High Stakes Battle: Epic Games v. Apple

So epics complaint against Apple is that pule is forcing people to pay Apple rather than just Epic when it purchases, specifically in regard to Fortnite, which is a popular game, and Epic says not only does Apple force those customers to pay Apple in order to operate on the Apple system, but also that Apple charges much higher prices than it should of those users. So the Epic basically doesn't want to have to give up some of its profits to

Apple when people play Fortnite on an iPhone. So in deciding whether Apple has monopoly power, the first question is going to be what's the market? How is that determined? They're claiming that Apple has monopoly power, which is the power to charge higher prices than it could in the

competitive market. And so how can Epic prove monopoly power is a really big issue, not only in this case, but in the future resolution of tech cases against Google and Apple and in that space generally, you know, big picture, there's two ways pretende to prove that Apple does in fact have monopoly power. One is called through direct evidence, and monopoly power is just the power to charge prices that are higher than what happened in the competitive market.

And Epic wants to say the lifts look at your profits and we'll see that they're much too high for a competitive market. Clearly, you have the ability to charge super competitive prices because you did. You're charging much more than your costs, and this is really profitable for you. For that reason, that's somewhat controversial, as strange as it sounds, to show that Apple actually did cards really high prices and that shows it has the power to charge really

high prices. But sometimes courts say, no, no, no, you can't use direct evidence. You have to use circumstantial evidence. You have to define a market and show that Apple has a really high percentage of that market, And so under that approach, Apple gets to argue, well, the markets not just us and our iPhones or iPhones and our computers. It's other smartphones, it's other computers or similar devices, and we have a relative LEAs small percentage if you define

the market that broadly. So that's one of the really big battles will be Does Ethic get to prove its case through direct evidence, Hey, you actually did charge really high prices, much higher than can be explained through competitive forces, or do they have to go through this other process of saying, well, let's define the market, what products are in theory substitute herbal for Apple's iPhones in regard to Fortnite,

and what percentage does Apple have of that market. That's going to be one of the really hotly contested issues, not only in this case, but in the related or similar antitrust tech cases that have already started and more. There are no doubt coming down the pipe. Who do you think has the better argument on the market what constitutes the market here? I think as a matter of economics, ethic has the better position that direct evidence should be

enough by itself. You know, I think they're right as a matter of economic theory, which is what the law is supposed to incorporate. That if Apple did in fact charge super competitive prices, prices above competitive levels and and surely had the power to do so. Now I don't know. I haven't seen the information to say whether Apple in fact does that. I suspect it does, but I think that would be a matter of evidence, you know, the

evidence that's become. And as a matter of law, it gets mess here because there is a case actually that's in the Ninth Circuit that may be binding that says direct evidences enough, but there's been more recent Supreme Court case law that muddies those waters. So as a matter of law, it's a little tricky. I mean, honestly, I think lawyers sometimes mess up the economics on which they're supposed to be relied, and that this that's created some

confusion in this area. So the question is whether Apple had monopoly power, and then whether Apple abused its monopoly power in violation of the antitrust laws. What kind of evidence will be introduced by EPIC to prove that Apple abused its monopoly power? So having a monopoly by its shelf is not illegal, but there are various sorts of ways of acquiring or maintaining or abusing market power that

would be. And one of the arguments that Epic has made is that Apple has tied accessing Fortnite through the Apple App Store with paying for that service. And so that's one kind of argument that could be an abusive market power trying together one service or good, which defend it has monopoly power to another one to force people to pay more than they would in a competitive market. And Apple's response, in part is no, no, no, that's one service. Those two are not separable, and therefore there

can't be a tie. And we'll have to see if that or any of the other arguments Epic makes are persuasive to the court. Couple also says that it has business reasons, and one of those reasons being ensuring security on its platform, right, and so um, now there is some evidence that's come to light. That's the jet that Apple really can't provide the kind of security um that it claims is a justification for its conduct. And Epics presumably will try to prove that security can be maintained

just as well through an alternative approach to payment. And so I would imagine that's another factual or evidentiary issue that will be important in the case. Ethic will argue that's a pretext, that security is the pretext apples offering an Apple will say no is a legitimate business justification for its conduct. So something that seems sort of odd to me is that Apple wants the courtroom closed when EPIC calls an expert witness to testify about the profitability

