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--:-- Sean Rameswaram: A few months ago on the show, we brought you a story about Fortnite, one of the most popular video games in the world. The company that owns it, Epic Games, was suing Apple, the most valuable company in the world. They were fighting about that little thing in your pocket that runs your life. Who should control your phone? And by extension, you.
--:-- Bobby Allyn: Both sides made their case in court. The lawyers went home and Apple and Epic and everyone else in Silicon Valley waited for a ruling. And waited. And waited. It was like one of those never-ending spinning rainbow wheels that pop up when your Apple machine is sick of you.
--:-- Bobby Allyn: Is it going to come down in Apple's favor? Is it going to come down in Epic's favor? Is the judge going to sort of split the difference? What in the world is going to happen? I'm out here in Silicon Valley, and this was absolutely the most anticipated ruling, and it took weeks.
--:-- Bobby Allyn: So when it finally came, it was the thing that every single person who covers tech or cares about technology was reading, and it was super interesting. It was complicated, but it was super interesting.
--:-- Bobby Allyn: Remind us how this all got started, Bobby?
--:-- Bobby Allyn: Epic Games, which makes the hit game Fortnite, has the CEO and he's this like North Carolina based eccentric character named Tim Sweeney. He really prides himself in being outside of Silicon Valley. He runs this multibillion dollar video game company, but he likes this sort of like Maverick persona. He really leans into it.
--:-- Bobby Allyn: Well, he launched this battle on behalf of Fortnite, but he also said on behalf of app developers everywhere to take square aim at Apple. Apple is locked down and crippled the ecosystem by imposing an absolute monopoly on this. And specifically what he was taking aim at is App Store fees.
--:-- Bobby Allyn: And if this sounds all really complicated, every single time, Sean, you or I will download an app that costs money or pay for something in an app, Apple tax on a 30 percent commission. Big moneymaker for them.
--:-- Bobby Allyn: Well, Tim Sweeney filed a lawsuit saying, actually, that's illegal. You're being a monopoly. A judge should declare that illegal and you should stop it right now. All of us, all a million of us, developers, large and small, need to resist and refuse to continue cooperating with these platforms, which, you know, intermediate and obstruct us.
--:-- Sean Rameswaram: I think when people think of Apple, they're thinking of their telephones. They're thinking of their Apple TVs. Maybe they're thinking about Ted Lasso. Hey, how y'all doing? I'm Ted Lasso, your new coach.
--:-- Sean Rameswaram: Like this 30% fee commission situation just feels kind of like weedsy. How big a deal is this to this company? It does seem kind of random, but it's huge to the company.
--:-- Sean Rameswaram: Years ago, iPhone sales peaked and Apple, the most valuable company in the world, needs to keep expanding and expanding, you know, as all tech companies want to. and they see a huge part of their future growth as being in its services business.
--:-- Sean Rameswaram: So things like subscriptions and fees. Keeping more stickiness with its customers. That's really what services is, right? It's a way to sort of keep you glued to their hardware ecosystem. Certainly does for me.
--:-- Sean Rameswaram: Central to that is the money it makes in its app store. And in recent years, developers have been increasingly speaking out and saying, hey, you want to say that Apple's a monopoly? Hey, look at me. I have a really good example of that.
--:-- Sean Rameswaram: and it's how much I'm getting charged every time I try to get my app out to people. 30%. That's unfair. Apple and Google are the only gatekeepers of this new internet, using user data and app developers' innovations and even income against them in order to bankroll the construction of massive tollways on the formerly free information superhighway.
--:-- Sean Rameswaram: And this 30% criticism has been snowballing. Lawmakers around the world, advocates of all stripes, have coalesced around this 30%. What's to stop Apple from increasing its commission to 50 percent?
--:-- Tim Cook: Sir, we have never increased commissions in the store since the first day it operated in 2008. And using it as the thing to point to when you say, show me an example of Apple's abuse of power, everyone is pointing to the 30 percent as the reason why Apple is monopolistic, arguably.
--:-- Bobby Allyn: How did the tech trial of the century go? Well, it's a lot of expert testimony. I mean, every economist you could think of that has an opinion about the digital economy took the stand and was under direct examination.
--:-- Bobby Allyn: It was under cross and it really got into a lot of minutia that you know would put even the most curious legal reporter straight snoozing
--:-- Bobby Allyn: It would cause him to start sleeping right But there were some moments that were pretty resonant and pretty interesting.
