When the US Supreme Court upheld the court ruling in the Apple vs Epic Games case, I said that the iPhone maker’s response was clearly made in bad faith, and was effectively giving the middle finger to the judge in the case.
The judge has now officially confirmed this view. She has not only directly called out Apple for ignoring her ruling, but said that a senior Apple exec lied under oath, and referred the matter for prosecution …
I’m not a fan of using bold text for emphasis, but I really have to on this occasion to emphasise just how utterly insane and incredible this is:
The judge declared that Apple’s VP of Finance Alex Roman lied under oath in a court of law. Apple knew this and did not comply with its legal obligation to correct the record. The matter has now been referred to the US Attorney for criminal investigation. Roman could literally be sent to jail for this, with Apple also subject to criminal sanctions.
The insane history of this dispute
Epic Games flouted Apple’s App Store rules by introducing its own in-app payment system, bypassing Apple’s 30% commission. That was a blatant breach of Apple’s rules, and the company threw its games out of the App Store. So far, no big deal, a simple civil dispute.
The two companies went to court, and Apple mostly won. That also needs to be emphasised here, because the company could have taken the win – the finding that the App Store is not a monopoly – and gone home happy.
The only area where Apple lost is that Judge Yvonne Gonzalez Rogers ruled that Epic (or any other developer) is allowed to make in-app sales without the iPhone maker taking a cut. Most developers weren’t going to bother, so the financial loss to Apple would have been pretty small. But Apple chose to flout the entire intent of the judge’s ruling, and announced that it would continue to demand commission even on sales made outside the App Store.
That was clearly a ridiculous response. Epic went back to court to accuse Apple of acting in bad-faith, and the judge strongly implied she agreed, and that Apple was lying about its motivation. She demanded that the iPhone maker hand over all its internal documents relating to the decision. When Apple claimed it had not been able to comply by the deadline, a second judge said he too thought the company was lying.
That’s two separate judges saying that one of the biggest companies in the world is probably lying.
But now it’s official: Apple lied under oath
Rogers, the judge in the original case, wanted time to study Apple’s documents to find out whether or not the company lied. She’s now returned with an 80-page order which finds that:
- Yes, Apple deliberately set out to subvert the clear intent of her ruling
- Yes, Apple lied in an attempt to cover up its subversion of her ruling
Specifically, she said Apple’s finance VP Alex Roman told multiple lies under oath.
Apple employees attempted to mislead the Court by testifying that the decision to impose a commission was grounded in AG’s report. The testimony of Mr. Roman, Vice President of Finance, was replete with misdirection and outright lies. He even went so far as to testify that Apple did not look at comparables to estimate the costs of alternative payment solutions that developers would need to procure to facilitate linked-out purchases.
The Court finds that Apple did consider the external costs developers faced when utilizing alternative payment solutions for linked out transactions, which conveniently exceeded the 3% discount Apple ultimately decided to provide by a safe margin. Apple did not rely on a substantiated bottoms-up analysis during its months-long assessment of whether to impose a commission, seemingly justifying its decision after the fact with the AG’s report.
Mr. Roman did not stop there, however. He also testified that up until January 16, 2024, Apple had no idea what fee it would impose on linked-out purchases […] Another lie under oath: contemporaneous business documents reveal that on the contrary, the main components of Apple’s plan, including the 27% commission, were determined in July 2023.
Neither Apple, nor its counsel, corrected the, now obvious, lies. They did not seek to withdraw the testimony or to have it stricken (although Apple did request that the Court strike other testimony). Thus, Apple will be held to have adopted the lies and misrepresentations to this Court.
So now both a senior Apple exec and the company face a criminal investigation. This is, as I said earlier, utterly insane – massively more so when you consider this was one of the richest companies in the world lying in a vain attempt to prevent a rather trivial loss of income.
I said at the time:
Sure, what Epic Games did was dumb. It baited Apple, Apple responded, and Epic Games got hurt. FAFO. But Apple is making the exact same mistake here. It’s baiting lawmakers, lawmakers will respond, and Apple will get hurt.
It was obvious to me that Apple was making a dumb decision, but I had no idea then just how dumb! The judge herself cited the oft-quoted adage that it’s always the cover-up that gets you.
Apple willfully chose not to comply with this Court’s Injunction […] That it thought this Court would tolerate such insubordination was a gross miscalculation. As always, the cover-up made it worse.
It’s the cover-up that has turned this from a civil matter into a criminal one.
Today is Apple’s chance to put things right
Top comment by Blurft
A good article and argument, and I agree that a Apple should simply comply and act contrite to protect their brand image, but we should note that Apple has already announced their intention to appeal.
Given all of the lawyers and accountants that Apple can afford, we must assume that Apple has done so because they've run the projections and believe that complying with this ruling would cost them more than continuing to fight it would.
Why would they do that? Why take the risk?
I suspect it's because Tim Cook really doesn't want investors to realize just how much their "Services" revenue is legally-dubious rent-seeking.
Keep in mind that Apple reports quarterly "Services" revenue, but doesn't break those numbers out by individual services. We don't know how much of that number is Apple Music, Apple TV+, Apple Fitness+, Apple News+, iCloud+, App Store, etc.
We can reasonably expect that, if the App Store share were small, Apple would have said so in court and to investors. It would serve to show the court "Look, we're not skimming that much money from the market, let us continue" and it would show investors "We have diversified services revenue, that's healthy."
But they don't do that. Why? The only reasonable explanation is that the App Store share must be massive, and Apple knows how bad it would look if they acknowledged how much of their "pivot to services" revenue growth the last few years has been funded by rent-seeking practices.
I don't think Cook will be remembered fondly.
We outlined yesterday the three options now open to Apple:
- Fully comply with the ruling
- Try to negotiate a compromise
- Appeal
The only sane one of the three is the first. Anything else simply drags this out even further, with even further embarrassment to the company.
We can guarantee that Apple will be asked about this in today’s earnings call. This is the perfect opportunity for the company to admit its mistakes, apologize for them, announce that it will be fully complying with the judge’s ruling, and try to finally put this mess behind them. That won’t necessarily end things completely – criminal prosecutions may yet follow – but it’s the best shot the company has. I just wish I believed the company will do it.
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