of the app store. Also, even I think in papers, when Epic reference the profitability of the app store that was redacted for the public. Why shouldn't the public hear those numbers? Why should that be a secret? This is a larger issue as well, and it's pretty much standard operating procedures for antitrust defendants pre trial and even sometimes

during trial. They really want to keep it much of their information secret as possible, and they would say that this is proprietary information that if others competitors have it, it will place them at a competitive disadvantage. They may even say that sharing this sort of information could facilitate anti competitive conduct, and you know, there can sometimes sometimes there is truth to that. You know, sometimes there are trade secrets or special sauce that they don't want everyone

to know. The recipe too. On the other hand, a lot of times this is really an effort to prevent other potential plaintiffs from gaining access to the evidence that they would use in their own litigation. And it really isn't justified in any legitimate way. And the closer you get to a final decision when your trial, for example, well, the more reluctant courts tend to be to keep this

information secret. That burden is going to be pretty high in Apple to persuade the court that this information should be kept from the public. Because trials are not only a private dispute resolution mechanism. There are a public event and a democracy like ours, and citizens and elected officials who are paying very close attention to the various high tech markets right now are very interested in and so

the court may be reluctant kees information from them. Why is the amount of profit that Apple gets Why is that information important in this case? When you know Apple developed the system and the app store, and people buy its iPhone because they like its product, Why shouldn't they be able to charge what they want to charge and

make as much profit as they can. So the short answer is, monopoly power is not itself an antitrust violation, and so um, the mere fact that they're charge in let's say they have very high profits would not itself be illegal, but it is relevant to the case in a couple of ways. One is, if Apple has really high profits, that can be an indication that it has monopoly power, that is, it has the ability to charge

much higher prices than are competitive. Now, that wouldn't be illegal, but it would be one of the things that FIC has to prove that Apple, if it engaged in anti competitive conduct, has the power to cause the real harm.

And a second issue to which it can be relevant, uh that is Apple's profits can be relevant is Ethic is going to argue that not only did it have the power to cause this anti competitive harm, and not only did it act in violation of the anti trust laws, but it in fact did harm Epics and the purchasers from Ethics And so there's real antitrust harm here. And so those really high profits that they exist can speak to two of three kind of central issues in the case.

One is, does Apple have market power? Is it capable of causing the kind of harm the antitrust laws are meant to prevent? And if Apple has really high profits that could support the conclusion yes, it has those power that power. And then second, if Apple engage in anti competitive conduct, did it? Did it? Did it in fact cause harm? And here too, the Apple's really high profits could show yeah, it really did cause harm if it engaged in anti competitive behavior, but those profits wouldn't address

that you suggested. The third issue of did Apple engage in anti competitive behavior? Their epic has to rely on other epics. So the high profits are relevant to keep parts of the case, but they don't necessarily resolve They shouldn't resolve the entire case. Ethics still needs to show that not only does Apple have monopoly power, and not only did it use it to charge higher prices, but that it either acquired or maintained or abused that monopoly

power um through inappropriate and a competitive means. Epic has engaged in a PR campaign, and I'm wondering what the point of that is. When you have one judge making the decision, it's not a jury, right, Well, so you have one judge making the decision, but there's two points.

One reason to engage in that PR campaign is that the judge is probably not the only audience for EPICS litigation and for its pr right now, Congress is considering amending the antitrust laws, especially as they pertain or maybe exclusively, as they pertain to the high tech sector. And so you do have these strange times where there is a sort of bipartisan skepticism of big tech and its market power.

I think that comes from the Democrat side because of a general, at least right now, a general concern about that kind of market power. And it comes from the Publican side in part because I think the Republicans feel like big tech has been um political in the way they don't like. And so there's a possibility of congressional action.