--:-- Bobby Allyn: And I think the highlight actually came right at the end of the trial when Tim Cook, for the first time ever, took a witness stand and took a real beating from the judge and was forced to answer some really, really, really tough questions from the skeptical and really hard-nosed Judge Yvonne Gonzalez Rogers in Oakland.
--:-- Bobby Allyn: What did you grill him about? So the question at the heart of the trial is, is this 30% an example of Apple being a successful company and being hyper-competitive? Or is it an example of Apple having too much power, monopolizing a market and abusing their might over smaller developers.
--:-- Bobby Allyn: And, you know, Yvonne Gonzalez Rogers, she didn't really buy that Apple is subject to any real competition. So, I mean, she just sort of threw hardball after hardball.
--:-- Bobby Allyn: You're charging the gamers to subsidize Wells Fargo? So with 39% of all your developers dissatisfied, how is that acceptable? So what is the problem with allowing users to have choice? Really, Tim Cook? Really? You really think you have competition? Then why has this 30 percent commission not changed?
--:-- Bobby Allyn: And after he got off the stand, I think most court onlookers were basically left with the impression of, wow, she's about to drop a pretty searing ruling that's going to take a big whack at Apple.
--:-- Bobby Allyn: This could be a real black eye for this company. I think that was sort of the expectation that many people watching this trial had after that showing.
--:-- Bobby Allyn: Did that pan out? What was the ruling? The ruling. The ruling was 185 pages, but in sum, Epic didn't get what it wanted. Apple didn't get what it wanted. It was sort of not great news for either, but overall, Apple's overall system in the App Store was affirmed.
--:-- Bobby Allyn: The judge said, you know what? I haven't seen evidence to suggest that you are operating Apple like an illegal monopoly. That said, you need more competition and I'm going to order that more competition be thrown into the app store.
--:-- Bobby Allyn: But essentially it was a lose-lose. Apple got a decent amount. Epic got a little, but both sides are unhappy. Fortnite game maker Epic Games said on Sunday it plans to file an appeal in its case against Apple over in-app purchasing power.
--:-- Bobby Allyn: So the upshot of it is Apple will be forced to let people like you or me pay for things in processors other than Apple's. And what that means is, you know, say I am playing Candy Crush and I want a few extra credits, right? They call that an in-app purchase.
--:-- Bobby Allyn: It's basically, I'm on my iPhone playing a game. I'm going to buy a credit. Typically that goes to Apple. Apple gets 30%. The judge said Candy Crush players, you know, basically should have another option that says, should I process this through Candy Crush or should I process it through Apple?
--:-- Bobby Allyn: And that might seem like a subtle sort of whatever change, but it's actually a huge change because since the App Store started in 2008, Apple has so tightly controlled every single thing about it down to the way it processes payments.
--:-- Bobby Allyn: And it makes tons of money. I mean, during the trial, we found out one expert estimated that, you know, their profit margin is nearly 80% on this app store. So it makes tons of money off processing payments.
--:-- Bobby Allyn: And the judge said, basically, Apple has this black box. It's not letting anyone see what's inside. And that's not fair. Okay, the judge wants Apple to allow developers to give more information to customers.
--:-- Bobby Allyn: And this might hurt Apple's bottom line. How does Apple feel about that? This was far from the worst case scenario for Apple. Apple feels like it dodged a bullet.
--:-- Bobby Allyn: But Apple's lawyers are looking at this right now and saying, you know what, we're not super thrilled about making this change. This might hit our bottom line. But if the 30 percent commission was declared illegal, that would be a much bigger problem.
--:-- Bobby Allyn: I think that Epic appealed because Epic basically lost almost everything. Epic has basically failed to prove any sort of monopoly. If we were considered an illegal monopoly in the way that Epic wanted us to declare an illegal monopoly, that would have been a much bigger problem.
--:-- Bobby Allyn: But this does end up being a bit of a disappointment for everyone out there who is hoping that this judge in California was about to hand down this ruling that would finally rein in big tech, right?
--:-- Bobby Allyn: I think that's right. I mean, some of the small developers who were really hoping this judge would knock down or break open Apple system in a more sort of systemic way are definitely not happy.
--:-- Bobby Allyn: I mean, one of them, Match Group, which runs Tinder, you know, they put out a statement that basically says what this ruling shows is that our super old, antiquated antitrust laws, you know, are not really the best ways to hold companies like Apple accountable and that we need to bring our laws into the digital age.
