For listeners who might not be familiar with the case, can you outline the origins of the legal battle between Apple and Epic Games? Why did Epic sue in the first place?

It has really dramatic origins, because basically what happened is Epic orchestrated a media event by deliberately breaking the agreement that they have with Apple as a developer. They allowed users of the game Fortnite, a wildly popular game, and it's hard to overstate how popular it is, to go purchase certain digital goods outside of the App Store and use them in the game, knowing that Apple would figure that out and then kick them out of the App Store for the violation.

So once Apple does indeed take the bait and do that, Epic, first, drops a lawsuit. It's 60 pages or something like that, clearly not written that day. So Epic knew what they were doing. And then, more conspicuously, they released their version, the Epic remix, if you will, of the most famous computer ad of all time, 1984. This is when the Mac was released. You'll remember this Orwellian Big Brother talking to a bunch of drones that's supposed to be IBM. And this woman in tight little red shorts comes in representing Apple, flings this hammer onto the screen, and breaks the spell. Well, in the Epic remake, the Orwellian Big Brother has the shape of an apple as a head and is wearing Tim Cook's glasses. And here comes Epic, on behalf of developers, to break the stranglehold monopoly of the App Store.

So it was a really dramatic opening. And then I think it's been a lot of boring procedural legal stuff since then, but it got a little bit more dramatic this week, because the judge really excoriated Apple for how they've behaved in pretending to comply with the order from the court.

If we go back to the very beginning, as you said, it's a 60-page lawsuit. It was premeditated to some extent.

Premeditated. That's the word I was looking for. That's perfect.

If we rewind the clock all the way back to 2007 or 2008, when the App Store first launched, is this the way the App Store has functioned since inception? Or did they put the tolls in place over time?

30% was the original toll, to use your word. And it's fallen to some extent, to 15% for certain developers, since then. But that was really because of the antitrust complaints. This wasn't out of the warm heart of Apple. So they had to respond to certain changes, and then Google followed suit. So there's some history there.

But the App Store has definitely not gone in the direction that Apple originally conceived, and I think if they could go back in time, clearly things would be way, way different. What I mean by that is Apple didn't foresee the digital advertising industry. If Apple could be getting a piece of that, they would. But every time an Instagram ad is shown to you or what have you, Apple, from the get-go, had no mechanism in place to take a toll there.

So there is this weird thing where, let's say, banking apps like Wells Fargo, and I'm basically quoting the judge here, this is something she famously said three or four years ago, are not having to pay any fee. As a Wells Fargo customer, you go download that app and use that banking thing for years, and Apple's not getting any money from Wells Fargo. And yet these gaming companies, by, like, not the opposite of premeditation, just some haphazard, weird thing, ended up being the major moneymaker for Apple. When people are playing games, they like to pay to upgrade. They like new uniforms for the characters or whatever. And Apple was taking 30%, cha-ching, cha-ching, every time somebody's playing. So if you're a big game developer, you're thinking, "Why am I subsidizing Wells Fargo? This seems ridiculous." So Epic was finally wanting to really do something about it, and had a lot of developer support.

To give one other instance of how frustrating the App Store can be, you use an app like Audible to buy audiobooks, and yet you can't actually buy in the app. Or if you do, you get charged more. So you're always getting kicked out of the App Store. Same thing with Spotify. It can be quite frustrating. And for a company, Apple, that really talks about how "we do everything for the user," the App Store is just a glaring example of how that's just not the case.

How do you think the environment of payment infrastructure, payment rails, and gaming or not gaming changes? Do you have any ideas of what this looks like going forward for developers, for example?

This isn't my baseline, but let me give you the more interesting answer, which is that there could be a careful-what-you-wish-for type outcome here. Again, I don't think this is the most possible outcome, but it's not unfeasible, which would be that Apple decides to totally revamp all payments on the App Store, in which case they restructure things so that, in fact, they do get a payment out of the massive digital advertising industry and they take less from others.

The reason why this would at least be conceivable is that Apple's not ready to just give up billions of dollars in this rent-seeking approach that they have here. So if they're told in explicit terms, "You cannot earn 30% on all of this income," I think Apple has, let's say, motivation rather than reason, but motivation to go find it in other ways. That's why I say careful what you wish for.

I think the more boring thing is that a few years in legal terms is a few days. Things just don't move that quickly. So if we're talking a full decade from now or 15 years from now, how is this all structured? It's a little bit harder to say, and maybe there aren't going to be all that many things changed. But we have to remember that when Epic sued Apple, I believe there were 10 counts, and Epic lost on nine of them. So overall, this has been a victory for Apple.

