After Xbox testimony, Apple tells Microsoft to put up or shut up

Illustration by Alex Castro / The Verge

As the first week of the Epic v. Apple trial comes to a close, Apple is picking a fight over one of Epic’s witnesses. The fight centers on testimony from Lori Wright, Microsoft’s vice president of Xbox business development, who testified about the distinction between “general purpose” and “special purpose” devices on Wednesday in favor of Epic’s claim. Wright’s testimony set off a day of confusion over whether Microsoft actually makes money selling Xbox hardware. Apple is now asking the judge for an “adverse credibility finding,” basically a determination that Wright’s testimony can’t be trusted because of irregularities in document production.

In a new filing, Apple argued that some of the documents referred to in Wright’s testimony weren’t produced in advance, and the entire testimony should fall under a cloud. Apple’s lawyers zeroed in on Wright’s claim that Xbox hardware was sold at cost in order to subsidize game sales.

“Ms. Wright testified about the supposed unprofitability of Microsoft’s console business without providing the P&L statement from her files that could have substantiated (or disproven) her testimony,” Apple’s filing argues.

Apple has actually made this case before, arguing back in April that Wright’s testimony should be stricken from the record because of irregular document production in the weeks leading up to the trial. Now, they’re arguing that Wright stepped outside of the preset parameters of her testimony, and her entire testimony should be deemed not credible.

And at the center of it all is Microsoft’s profit-and-loss analysis for the Xbox hardware, which no one on the Apple side has seen. It’s worth remembering here that Apple and Microsoft have been locked in heated competition for decades now, and while Apple doesn’t have a product competing specifically against the Xbox, the broader companies are tied up in a delicate balance of fierce competition and business cooperation. As a result, Microsoft really does not want to give Apple sensitive financial data about the Xbox — and Apple sees the P&L statement as a way to punch back at Microsoft for getting involved in the App Store fight in the first place.

From the beginning of the Epic v. Apple trial, documents have been an issue — and it’s likely to continue being a problem as long as the proceedings go on. Both sides agreed in advance to upload exhibits to a public Box folder (it’s here, if you want to follow along), but the actual use of that folder has been extremely chaotic. On the first day of the proceedings, more than 100 different filings were uploaded to the general exhibits folder, only to have a handful clawed back as sealed — including some of the Sony docs we published here. Nearly every day, documents have been added to the Box and then pulled back, to the point where we’ve had to mirror the whole thing just to make sure we don’t miss anything.

Some of this is normal. A big part of the legal fight is over which documents can be used in the trial and which parts of those documents can be blacked out to conceal trade secrets or other information the companies would rather not get out. The companies’ lawyers have been going back and forth on these tiny details for months; it’s just what lawyers do.

But it’s fair to say this case has been unusually chaotic — either because of the remote nature of the trial or the sheer volume of different companies involved. A lot of information has come out of the discovery in this case, and not all of it was supposed to. Now, Microsoft is caught between giving up information that could help in court and giving up business secrets to a longtime rival. Microsoft wants Epic to win this case, and it’s willing to talk about Xbox profitability if it helps to make that happen. But giving up that information in open court might be a bridge too far.

Comments

Either they earn some amount of profit from hardware or a lot of money from commissions. Either way it can be used against Microsoft if an anti-trust is filed against xbox in the future.

yep, same with the Apple’s App Store, Apple even claims that they do not have a profit overview, haha.

They never claimed that they do not make substantial amount of profit from the AppStore.

I’m not sure why there seems to be so much confusion over what the markets are. Seems like common sense. The 170 billion dollar global mobile app market is a duopoly where Apple owns close to two thirds of that market. XBox is an also ran – nowhere near monopoly marketshare in the global console games market.

In terms of marketshare, no. Apple doesn’t own two-thirds of the Global mobile app market. In terms of revenue, yes. But the fact remains in Apple’s favour that people like the Appstore more than other stores which Epic is disputing.

Revenue is the market. I often see many people reference handset sales which has very little to do with the global mobile app market. If a developer wants to create a mobile app business they have no choice but to put it on iOS considering Apple is the intermediary / gatekeeper for approximately 2/3 of the $170 billion dollar global market.

If a developer wants to create a mobile app business they have no choice but to put it on iOS

Nonsense. They have a choice, no one is forcing them to create for iOS.

No one forces an author to put their book on Amazon either but the result is the same. Whether you are an app developer or author you have no chance of being successful ignoring the intermediary that controls 2/3 or more of their respective markets.

if they want to be successful they really dont have much of a choice.

Does revenue really equal market? That’s really sketchy. Apple have 20% of the phone market worldwide and I think close to 50% in The USA. Technically half the customers in the USA have chosen another system so potentially whatever money dev’s have made on the iOS side could be made on the android side.

The issue is that iOS users spend more. The hardship is dev’s want access to the people that spend the most, not just "people". And that is why Apple wants it’s 30%. Because it feels that it’s their marketing, development, security, trust, risk taking and brand reputation that brings the big spenders! And if it was so easy to bring those spenders together why hasn’t Samsung, LG , Sony and google done that? Especially worldwide where android owns the vast majority of the market?

Getting someone to spend more does not make you an monopolist. Being the only game in town makes you a monopoly.