--:-- Bobby Allyn: South Korea did this recently. South Korea's parliament just made history targeting those big app stores with a new landmark bill here. In South Korea, you know, the whole in-app purchasing and buying apps with this 30 percent commission was declared illegal.
--:-- Bobby Allyn: In other words, developers can now avoid paying commissions to the big app store operators directing users. So South Korea is really progressive on this. But yeah people who are hoping that this judge would really smack down Apple are sitting around looking at this ruling and they feeling pretty bummed out right now
--:-- Sean Rameswaram: Okay, the judge didn't smack down Apple, but there are a whole lot of United States senators who would very much like to. I'll speak to one of them in a minute, but I'm not going to say which one for now. You'll have to guess.
--:-- Sean Rameswaram: All right, a hint. Amy K. No, no, no, that's too obvious. A. Klobuchar.
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--:-- Sean Rameswaram: That's attio.com slash todayexplained. Not all journalism is the same. Take The Guardian. Our coverage has something unique. Fierce independence. Nobody owns us or tells us what we can and can't say.
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--:-- Sean Rameswaram: Read, watch and listen to The Guardian for free at TheGuardian.com. Senator Amy Klobuchar, we spoke in the first half of the show about this sort of complicated ruling that was mostly a win for Apple, but sort of a loss too.
--:-- Amy Klobuchar: I think that's a pretty good characterization. So let's start with, from my perspective, the positive, because I think we have to take on these dominant tech platforms. I don't envy them. I think that it's great they've had success.
--:-- Amy Klobuchar: But at some point, our laws reinvigorate capitalism. And that means making sure that new companies can start and that things are fair. And we don't have that going on right now.
--:-- Amy Klobuchar: So for me, the answer is very clear. I wrote a whole book about this, that we need to change our antitrust laws, that our laws need to be as sophisticated as this new marketplace.
--:-- Amy Klobuchar: We're relying on laws that were made before there was a web, before anyone invented anything. with regard to the internet. And we've got that problem.
--:-- Amy Klobuchar: And then we have courts that are predisposed to basically let the Wild West govern here when it comes to antitrust, not just tech, pharma, online travel, you name it.
--:-- Amy Klobuchar: There are so many cases where you've got one or two companies dominating a market. And you've introduced legislation in the Senate to promote competition in the App Store and Google Play.
--:-- Amy Klobuchar: Tell me about it. Well, that came out of a hearing we had, which was one of the most interesting things for a few reasons. One, Apple wasn't going to send a witness.
--:-- Amy Klobuchar: And Senator Lee, conservative senator from Utah, he and I spent the weekend learning all about this. We finally wrote a letter to Tim Cook and we said, wait a minute, you just talked about this issue yourself on Car Swisher's podcast.
--:-- Amy Klobuchar: Do you find this to be your most vulnerable part of your business, these issues with antitrust investigators looking into it? Apple has helped build a economy that's over a half a trillion dollars a year.
--:-- Amy Klobuchar: I think it's hard to argue that the App Store is not an economic miracle. And now you're saying you can't talk about it. You can't send a witness because you have pending litigation. You just did that last week.
--:-- Amy Klobuchar: And so they ended up changing course. They sent a witness. Chairwoman Klobuchar, ranking member Lee and members of the subcommittee. My name is Kyle Ander and I am Apple's chief compliance officer.
--:-- Amy Klobuchar: I appreciate the opportunity to offer testimony about Apple's app store. Some of you may have an iPhone with you right now. I hope that's the case.
--:-- Amy Klobuchar: So the hearing proceeded on the Apple thing. We found out this issue that came up in Epic that they couldn't tell them, oh, you can get cheaper rates from us on our own websites.
--:-- Amy Klobuchar: And then we found a lot about allegations of them self-preferencing, putting their own products at the top. So that caused us to come together, Senator Blumenthal, Senator Marsha Blackburn, very conservative.
--:-- Amy Klobuchar: The three of us came together and did a bill on App Store. So that's what's pending right now. It's gotten a lot of attention and it would solve a lot of these problems.
--:-- Amy Klobuchar: Tell me what exactly the policy would do. I think people find this stuff a little confusing. Everyone uses these App Stores, but I don't think people are really familiar with how the profit systems are functioning.
--:-- Amy Klobuchar: Exactly. And you know what I think is crazy about this is that that's what they're thriving on this, that the complexity of them gives them dominance because many of us need to get more educated, which I've done on all of this in order to take this on.
--:-- Amy Klobuchar: So what the legislation would do, it stops app stores from promoting their own apps unfairly in search results.