So EPIC is not only talking to this judge, So EPIC is also talking to Congress saying, you know, so EPIC could lose this case, win in Congress, and bring this case again and win depending on if Congress and actual net legislation and what that legislation might look like. And then the other thing is, you know, judges um that they are not completely oblivious to or indifferent to public reaction. And so I'm not you know, this judge is a very good judge. I'm sure she will exercise

her independent judgment. But you know, there's a possibility that Epic is hoping that um PR can have some influence in court as well, So that's another possibility. There's a lot of gloom and doom from Apple about what would happen if it loses the case. That would threaten iOS security, turn the app store into a flea mark it. What do you think about the possibilities if Apple loses, It's really hard to know. I suspect that the result would

be that the market would reconfigure. I also suspect that the sky would not fall. I mean, it's standard standard operating procedure for defend in the case like this to argue the sky will fall. And that's smart as a matter of law because it is relevant. Right if in fact there are pro competitive benefits to what Apple is doing, that then those could be destroyed by an adverse ruling against Apple, and that's relevant as a matter of law.

It also will make a judge nervous. I mean, judges in antitrust cases do tend to be very nervous about the possibilities they'll rule in such a way that they'll destroy the market that they're trying to protect, because you know, it's hard to predict what exactly the economic effects of a strong judicial ruling might be, and so Apple is understandably playing into that. And of course Apple may be right. I myself, I'm skeptical. I think Apple has an extraordinarily

profitable company. Many aspects of how it was business are profitable, and I suspect that while it would lose some profits, even significant profits, if Epic were to win, I think the market would be able to function just fine. And so, but it's hard to know. And you know, I don't envy the judge having to make that decision. Do you have an opinion about which side has a stronger case? I don't at this point. Really, as the evidence comes out, I think we'll have a much better sense. For me,

it's it's pretty speculative at this point. I'm not I don't have any sort of special access. You know, the burden is pretty heavy for Epics for the reasons I've said, I just tend to be pretty cautious about disrupting existing markets, established markets, and so I think that, you know, a

heavy burden for Epic to carry. But we're at a funny moment historically in this country where folks of a lot of different political persuasions think that maybe we have not been aggressive enough in enforcing our antitrust laws when it comes to big tech, and I think, for me, i'd need to see the evidence to form a consider judgment about how this case should come out. If Epic wins, that might mean that consumers have to pay less for

the apps. Does that play anywhere in this trial? Absolutely? Absolutely. So. It's the standard principle of antitrust law in this country that the antitrust laws are not designed to protect competitors. They're designed to protect competition. And what that means is, you know, whether Epic makes more or less or Apple makes more or less, it's not really ultimately the point. The point is what about consumers? And so this is the case in some ways best understood as with the

market function perfectly well. Eth Epic wins, and in fact better so that consumers still get the products they want, but they get them at a cheaper price. If that's what the court ultimately concludes, then it really should rule

for Epic. If, on the other hand, Apple's right, and either prices wouldn't go down or they would, but the change in the market structure would cause all sorts of new problems, which is a loss of security or certain products games not being available anymore, where consumers becoming frustrated and having a difficult time doing what they were able

to do in the past, than Apple Cannon should win. Really, the consumer perspective tends to be dominant in antitrust law, and so yet it's very important whether consumers would pay more or less, and also whether the same services and goods would be available to consumers if the Court were to rule in favor of Epics. Thanks for being on the Bloomberg Law Show. That's Professor Joshua Davis at the

University of San Francisco Law School. As the Supreme Court waited into the War on drugs this week, there was an unusually lopsided set of litigants, so lopsided that the Court had to appoint an outside lawyer to argue to uphold the Lawn issue after the Biden administration Swiss sides and back the defendant. The question was whether the lowest level drug offenders are eligible for retroactive relief under the

First Step Act and can seek resentencing. Lawmakers from both parties, both conservative and liberal groups, and the Biden Administration say, Congress intended for the law to encompass low level offenders, but many of the justices sounded skeptical that the statutory language would allow that interpretation. Kara Johnson says Stephen Bryer and Brett Kavanaugh, But I can't get away from this statute. Why didn't Congress just say everyone who's been sentenced for

crack offenses under one is eligible for resentencing? Something simple like that. Joining me is Mark Ostler, a professor at the University of St. Thomas School of Law who specializes in sentencing policy. So Mark, tell us a little bit about the First Step Act. Sure, the First Step Act that was tasked to it had a number of provisions. UM. It was it was created new metrics of data within

the Bureau of Prisons UM and handsome reentry provisions. But one of the primary things that did was make retroactive prior law the Fair Sentencing Acts in and what that did was changed the hundred to one ratio between powder and crack cocaine. In other words, in both the sentencing guidelines and the statutes that created mandatory minimums, you were sentenced the same for five grams of crack because you were for five grams of powder cocaine. And this had

