Apple gets sneaky in its battle with Epic Games

• Strategy is to use a longtime collaborator to undermine its opponent’s expert witness

In its ongoing case against Apple, Fortnite creator Epic Games is counting on this week’s testimony from its star expert witness David Evans — chair of Global Economics Group — to make its case that Apple is an anticompetitive monopolist over app developers.

Apple has called its own experts to rebut Evans’s views on the market, but with an added personal twist. It called economist Richard Schmalensee, who has authored numerous books and academic papers with Evans, to accuse Evans of contradicting his own research.

Legal experts said Apple’s aim is to chip away at Evans’s credibility in the eyes of the judge who will rule on the case.

The erstwhile collaborators — who have written works cited extensively by the US Supreme Court in landmark antitrust decisions — are duking it out over the central issue in the three-week trial in federal court in Oakland, California: what is the relevant market in the case?

Framed Epic’s way, Apple and its app store are a monopoly that is abusing control over the mobile software market to extract commissions for payments made inside apps. Apple argues that it is just one of many competitors in a healthy market for video game purchases.

Whichever side prevails in persuading judge Yvonne Gonzalez Rogers on the question of market definition is likely to win the entire case, experts said.

“Epic absolutely has to win the market definition,” said Daniel Lyons, a professor at Boston College Law School. “If Apple is right that Fortnite on iOS is just one small part of the larger Fortnite universe, then Apple doesn’t have market power and anything they do is unlikely to cause consumer harm because consumers can switch.”

On the stand this week, Evans testified that Apple is a single-brand market, arguing that once consumers buy an iPhone, the costs of switching to an Android are so high that they rarely make the jump.

Since about 2010, Evans testified, Apple’s App Store has effectively been its own market and users rarely venture outside. After Apple kicked Fortnite off the App Store, Evans testified, only a small fraction of Apple users jumped to other devices like PCs or gaming consoles to play Fortnite.

Schmalensee, by contrast, contends that the relevant market is gaming transactions, where Apple is just one platform among many — Microsoft’s Xbox and Sony’s PlayStation — sitting between game developers and gamers and charging commissions to facilitate transactions.

Apple’s App Store is a twosided market, Schmalensee testified, a concept that he and Evans have written about extensively, including in an amicus curiae brief on behalf of American Express in a 2018 US Supreme Court case.

American Express had prohibited merchants from steering their customers towards rival cards with lower swipe fees, arguing that its higher fees helped fund cardholder perks that benefited consumers.

The court sided with American Express, citing Evans and Schmalensee extensively in its decision.

Schmalensee said that Apple’s rules prohibiting apps from steering consumers to less costly payment presented an almost identical issue, and that Evans had contradicted many aspects of his previous work.

Outside observers have been surprised by the split between the two star economists.

“I would say [Evans’s] views on AmEx haven’t changed, but what he would say is the facts here are different and so the same result isn’t appropriate,” said Geoff Manne, founder of the International Center for Law & Economics research.

“Personally, I don’t see how he gets there and gets it to stick.”

Part of Apple’s strategy in putting Schmalensee on the stand is to bring up the differences between Evans’s previous work and his current view of the Epic case in a bid to make his testimony look less credible, observers said.

“Each of them knows though that whatever opinions they have said in the past have to be consistent with what they say now,” said Steven Salop, professor of economics and law at Georgetown University and a self-described consultant to Epic on its case.

Schmalensee declined to comment, and Evans did not immediately return requests for comment.