But the fact remains in Apple’s favour that people like the Appstore more than other stores

Fact? Ha…how do you prove that "people like the App store more" when they have zero other options? Ridiculous.

Because they could have bought an Android phone, and they didn’t. And those that do buy Android phones refuse to pay for software, which is why developer revenue is so high and piracy so high there, which in turn means Android users get fewer and lower-quality apps and games.

Because they could have bought an Android phone, and they didn’t

Except Android outsells Apple by far on a global basis.

Everything else you said, while partly true, does nothing to prove that people like the iOS appstore more.

That makes no sense no matter how many times you say it. Company A sells thing for free and has 1000 users, company B sells thing for $1 and has 10 users. The size of the market is $10. Company B owns the lot of the market. But is it a monopoly?

The free vs $1 cost is what both companies thought the market will bear for their products. Company A may choose to do whatever the fuck it wants like sell user data to third parties and make their money that way while still claiming their product is free.

You can’t extrapolate market size directly to monopoly in this case.

Given that Google and Apple’s cuts on the stores are identical, and Android makes up about 72% of the overall smartphone market, this is actually an open-and-shut argument in Apple’s favour that they provide a valuable set of services and platforms that users are actually willing to pay for and developers clearly benefit from, because the counter-example is Android which has 72% of the marketshare overall but less than half (according to you, I didn’t double-check that) of the overall revenue.

For XBox to face anti-trust, it 1st needs to be a monopoly and then Microsoft needs to engage in anti-competitive practices. Neither of which is plausible at this time. Much higher chance of Apple facing anti-trust proceedings in this case.

Why? Apple like Xbox doesn’t have monopoly in the global Market or any market for that matter. Xbox is a closed system like iOS. Xbox has its own competing titles like Arcade in iOS. Scam Apps have been found in both the stores.

Wright claims that xbox are sold at Cost. But then anti-trust can be filed against Microsoft that they are subsiding the prices to prevent small companies to enter and succeed in the Console Market.

I don’t know. It would be hard to make the case that the sale price of an Xbox (or PlayStation or Switch) is the main barrier to entry for creating a new console.

Apple has 2/3 of the 170 billion dollar market.

Don’t make the mistake of conflating handset sales or number of handsets with the actual mobile app market.

That is monopoly market share especially in a market where there is essentially no competition. The mobile app market is a duopoly with mostly the same rules.

Except there’s no such thing in legal definition as the "mobile app market"

There is no legal definition of any market before/until regulators or courts get involved. We can see how they’ve defined markets in the past and it’s almost always by category and the mobile app market is the common way the market is analyzed. It’s the same approach being taken with Google (digital advertising) and Amazon with eBooks. Number of handsets has zero chance of being the basis of regulators/courts determining monopoly status for Apple.

Have you wondered at all as to how it is that Apple’s App Store generates so much of the revenue of that market (which developers therefore benefit enormously from) in comparison to their much smaller share of the overall market?

The Xbox is a closed ecosystem where the only digital storefront available is the one Microsoft controls and from where they take 30% of the sales of games. As of now, I don’t think the Epic Game Store or Steam can be made available on that platform. So I wonder how is that so different than Apple’s platform ? Is it considered a monopoly just because of the sheer amount of people who chose to go with Apple instead of Android ? (even though globally the Android ecosystem has more users than iOS)
One of Epic’s argument is that it’s just because the console business model is different (imo because they chose to be different… nobody is forcing them to sell consoles at a loss) so they basically either wanna force Apple to sell mobile devices at a loss or lower the 70/30 share in favour or developers or allow apps to be side loaded or be able to use in app payment alternatives.

You clearly don’t know what youre talking. Comparing a console that not so many people own, where you can even have its services running on android and pc’s around with cloud gaming… to a mobile phone that is widely used all around the world, where many of the people who get it are forced to stay on it due to imessage…If I am not on Android maybe it is because all my friends are on iOS… the same thing happens with Windows OS.

Video game consoles and smartphones are 2 very different things. Phones are multi purpose devices, the more and more the margins between iOS and Mac OS and just nonexistence. My parents dont have windows laptops anymore, they use their smartphone and tablets to do all their stuff, from paying bills. watching series, browsing and listeing to music… no one is using a console for more than playing games or watching some clips time to time. My friend Apple will never sell smartphones at a loss, they have huge margins in hardware. LOl do you really think a 700$-1600$ phone is at loss? LOL I have my iphone 11 pro, and I would love to install another store than app store… I really hate app store but hey all the people I know are on iOS, so I have to eat that crap and hope one day thre will be a lawsuit so that apple finallys allows me to choose more default apps and different stores. Afterall, dictatorship is never a good thing. Let the customer choose what they want in terms of software, I want to have a choice.

You can argue that Smartphones/Consoles are not the same (clearly there are lots of reasonable points for and against), but if you are against the theory of having a locked App store on iPhone, then that should also apply to Consoles as well.

How does Epic/Microsoft argument that "locked store and 30% commission on Xbox is fine because the hardware is sold at a loss" make sense?

If we accept that argument, then there has to be a formula somewhere with variables of X hardware price allows for Y app commission plus Y/N locked single store front.

Whether smartphones/consoles are comparable or not, the margins on the hardware is irrelevant to single/different stores.

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