really disparate impacts in terms of race. And I was a thorough prosector in the Detroit. There were a lot of crack cases coming through that office, and of course it was all or almost all um, black defendants in those cases. And in time that noticed and in they changed the law, but they didn't make it retroactive. And that was a continuing problem because you had people who were sentenced under the old law who didn't have the advantage of the change and attitude and the adjustment that

had been made, and that festered for a long time. Um. You know, the Obama administration wasn't able to fix it. And eventually there was a bipartisan movement in uh Congress that pushed for that change, among others, and it came through in the first step Act of that was signed by Donald Trump. Um, you know, notably the name indicated. It was supposed to be one of a series of bills, but it was the only one to get through. Mark the issue here is a bit technical tell us about it. Yeah,

it's a little bit complicated. But the original law, the mandatory minimum that regards crack and a number of other drugs. That's three different tiers. And the top tier previously was over fifty grams of cracks and over five grams of cracks for the middle tier, and then the bottom tier was under five grams. And then those thresholds all went up under the Fair Sentencing Act. And that's what the

First Step Act made retroactive. And so in other words, people could go back and say, I want to be resentenced under the current law, and that meant that, let's say, if you had been sentenced under the top tier for you know, sixty grams of craft, now you're not meaning that threshold, and so they could be resent now. The problem was that the First Step Act said explicitly that it applied to sentences in menta minums have been modified

by the Fair Sentencing Act. And the argument from the government under the Trump administration was that that meant that the top two tiers, which had been changed explicitly that people who have been sentenced under those was got relieved, but people for whom they weren't charged with a threshold of over five grams of crack, that they didn't have the benefit of this change. That's an argument that doesn't

make much sense. In terms of policy, why you would give relief to people that were more culpable but not people who are less culpable. But that's what is the heart of this is the Eleventh Circuit upheld the decision below that Mr Terry, the petitioner, did not have the ability to have his sentence reviewed under the First Step

Act because he wasn't in those top two tiers. On the date when the government's main brief in the case was due, the Biden administration informed the court that it was changing positions from the Trump administration and now siding with the defendant in the case. So the court appointed an outside lawyer to argue the case against the defendant and the reduced sentence. Why did the Biden administration change positions at the last minute. I think that they had

pressure from reformers certainly that they should do so. That there are a number of people, including myself, who had taken up these First Step Back cases pro bono and it had noticed the problems with them, and frankly, it was inconsistent with the very bipartisan spirit that was behind

the First Step Back in the first place. You know, one thing that fascinates me about this, especially in our current political climate is that there was amacust brief that was submitted in support of the first step back applying to Mr Terry, that was submitted by four Senators Durban Booker, Grass Lake against Senator Mike Lee. Now that's a pretty incredible lineup, I mean, from one end of the ideological spectrum to the other, and it really reflects the Biparsan

consensus that was behind the first step back. Was there more questioning about the intent of the act or about the statutory language? The justices were interested both in what the intent was, but also you know what injustices does this create? And underneath it all is you look at what Mr Terry was sentenced to fifteen and a half years in prison for four grams of craft. It's shocking. And you know, I'll say, I'm talking to you right

now from downtown Minneapolis. I'm about a mile away from where Derek Chauvin is, a police officer who killed George Floyd, is going to be sentenced shortly, and most people are saying that what he'll get for that whole blooded killing that America saw is going to be about fifteen years. And that's the same as Mr Terry got for having

the four grams of craft. Some of the justices seemed sympathetic to Terry's plight to his sentence being excessive, but for example, Justice Brier said, I can't get away from this statute. And even Justice Sonia Soto Mayor, who is considered one of the justices who is more sympathetic to criminal defendants, even she seemed to indicate that you just

can't get around the words of the statute. Yeah, and I'm hoping that you know, the argument will prevail in mes that you know what's in the statute is is modified and what you know, the parties and this is something that the Senator said was their intent was that that means something different than amended, because obviously Tier two and Tier three, the upper two tiers were specifically amended. But that also modifies that bottom tier by raising the

level from five grams to grams. I think it was and that is that's the probably the best argument going to the statutory language. I mean, one thing about about Justice Brier is that his history and sentencing is complicated. That it's it's one where he's been. He was on the Sentencing commission that drafted the original sentencing guidelines that were mandatory that in the Booker decision, he argued that that there should they should not be converted to being advisory.

