Apple CEO Tim Cook took his first turn in the witness chair this morning in what is probably the most anticipated testimony of the Epic v. Apple antitrust case. But rather than a fiery condemnation of Epic’s shenanigans and allegations, Cook offered a mild, carefully tended ignorance that left many of the lawsuit’s key questions unanswered or unanswerable.
This anticlimax may not make for exciting reporting, but it could serve to defang the dangerous if somewhat dubious, an argument that Apple’s App Store amounts to a monopoly.
After being called by Apple’s attorneys, Cook took the stand, Law360’s Dorothy Atkins, one of two media members allowed in the court, reported in her comprehensive live-tweeting of the testimony. The quotes from Cook are as written and not to be considered verbatim; the court transcript will follow when the document is compiled and public. Incidentally, Atkins’ stage-setting descriptions are appealing and humanizing, though Epic CEO Tim Sweeney comes off as a bit weird:
The questioning of Cook by his own company’s counsel was gentle and directed at reiterating why Apple’s App Store is superior and sufficient for iOS users while also asserting the presence of stiff competition. He admitted to many conflicts with developers, such as differing priorities or needing to improve discovery, but said the company constantly retains developers and users.
The facade of innocent ignorance began when he was asked about Apple’s R&D numbers — $15-20 billion annually for the last three years. Specifically, he said that Apple couldn’t estimate how much of that money was directed towards the App Store because “we don’t allocate like that,” i.e., research budgets for individual products aren’t broken out from the rest.
Now, that doesn’t sound right. A company like Apple knows down the penny how much it spends on its products and research. Even if it can’t be perfectly broken down — an advance in MacOS code may play into a feature on the App Store — the company must know to some extent how its resources are being deployed and to what effect. The differences between a conservative and liberal estimation of the App Store’s R&D allocation might be significant, perhaps, in the hundreds of millions, but make no mistake; those estimations are almost certainly being produced internally. To do otherwise would be folly.
But because the numbers are not publicly declared and broken down, and because they are likely to be somewhat fuzzy, Cook can say truthfully that there’s no single number like (to invent an amount) “App Store R&D was $500 million in 2019.”
Not having a complex number removes a potential foothold for Epic, which could use it either way: If it’s big, they’re protecting their golden goose (enforcing market power). If it’s small, they’re just collecting the eggs (collecting rent via market power). Apple’s only winning move is not to play, so Cook plays dumb, and consequently, Epic’s argument looks like speculation (and, as Apple would argue, fabulation).
He then deployed a similar strategy of starving the competition with a preemptive shrug about profits. He only addressed total net sales, which were about $275 billion at a 21 percent profit margin, saying Apple does not evaluate the App Store’s income as a standalone business.
Indeed it is arguable that the App Store is very much a tightly integrated component of a larger business structure. But the idea that it cannot be assessed as a standalone business is ludicrous. Again, it is nearly certain that it, like all of Apple’s divisions and product lines, is dissected and reported internally in excruciating detail. But again, it is just plausible that for legal purposes, it is not straightforward enough to say “the income and profits of the App Store are such and such,” thus denying Epic its datum.
However, the point is important enough that Epic thought it warranted independent investigation. And among the first things, Epic’s attorney brought up when the witness was turned over to him was the testimony from earlier in the trial by an expert witness that Apple’s App Store operating margins were around 79 percent.
It was not in Apple’s interest to confirm or deny these numbers, and Cook again pleaded ignorance. However, the mask slipped a tiny bit when Epic’s attorney asked Cook to break down the personal income numbers that combined the Mac and iOS App Stores. While Apple objected to this, saying it was privileged information and could only be divulged in a closed court, Cook offered that the iOS numbers are “a lot larger” than the Mac numbers.