carnegie

@gatorguy... Here are a couple of passages from Apple's Supreme Court merits brief (citations and footnotes omitted):

In this case, the pass-through issue is clear and unavoidable, and not the least bit lessened by Apple’s role in selling and delivering apps to iPhone users. Respondents do not allege that Apple monopolized apps, but rather distribution services, an entirely different “upstream” product that consumers do not purchase at all. In that context, the transactional connection between Apple and app purchasers is not meaningful for the Illinois Brick issue. The Eighth Circuit understood this twenty years ago, holding that a direct transactional relationship with consumer-plaintiffs does not matter when the complaint is about alleged anticompetitive conduct that first affects someone else (concert venues in that case, app developers here), and the prices consumers pay are inflated, if at all, because of how those other parties react to the allegedly anticompetitive conduct.

Of course, consumers also transact with the App Store: on the consumer-facing side of the platform, Apple acts as the developers’ selling agent, as is typical in electronic commerce. This makes Apple a “seller” in the same transactional sense that a travel agent “sells” airline tickets (for airlines). But that is not the end of the Illinois Brick analysis. One needs to go on and ask the exact questions the district court asked here: who is setting the price, and what does that mean for the plaintiffs’ damages theory? Otherwise one hasn’t even started the Illinois Brick analysis, which is about pricing, not logistics. And that is especially important in the case of an agency-based platform like the App Store, since the “key distinction between the reselling and agency selling formats” is that “in agency selling the retail prices are decided by the manufacturer, whereas in reselling they are decided by the e-tailer.” This means that while consumers such as Respondents may be dealing with Apple, they are buying apps at prices set solely by iOS developers. That is what matters to Illinois Brick.

gatorguy said:

carnegie said:

gatorguy said:

carnegie said:

gatorguy said:

fred stein said:

Actually App Store is more like a consignment business model, for virtual goods. NOTE many goods and services sales are facilitated by Apps but do NOT result in payment to Apple.

That's not exactly the way Apple's Luca Maestri framed it, and his statements to that effect are being used by the opposition IIRC. He says the sale is Apple's, who then shares a portion of it with developers, rather than devs paying Apple. 

FWIW if Apple were a consignment shop they would claim the entire sale, and record the portion paid out to the consignee as a business expense AFAIK. I don't believe Apple does the same with the App Store accounting-wise but I don't know for certain. If they do then it seems to me it would be proof enough of standing for SCOTUS to allow the lawsuit to proceed. Even if they don't I think that's going to be the decision anyway. That doesn't mean the plaintiffs will win their class-action case tho.

Apple's position is that the App Store is a two-sided marketplace. It acts as a principal in selling distribution services to app developers. 

Not according to Maestri when addressing stockholders, and that's why it's being included as evidence that Apple considers the users to be the customer rather than the developers in the antitrust lawsuit. 
Quote: "For some of the services, such as the App Store, we share a portion of the value of each transaction with the app developer and only recognize revenue on the portion that we keep."

I agree that for accounting purposes Apple may not treat it as such, but Apple does consider the transactions to be between Apple and the end-user and not the developer and end-user according to that statement filed with a 2016 quarterly supplemental. That's speaks to the crux of what SCOTUS is being asked to consider. 

I'm not sure what the contradiction you see is.

As I said in the post you quoted (which you left out when you quoted it): "It [Apple] also acts as an agent in selling apps to end users for app developers."

Apple doesn't dispute that on one side of the two-sided marketplace, the end user is the customer. It sells apps to those customers as an agent for app developers.

The accounting practice that Mr. Maestri referred to in that quote is the same accounting practice I referred to. It doesn't demonstrate that Apple is the principal, in such app sales, rather than an agent. That settlement flow doesn't mean that Apple is the principal. An agent can collect the proceeds from a sale and pass through that portion of the proceeds which the principal is entitled to. That quote from Mr. Maestri, about Apple's accounting practices, supports the notion that it is acting as an agent rather than as a principal when it comes to app sales to end users.

Whether or not Apple's position as to the role it plays is accepted is another matter. But what I suggested is what Apple's position is. It's the principal on one side of the marketplace (selling services to app developers) and an agent on the other side (selling apps to end users).


(This isn't especially important, but I had meant to include it in the previous post and for future reference: If we were dealing with a consignment, the app developers would be consignors not the consignees. Apple would be the consignee. That's a common mistake made in keeping straight which party is called the consignor and which is called the consignee. The person owning something and turning it over to someone else to sell is the consignor. The consignee is the someone accepting it and trying to sell it.)

It's not a contradiction. I agreed with you on the technicalities if you re-read my post.

The reason I responded as I did is you were seemingly dismissive of the importance of Maestri's statement as it regards the SCOTUS review. For the casual readers who may not understand what we're discussing that case is not about whether the Apple is violating antitrust law but whether the parties making that claim have standing to question it.