So he's somebody who has a complicated history with these issues, and the fact that you know he was sticking to the language of the statute is really in keeping with some of his prior Churich prudence in this area. During the oral arguments, did any of the justices seem inclined to adopt that argument? It seemed that most of the justice has thought the statutory language was a problem for

Terry and wouldn't support a retroactive interpretation. Yeah, and you know that of course reflects the circuit split that they were presented with that four of the circuits had been on the side of the leven circuit was that this new law did not apply to Mr Terry, and there were I believe two circuits had held that he would have so, you know, the lay of the land was in favor of that that reading the statute. Were there any questions from the textualists on the court which which

indicated which way they might go? You know, I don't recall specifically if there were, but you know, even if you are a textualist that that question of is modified different than amend is something to take seriously. So will

you explain the modify versus amend argument? Yeah, Well, there's no question that if the statute had said amended, those portions that were amended, they would only apply to the top two tiers, because it's it changed explicitly the thresholds that had to be meant for them to apply to enhance cracks. And however, it did also modify, even though it didn't expressly amend the bottom tier, it did modify or change that bottom tire because it was it was

expanded basically from five to eight clans. So that's, you know, that's that's going to be the distinction that they'll be talking about in conference. I'm curious. I don't know if you know the answer to this. Terry is about to be finished serving his sentence. So is it just that this case took that long to get through the system. Well, there's a couple of things. He's on home confinement right now and he'll be done in September, I believe, uh, and it you know, it could be just this is

the case that got up to the Supreme Court. There resolved the issue. Um, you know, it's it's not moved h And you know the fact that he's on home confinement is a function of of the COVID pandemic, where under the Trump administration and administration, many people who are towards the end of their sense are being switched over to home confinement. But you know, one thing is people will say, you know, that's we're talking about about three

or four months, that that matters. You know, if you think back in your own life of the past three or four months, if they were just gone, you know, if you had been in prison for that period of time, that would matter. And and too often we discount the value of time when it's a smaller button time on top of the larger sentence. How many people might be affected if you know by the Supreme Court's decision here, I don't know. I don't have a handle on that.

I mentioned before that I've represented some people pro bono. I had four clients all in the sixth Circuit, and none of them were in this situation. UM. And because people in that lowest here do tend to get shorter sentences. UM, it's not going to be the number of prison people in prison isn't going to be as great as the people in the upper tiers. I have to say, this

seems like such a technical argument. You know, you've got the sentencing guideline book that's inches thick, that is like a tax code at this point, and that's part of the problems. Part of the problem is is that complexity, the tears and those things, they become normative. You know, when we say that the that the right sentence for five grams of crack is five years, that becomes normative.

It sounds scientific, but that masks crazy realities. You know that someone for programs of crack got fifteen and a half years. That that's irrational. No one was being denied cracked by the fact that this one person who is selling is out of commission um and yet we're taking on the societal costs of that imprisonment um. Yeah. So that complexity, that technicality of it um. Yeah, that does bar people from digging into it. But once we do,

we find that really ugly reality. When judges had more discretion, there was a problem with judges having discretion to people were upset that some judges were giving sentences that were

out of the ballpark. So where's the happy medium. Yeah, that's what that's we're trying to find, is that happy medium between judges having so much discretion that bias comes into play and you have incredibly disparate sentences, and where we don't have these mandatory laws that buying judges and create these frankly pret ridiculous sentences as we suffer for Mr Terry in this case. You know, there's been a back and forth over decades between uniformity and discretion for judges.

It's like watching a ball roll back and forth in a cup, and at some point it's going to have to come to an equilibrium. In this case, is a part of that. If the court decides against Mr Terry, does that just leave everything in place as it was before. It will leave everything else in place, so the other two tiers will be unaffected. Um, and you know, those people who are doing longer terms under this are going

to have to pursue other avenues, for example, clemency. One would hope that if the Biden administration loses this case, that their reaction will be to identify those people like Mr Terry can let them out under the power of clemency. Thanks for being on the Bloomberg Law Show. That's Professor Mark Osler of the University of St. Thomas School of Law,