks to have us all believe that we should naturally assume that remaining count she takes issue with must truly be an issue only because she ruled in Apple's favor on all but one count.  "She largely ruled in Apple's favor, so let's cut her some slack on the remaining issue" — would be my interpretation of what you wrote.

But I disagreed with that one count in my earlier post for reasons I've already stated.  You simply read what I wrote, disagreed, and here we are.  So there's no reason to get embarrassed about anything.  You and I simply disagree, and that's okay.  If everyone thought the same on this planet, what a boring and unproductive place it would be!

Stabitha_Christie

jdw said:

Stabitha_Christie said:

jdw said:

Summary of the Conversation:

Activist Judge: "How can you justify making more profits than companies barely scraping by?"

Apple: "We seek to be here 10-20 years from now and therefore seek the profits necessary to achieve that."

Activist Judge: "I personally think you should make only profit necessary to barely remain in business, and I honestly don't care what your investors think."

I’m embarrassed on your behalf. 

Judge Gonzales-Rogers has rules in Apple’s favor on  all but one count. Her ruling stated that Apple wasn’t a monopoly,  that the 30% cut, while high, was legal and that that Apple could charge a cut even if the purchase was made outside of the store. She even went as far as to say making a lot of money isn’t illegal. 

That you ignored her entire ruling and made up  a factually incorrect narrative to personally attack the judge is just sad. 

First of all, you state a 30% cut is "high" (either based on your own personal belief and/or what you've found stated in the courts), but I disagree it is high.  I would call it "normal" for any good business who wants to stay in business in the long term.

Second, I'm not sure why you're embarrassed on my account when you merely have chosen to disagree.  And the basis of your disagreement assumes the judge makes all the right decisions as per your citing of her having "ruled in Apple's favor on all but one count."  Your statement seeks to have us all believe that we should naturally assume that remaining count she takes issue with must truly be an issue only because she ruled in Apple's favor on all but one count.  "She largely ruled in Apple's favor, so let's cut her some slack on the remaining issue" — would be my interpretation of what you wrote.

But I disagreed with that one count in my earlier post for reasons I've already stated.  You simply read what I wrote, disagreed, and here we are.  So there's no reason to get embarrassed about anything.  You and I simply disagree, and that's okay.  If everyone thought the same on this planet, what a boring and unproductive place it would be!

You will probably want to go back and re-read my initial comment before continuing with reading this response. 

Here we go …

I didn’t say the 30% was high. I said the Judge called it high in her ruling. She also said it was within reason. 

I’m not disagreeing with you. I’m saying that you are uninformed. Why am I saying that? Because you are demonstrably uniformed. In your initial post you attributed opinions to the judge that weren’t options that she expressed. In fact her ruling contained opinions that were exact opposite of what you stated you were. 

I realize now that me saying you are uninformed was an assumption on my part. I was being generous and assumed you were unaware but you could be fully aware of what the judge had perviously ruled and have chosen to just be dishonest. So which it is, are you uniformed or lying?

Finally, neither your original comment nor your follow up address the one count that the judge ruled against Apple on. The count was on anti-steering not the 30% cut. Your comment didn’t address the subject whatsoever. I’m inclined to think this is you being uninformed about the ruling and the hearing on Apple’s compliance but to be fair this could also be you being intentionally dishonest. 

What is embarrassing is that you have made up a
fictional narrative to impugn the judge and say that she is an activist acting outside of the law. Further you are doing this with no basis in reality. You had to literally make up a story to get to that point. 

If you disagree with her ruling then great, it’s a ruling that was upheld by every court up to the US Supreme Court. But if you think the courts got it wrong make the case on what they missed. How did they misinterpret the law and the facts of the case? Obviously, you can’t actually do that and opted to go with personally attacking the judge with a fictitious story. 

You may not be embarrassed by your behavior but is most certainly embarrassing. 

danox

Judge Yvonne Gonzalez-Rogers make your ruling and move on, Apple will appeal and the Supreme Court will overrule you......This isn't the EU thank god.

Stabitha_Christie

avon b7 said:

Stabitha_Christie said:

jdw said:

Summary of the Conversation:

Activist Judge: "How can you justify making more profits than companies barely scraping by?"

Apple: "We seek to be here 10-20 years from now and therefore seek the profits necessary to achieve that."

Activist Judge: "I personally think you should make only profit necessary to barely remain in business, and I honestly don't care what your investors think."

I’m embarrassed on your behalf. 

Judge Gonzales-Rogers has rules in Apple’s favor on  all but one count. Her ruling stated that Apple wasn’t a monopoly,  that the 30% cut, while high, was legal and that that Apple could charge a cut even if the purchase was made outside of the store. She even went as far as to say making a lot of money isn’t illegal. 

That you ignored her entire ruling and made up  a factually incorrect narrative to personally attack the judge is just sad. 

I think you should expand on 'wasn't a monopoly' because her ruling, IIRC, was severely conditioned by how Epic brought its arguments to court. Wasn't it all specific to video games?

And I may be mistaken on this but didn't she go as far as to say if the case had been brought to court in a different manner, her ruling may have changed?

And an open question: was it limited to law in California? 

Not sure how much I can expand on it but here we go. Her ruling was  conditioned on claims and evidence made by Epic. She said Epic failed to prove Apple held a monopoly. Since a monopolies have to be in a specific market she did disagree with Epic on what the market was. Epic argued it was App distribution, Apple argue used the market was mobile video games. The judge was closer to Apple and said the market in question was mobile video game payments and that Apple did not have the marketshare or power in that market to be considered a monopoly. 

I apologize my initial comment was clear. I didn’t mean to imply that judge Gonzalez Rogers ruled that Apple has no monopolies whatsoever, just hat she said there was no monopoly in the case brought to her. She didn’t rule on anything beyond the scope of the case in front of her.  The better way for me to have said it would have been to say that judge said that Epic failed to prove Apple had a monopoly. Instead I said she ruled that Apple didn’t have a monopoly much in the way that people will say someone was showed to be innocent when the courts have only said that they haven’t been found guilty. It’s an important distinction, thanks for calling it out. 

I don’t recall her saying that if the case had been brought before her differently that her ruling would have changed. It’s not a surprising sentiment though. Judges are limited to how a case is presented to them and if a party bungles their presentation or makes poor decisions then it will impact the outcome of the case. So maybe there was something glaring that she sat there wondering why Epic wasn’t going after it. 

I have no answer on your open question and have been perplexed by that one as well. As I understand it the law that was violated was California State Law. So I thought it was odd that federal judge would weigh in on state law and then make the order apply federally. But given that no appeals court took up the case I am assuming this is somewhat normal and just a giant blind spot when it comes to the judiciary. But good question.