Apple claims they do not have an interest as any transactions are between them and the developers. Apple would have the courts believe that if anyone should be sued, and no one should, it's on the developers to do so and not app buyers.

A few things:

(1) In my first post I was (I thought) mostly agreeing with you when it came to what Apple's position was. I was being more precise about it though. I was also confirming what you indicated you thought was the case when it comes to Apple's accounting for App Store sales.

(2) In your follow up post, you seemed to indicate that Mr. Maestri's statement represented Apple (or maybe just Mr. Maestri) taking a different position than that which I described. You said... "Not according to Maestri..." in response to me describing what Apple's position is But Mr. Maestri's statement, which you quoted, doesn't represent a different position than that which I described. That settlement flow (which Mr. Maestri described) doesn't make Apple the principal rather than the agent.

(3) I think you are missing some nuance when it comes to what Apple's position is. It didn't take the position that any transactions are between app developers and end users. It didn't take the position that it doesn't sell apps to end users. It sells those apps - it is absolutely involved in the transactions - to end users, just as an agent rather than as a principal. That's what happens on one side of the two-sided marketplace.

However, Apple's position is that the the plaintiffs don't allege that Apple has monopolized apps. If that were the case - if the issue was Apple's monopolization of iOS apps - then Apple's role in the app purchase transaction might matter. But, rather, the plaintiffs allege that Apple has monopolized app distribution services. And Apple's position is that it offers such distribution services to app developers, not to end users. Therefore, end users don't have standing to sue because their supposed harm comes from pricing decisions made by app developers. Under the Supreme Court's decision in Illinois Brick v Illinois (1977), alleged pass-through harms don't provide indirect purchasers with standing to sue for alleged antitrust violations. One key, from Apple's perspective, is that it doesn't choose the prices of apps. If end users are harmed by its alleged anticompetitive behavior, it would be through supposedly higher app prices. But app developers set those prices. Apple just tells app developers, whatever price you choose, we'll take 30% of it.

To say it another way (Apple's position is): If the plaintiffs alleged that Apple monopolized iOS apps, then Apple's role in selling apps to them would matter. But that's not what they allege (as successfully doing so would be problematic). They instead allege that Apple monopolizes app distribution services. And when it comes to such services, end users are indirect purchasers under Illinois Brick and thus don't have standing. App developers are the direct purchasers of app distribution services, which is the alleged monopolized market.

So... Apple isn't saying... We aren't the one selling apps to end users so they don't have standing to sue us. It's saying... We aren't selling app distribution services to end users, we're selling them to app developers.

gatorguy said:

carnegie said:

gatorguy said:

fred stein said:

Actually App Store is more like a consignment business model, for virtual goods. NOTE many goods and services sales are facilitated by Apps but do NOT result in payment to Apple.

That's not exactly the way Apple's Luca Maestri framed it, and his statements to that effect are being used by the opposition IIRC. He says the sale is Apple's, who then shares a portion of it with developers, rather than devs paying Apple. 

FWIW if Apple were a consignment shop they would claim the entire sale, and record the portion paid out to the consignee as a business expense AFAIK. I don't believe Apple does the same with the App Store accounting-wise but I don't know for certain. If they do then it seems to me it would be proof enough of standing for SCOTUS to allow the lawsuit to proceed. Even if they don't I think that's going to be the decision anyway. That doesn't mean the plaintiffs will win their class-action case tho.

Apple's position is that the App Store is a two-sided marketplace. It acts as a principal in selling distribution services to app developers. 

Not according to Maestri when addressing stockholders, and that's why it's being included as evidence that Apple considers the users to be the customer rather than the developers in the antitrust lawsuit. 
Quote: "For some of the services, such as the App Store, we share a portion of the value of each transaction with the app developer and only recognize revenue on the portion that we keep."

I agree that for accounting purposes Apple may not treat it as such, but Apple does consider the transactions to be between Apple and the end-user and not the developer and end-user according to that statement filed with a 2016 quarterly supplemental. That's speaks to the crux of what SCOTUS is being asked to consider. 

I'm not sure what the contradiction you see is.

As I said in the post you quoted (which you left out when you quoted it): "It [Apple] also acts as an agent in selling apps to end users for app developers."

Apple doesn't dispute that on one side of the two-sided marketplace, the end user is the customer. It sells apps to those customers as an agent for app developers.

The accounting practice that Mr. Maestri referred to in that quote is the same accounting practice I referred to. It doesn't demonstrate that Apple is the principal, in such app sales, rather than an agent. That settlement flow doesn't mean that Apple is the principal. An agent can collect the proceeds from a sale and pass through that portion of the proceeds which the principal is entitled to. That quote from Mr. Maestri, about Apple's accounting practices, supports the notion that it is acting as an agent rather than as a principal when it comes to app sales to end users.