--:-- Amy Klobuchar: That the self right That when they put certain things at the top of the Google search or things like that Force Apple and Google to allow customers to use third app stores Block the app stores from using their special access to data.
--:-- Amy Klobuchar: You know, we're all individual profit centers for them, but we don't make the money off ourselves. They do. Stop app stores from requiring app developers to use their in-app payment systems and requiring them to give access to system interfaces.
--:-- Amy Klobuchar: So that's what that bill is. But if you really want to get at everything of the consolidation we're seeing across, not just with app stores, but across tech, across pharma, in John Oliver's words.
--:-- Amy Klobuchar: Since the late 1970s, that balance has tipped decidedly in favor of being merger friendly, which has led to real problems. And let's start with the obvious. For workers, mergers can often mean big layoffs.
--:-- Amy Klobuchar: But it's not just employees that can suffer, consumers can too as he showed how we've seen consolidation and everything from cat food to caskets so the point of it is that we need to change our laws shift the burden make it easier for the government to prove up these cases basically why hasn't the federal government been acting you think well that's easy you like move you turn around a corner and you see a tech lobbyist right there's some of the biggest contributors as well as pharma just look at the numbers.
--:-- Amy Klobuchar: So that's a piece of it. There's an old cartoon I have on my wall right now that I'm looking at in my office. And it's from way back in the 1800s. But it shows the Senate sitting there and then these big bloated balloon type figures looking down on the Senate.
--:-- Amy Klobuchar: And they say things like Standard Oil Trust, Rail Trust, because they basically own the Senate. So you have that going on. You always have that going on. But it's also because it's so complex what you raise. It's it's impossible to figure out some of it.
--:-- Amy Klobuchar: And they know that. So monopolies take advantage of that. So it's on us and on the citizens. And this is what I argue in my book, aptly named Antitrust. It is on the citizens to really seize this and work with us to get this going.
--:-- Amy Klobuchar: But there's more movement on this also because of David Cicilline, the hearings they did in the House were really good. So there's just a lot of action.
--:-- Amy Klobuchar: And finally, I would be doing a disservice by not bringing up the agency funding for the FTC and the Department of Justice Antitrust Division. Those are the two players here.
--:-- Amy Klobuchar: And the Biden administration has put in Lena Kahn, some really out of the box thinkers to take on some of this monopoly. But if they don't have the resources, it all becomes a joke. And right now they are a shadow of their former selves.
--:-- Amy Klobuchar: So Senator Grassley and I passed a bill that will add to their budgets over that. And that's based on the way the merger fees are structured. So it doesn't even cost anyone anything except the big companies that got through the Senate.
--:-- Amy Klobuchar: So it just shows you right there that we have movement on our side. And then we're trying with this big package we're working on this fall to get some funding there as well.
--:-- Amy Klobuchar: It just feels like these tech companies have been on this like, you know, decade long, if not decades long, like honeymoon period where we're so enchanted with what American tech companies in Silicon Valley have accomplished that maybe there's not even this drive to do anything about it.
--:-- Amy Klobuchar: I mean, and now these companies are so powerful that they're more powerful than countries. They can swing elections. Look what they did in Australia when they tried to charge them for content, Google and Facebook.
--:-- Amy Klobuchar: They basically said to an industrialized nation, OK, we're going to leave and you don't really have anyone to take our place. That's what bullies do. That's what monopolies do.
--:-- Amy Klobuchar: Then what happened? There was so much international pressure, they finally stepped out and stopped doing that and negotiated some with them. But I think that the time has come because of various things, privacy and the like, all of this stuff coming out.
--:-- Amy Klobuchar: That is why we have antitrust laws. And so we just need to get the people in place, which the Biden administration has done and is doing. We need to get the resources there, which I believe we're going to do in a bipartisan way this year.
--:-- Amy Klobuchar: They bring up the cases. They refile the cases that get rejected. They try different theories. We at least nominate judges that take this seriously at all levels. And then we make some changes to the law like we've always done as a country.
--:-- Sean Rameswaram: Okay, appreciate it, Senator. Thank you so much for your time. This was really great. I hope I can come on again, maybe on voting now that we have the deal with Manchin.
--:-- Sean Rameswaram: Senator Amy Klobuchar, D. Minnesota. She's got the deal with Manchin. Our episode today was produced by Will Reed with help from Hadi Mawagdi.
--:-- Sean Rameswaram: I'm Sean Rameswaram from It's Today Explained. Thank you.
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