If you're wanting to love this company, it's a little bit frustrating just how after every penny they are when it comes to this, because what we're talking about is this anti-steering provision. I know that doesn't sound very sexy, but basically, a company wants to sell you a good, and Apple says it's got to be on the App Store, and you're not even allowed to tell consumers that there's another way to do this. And basically, the court said you do have to offer another way. You can control your department store as much as you want, but you can't tell people they can't go somewhere else.

So when they were forced to do that, they then put up warning signs like, "You're leaving the app, and this is an unsecured transaction." And they still charged fees of 27% rather than 30%. And Apple knew, and the court got internal documents to demonstrate this, that a 3% discount is not going to be enough for major developers, or small developers especially, to set up these rival programs that are going to rival the App Store, because in addition to the 27% Apple tax, they're going to have to pay credit card fees, and those alone are often 3% or 4%. So Apple knew that they were not helping developers in any sense. They were actually dissuading them from setting up these rival stores. And just to use layman's terms, Apple is just kind of being a dick here. It seems like it's just a classic example of platform power.

I would never urge someone to go read the legal documents, but this is an exception. This is fascinating, where a federal judge is really going after Apple in blunt language and literally recommending potential criminal procedures for one of the vice presidents of Apple for deliberately lying under oath. This is pretty rare and pretty spectacular.

How do you think Apple is going to handle the geopolitical challenges over the next one to two years, and then the longer-term ramifications, call it five to 10 years and beyond? What kind of world do we think Apple is going to be living in?

It's a great question. And unfortunately, five to 10 years just isn't that long when we're talking about supply chains. The reason why Apple is so dependent on China is because it's the country where they made a quarter century of investments. And I don't think Apple even understands, at the highest level, just what a once-in-a-century partner China was. I think they tend to look back on the last quarter century and say, "Look what we did in China. That's amazing. We can go do this in India if we need to." And it's like, she just not understands that you were lured to China. You weren't calling the shots. You were lured by the emerging superpower's siren call, which was doing everything it could to win your orders so that you would get stuck there.

Apple is just the most prominent example of so many companies that are now stuck in China because they can't manufacture anywhere else. For toy companies, it's not going to be so geopolitical. But if you're manufacturing iPhones and you're doing 230 million of them a year, my God, are they in a quandary of their own making.

So what do you do if you're Apple?

It's above my pay grade to say what they should do. And in a way, if there were some easy answer that a mere journalist could answer, I wouldn't have a book to write, because the compellingness of the book is that there is no easy answer. The problem is they're stuck. So, of course, I can talk about various solutions and complain about what they're not doing. But the idea that there's some easy out here, like the Republican dream that we're just going to build iPhones in Texas somewhere, that stuff's just ridiculous.

We need to get real on supply chains and understand just how slow it is to set these things up and how capital intensive it is. And because Apple doesn't manufacture anything themselves, this is not just something Apple needs to do. There needs to be industrial policy. There need to be hundreds, or at least dozens, of suppliers involved in doing this kind of stuff. What we're seeing right now is them shifting, quote unquote, production to India, which is actually just final assembly, which means that the phones built in India are no less dependent on the China-centric supply chain than any other iPhone before them. They're just not making the moves they need to make.

Do you have a specific view on what the first incremental step in detaching from a China-based supply chain could look like?

Reshoring to America is, again, just a fantasy. Nearshoring and friendshoring are really the answer. I wish Mexico were in a better position to do it, and I say that just because they border the US. If you have stuff being built in Mexico, then, ipso facto, there's a whole bunch of intermediary trade. Something like the aerospace sector around San Diego or Los Angeles would just inherently be doing some high-quality stuff back and forth with Mexico. Unfortunately, just for population and density reasons, I think India is the much more likely candidate.

So basically, what you'd have to have is not just the assembly. You need a massive acceleration in the depth and breadth of manufacturing components, supplies, and raw materials. There need to be Indian miners involved in Africa the way the Chinese are, and so forth. People think India is coming on board in a really quick way, and it's hand-waving on the part of Apple. It's happening really slowly.

No shortage of problems for Apple, it seems, these days.

Have me back on the show when I can actually discuss my thesis in a little bit. I've got to be a little bit quiet. But in 10 or 11 days, the book's on sale, and I would love to come back on and tell you all about it.

I was going to say, let's do it. The book is called Apple in China, out May 13. Give it a read. And Patrick, thanks again for joining us today.

Cheers, Eric. I enjoyed it.