Whether or not Apple's position as to the role it plays is accepted is another matter. But what I suggested is what Apple's position is. It's the principal on one side of the marketplace (selling services to app developers) and an agent on the other side (selling apps to end users).


(This isn't especially important, but I had meant to include it in the previous post and for future reference: If we were dealing with a consignment, the app developers would be consignors not the consignees. Apple would be the consignee. That's a common mistake made in keeping straight which party is called the consignor and which is called the consignee. The person owning something and turning it over to someone else to sell is the consignor. The consignee is the someone accepting it and trying to sell it.)

gatorguy said:

carnegie said:

airnerd said:

Mike Wuerthele said:

mhback55 said:

This is such a joke. $7.50 sounds more than fair. The fees Apple charges to sell in the App Store now that's is just wrong.

Whataboutism. Two different matters.

And, keep in mind, that's $7.50 for FRAND patents, on top of what Qualcomm charges for the chips. Thus, the double-dipping that the Federal Trade Commission is worried about in this particular action.

I don't follow how this idea of "double dipping" is illegal or punishable.  I pay a vehicle registration fee to drive my car on the roads.  I pay a roads tax via fuel, to operate that car I paid a fee to operate on a road, on a road.  I pay numerous other taxes and fees for road upkeep just to drive my car on safe roads.  No one has an issue with double dipping there.  

I have a PS4 that I bought outright.  I bought complete games for it as well.  Guess what happens if I want to use any of the online features?  I have to pay a yearly PSN fee...to use the system I already own to play the game I already own using the internet I already pay for.  


To me it seems there is double dipping everywhere in society.  If a company has a model that allows them to extract more fees, why is it all of a sudden wrong here?  

(*) And to clarify what I said earlier: It isn't necessarily illegal to double dip in the way Qualcomm is alleged to have done, i.e. to sell items and also collect licensing fees for IP which is substantially embodied in those items. But, under U.S. law, a patent holder doesn't have a legal right to collect such licensing fees in addition to selling such items. 

I don't think US law makes selling an item and additionally collecting licensing fees connected to it is illegal as such is it? It's all in the details AFAICT. But perhaps you're correct and there is some specific law that makes it illegal under any circumstances. IANAL.

That’s what I said, it isn’t illegal.

But your patent rights are exhausted when you sell the item. The buyer isn’t infringing your patents by, e.g., using or resaling the item, even if they don’t separately pay for a license. And that’s true, btw, even if you require them to sign an agreement to the contrary. You can’t, by contract, preserve patent rights in items you choose to sell. You can create contractual obligations, but you can’t preserve patent rights with all they entail.

radarthekat said:

avon b7 said:

Damage control and totally expected and logical. 

As usual he will be 'thrilled' to announce Apple's second largest revenue results with so many headwinds in place and that is also logical and expected.

Company wide things are not bad but iPhone needs to be looked at - closely.

He’s also going to announce the highest ever earnings per share.  I know a lot of folks cast the buybacks as ‘financial engineering’ but concentrating profits into the hands of those who are long-term investors is exactly what we long-term investors love.  Apple is in affect buying out our partners (fellow shareholders) on our behalf, leaving each of us with a larger share of future earnings.

As to this current context, you stated it correctly; there are significant headwinds, but these are not of Apple’s making nor are they specific to Apple.  Without the trade war and associated pin action (heightened nationalism, etc), without the Qualcomm fracas (that was Qualcomm’s doing), and other exogenous factors, Apple’s quarter would likely have met guidance.  While nobody can know for sure, what we do know is that a certain person has ripped up the rule book and thrown trade relations into chaos.  That’s the very definition of extraordinary times.  Apple is fine and is piloting through this period, still making the most profits of any company.  

In addition to reporting its highest ever EPS, Apple might report its highest ever earnings - without regard to share count. That would mean that Apple's last quarter was the most profitable quarter in history for a publicly-traded, privately-owned corporation, reporting anomalies aside.

I say it might do that because we can't tell for sure from its most recent guidance, even assuming that guidance is correct. It isn't carried to enough significant digits. $84 billion could mean $83.5 billion or $84.49 billion and 38% could mean 37.5% or 38.49%. The guidance Apple gave us last week could mean as much as $20.4 billion in net income, which would best the $20.065 it had in Q1 FY 2018.

That said, yes, one of the best ways of thinking about share buybacks is as a concentration of equity. They concentrate the effects of price moves that follow. If share price goes up, by more than the all-in costs of the buybacks, then the buybacks likely had a beneficial effect on share price.

If share price appreciates considerably then a company such as Apple could, if it needed or wanted to for some reason, reissue shares and sell them at prices greater than it bought shares at. (That assumes, of course, that the share price went up a fair bit as selling a lot of new shares would tend, at least temporarily, to bring the share price down a bit.) It might then either have as much cash as it otherwise would have with more concentrated equity (a benefit) or have the same concentration of equity with more cash than it otherwise would have (also a benefit).