After lawyers for Epic Games and Apple wrap up their closing arguments in a high-profile antitrust lawsuit today (May 24), US district judge Yvonne Gonzalez Rogers will spend the next few months deliberating on her verdict. The outcome of the case will, in large part, hinge on one key question: How big is the market in which Apple’s app store operates?
In the case, Epic is attempting to prove Apple has a monopoly over the market for apps—like Epic’s hit game Fortnite—and that Apple is using its monopoly power to take an unfairly large cut of the profits developers make through in-app purchases.
Apple argues the relevant market in this lawsuit should encompass all the devices on which consumers could play a game like Fortnite, including Xboxes, Playstations, Android devices, and so on. Under that broad definition, Apple clearly doesn’t have a monopoly on the market, which would effectively render Epic’s arguments dead on arrival.
Epic, on the other hand, argues the relevant market only includes devices that run on iOS, Apple’s operating system, where Apple controls 100% of the market for apps through its exclusive app store. If Epic can convince the judge to adopt its narrower market definition, it has a chance to then convince her that Apple is using its power over that market unfairly.
The consultants behind the market definitions
Most American monopoly cases revolve around calculations about the size of a market and the amount of control one dominant company has over that market. Coming up with those calculations is exacting, expensive work—so much so that there are only a handful of consulting firms who are consistently hired to crunch the numbers. This small group of monopoly consultants, ironically, dominates the market for highly-paid expert witness testimony in antitrust cases.
Epic and Apple both called on expert witnesses from this cadre of consultants over the course of their three-week trial. No matter who the judge sides with, it’s likely a significant piece of her verdict will be informed by the consultants’ analyses.
US judges, who are drawn from among the ranks of practicing lawyers, are generally skilled at parsing legal arguments. But few of them have much economic training, which means they often can’t analyze the economic questions at the core of antitrust cases on their own. That’s why economic consultants paid to be expert witnesses can hold so much sway: They’re a well-pedigreed bunch, who carry PhDs in economics, professorships at prestigious universities, and are often leading academic researchers, and who can walk judges and juries through complicated economic analyses.
“They have a lot of influence inside the courts,” said Bill Kovacic, a former chair of the US Federal Trade Commission (FTC) who now teaches law at George Washington University. “The voice of the external expert can be very powerful.”
Expert witnesses drive up court costs
Before a trial begins, consultants apply complex economic models to mountains of market data, and make sophisticated theoretical arguments to justify using one approach instead of another that might lead to a different conclusion. In court, they serve as expert witnesses and must be charismatic enough to convince a judge or a jury to go along with their conclusions.
“It’s a pretty rare skill set to be able to have both very good qualifications substantively in economics…and also to have the skills to sit in the stand and testify and explain it in plain English,” said Janelle Wrigley, managing editor at Thomson Reuters’ Practical Law and former FTC prosecutor. “Not everybody can do that. And the people that can do it can charge pretty good fees.”
Those fees can range as high as $1,350 an hour, according to a 2016 ProPublica investigation of a federal review of a proposed $85 billion merger between AT&T and Time Warner. (That case hinged, in part, on an infamous debate between well-paid consultants about whether the merger would raise the projected price of a cable subscription by 45 cents.)
The consultants’ bills quickly pile up, and they can make bringing an antitrust lawsuit prohibitively expensive. To fund an antitrust complaint against Google, for instance, Texas attorney general Ken Paxton asked the state legislature for $43 million in January; nearly half the total—$20 million—was meant to pay expert witnesses in the case.
Over time, Kovacic says, economic consultancies have nudged courts to consider ever-more-complicated formulas for quantifying the economic impact of any antitrust enforcement decision. “They have pushed the system in the direction of more complex analysis,” he said. “As you make the system more complex, you tend to favor defendants—especially big defendants. Big defendants can typically afford to apply more resources than plaintiffs can to antitrust cases, and that’s even true of the federal government.”
A consultant for all seasons
The major consultancies—which include large, globe-spanning firms like Charles River Associates and Compass Lexecon—recruit trained economists from across the ideological spectrum, to make sure they’re prepared to argue any side of any case. “They can testify that the world is flat or round,” said Kovacic. “They have someone who can do both.”
Kovacic spoke to Quartz in March and was not commenting on the specifics of the Epic v. Apple case. But it’s worth noting that at least one consultancy—Global Economics Group—does appear to have expert witnesses working both sizes of the Apple trial. In the trial’s second week, Epic called the firm’s chairman, David Evans, to testify that Apple has a monopoly on the app market, while Apple called Richard Schmalensee, a director at the firm, to testify just the opposite. Global Economics did not immediately respond to a request for comment.
In a case like Epic v. Apple, where both sides can afford to bring in plenty of high-priced experts, neither side is going to win simply because it hired the most expensive group of consultants. According to tentative witness lists submitted by both companies, they each had half a dozen expert witnesses from prestigious firms ready to deploy. But no matter which version of economic reality the judge ultimately accepts, she’ll be choosing from a menu of options presented by the niche industry of antitrust consultants.