Monday, August 31, 2020

Will the Dusseldorf Regional Court violate the German constitution at this week's Nokia v. Daimler trial through insufficient COVID protection?

This is already the fifth post raising the issue of insufficient coronavirus prevention measures at patent trials. Here's a list of the previous four article on this issue:

I was actually looking forward to this week's Huawei v. Nokia FRAND/antitrust and Nokia v. Daimler patent infringement trials at the Landgericht Düsseldorf (Dusseldorf Regional Court). I'm quite confident Huawei is going to prevail over Nokia, obligating the latter to make an exhaustive component-level licensing offer on FRAND terms. Also, there's a possibility of the court referring to the Court of Justice of the EU a set of component-level licensing questions raised by the Federal Cartel Office of Germany. Thursday could mark a tipping point in the "automotive patent wars."

But no patent or FRAND/antitrust case is worth taking the risk that people will die.

Dusseldorf is the capital of the state of North Rhine-Westphalia, whose prime minister (the German equivalent to a governor of a U.S. state) Armin Laschet has failed miserably to take decisive action to contain the COVID-19 pandemic--a pathetic failure that most likely doomed his aspirations to succeed Angela Merkel as chancellor (he was actually on track, and had succeeded in building the broadest alliance within his party). Recently Mr. Laschet's state government has tried to regain some of the electorate's trust, but all in all, North Rhine-Westphalia is in bad shape. And that includes its court, which hears more patent cases than any other court in the whole of Europe, and is run by the state (unlike U.S. district courts, which are federal courts).

Huawei v. Nokia is a relatively small case: one plaintiff, one defendant, and presumably no intervenors. But Nokia v. Daimler is going to be huge, with approximately 50 people or more being in the courtroom at the same time. I hope things are still going to improve in the days ahead. Otherwise, there's a clear and present danger of a superspreader event should just any one person in the room be coronavirus-positive. Infection numbers have recently been climbing up again in Germany--and in North Rhine-Westphalia.

The Dusseldorf Regional Court's current COVID-19 prevention rules are a disgrace. Totally irresponsibly, the court merely declares covering one's mouth and nose "desirable" (not mandatory). There's nothing in the rules about minimum distance, or about ventilation. To add insult to injury, they have a rule that denies access to the courthouse to those who have COVID symptoms or have during the last 14 days been "in close personal contact" with a corona-positive person. What does "close" mean in this regard? It simply means the court isn't serious about preventing the spread of the virus. They just want those patent lawsuits to generate huge amounts of court fees and to contribute, through travel of outside counsel, to the local economy. That's not a conspiracy theory: the state government of North Rhine-Westphalia is pretty open about its economic interest in attracting patent litigation to Dusseldorf.

But the Dusseldorf Regional Court must tread carefully in light of a decision that the country's top court, the Bundesverfassungsgericht (Federal Constitutional Court), handed down yesterday (Sunday, August 30; case no. 1 BvQ 94/20).

The key holding is that Art. 2 of the German Basic Law (the nation's de facto constitution), which guarantees every person's right to life and to safety from bodily harm, imposes a duty to protect ("Schutzpflicht") on the government. Needless to say, the judiciary is one branch of government.

The German appellate system is not as straightforward as the one in the U.S., where the Supreme Court is the highest court and basically any federal lawsuit could end up there. In Germany, the Federal Constitutional Court hears only constitutional complaints (which may even originate from lower courts, or be brought against administrative decisions), while key questions of law in other fields are reviewed by some other federal courts. Patent cases can go up to the Federal Court of Justice, but constitutional complaints of any kind can be lodged with the Federal Constitutional Court.

What happened this weekend is that the Federal Constitutional Court had to adjudge a motion for emergency relief in connection with a Berlin demonstration against governmental corona prevention measures. I totally disagree with the protesters, as do more than 90% of the German population, but I wish some German judges would make more of an effort to set themselves apart from conspiracy theorists and other nutheads.

The Federal Constitutional Court denied the motion, which sought to restrain the state government of Berlin. In doing so, the court had to resolve a conflict between two constitutional principles: the right to hold demonstrations (which obviously ranks pretty high), and the right to life and safety from bodily harm. The court held that the constitution imposes a duty on government to protect citizens from death and bodily harm, and that duty can outweigh the right to demonstrate.

The decision discusses certain measures taken, such as a requirement to wear masks or, in the alternative, to keep a minimum distance. Note that the demonstration took place on streets--in an indoor setting, such as courtroom, it actually takes both (masks and distance) to be reasonably safe, but that's not what the court had to address yesterday.

The order also cites the governmental Robert Koch Institute's analysis of the ability of masks to slow down (at a minimum) the spread of the virus.

The Dusseldorf court has a duty to protect everyone attending its hearings and trials, including members of the general public (like yours truly). Its current rules fall far short of what's needed when you have dozens of people in the same courtroom for a long day.

I wish to thank the Dusseldorf-based IP law firm of Löffel Abrar for bringing the Federal Constitutional Court's decision to my attention via Twitter. The point they made in their tweet is that courts should allow participation in hearings and trials via videoconferencing. While that is correct, I noted that in practice it doesn't solve the problem in Germany, where courts can't require everyone to participate electronically and, as a result, pretty much all lawyers show up. In my observation, those who participated in some recent Munich patent trials via videoconferencing were largely people who didn't show up at previous Nokia v. Daimler trials anyway. Therefore, videoconferencing makes only a negligible contribution (if any) to a solution. The problem is that only half a dozen of lawyers actually speak at a Nokia v. Daimler kind of trial, but you have dozens of them in the room regardless. It obviously generates more billable hours to travel, and it looks like a strong commitment to the case--but it's a bad thing to do in the midst of the COVID-19 pandemic.

A Nokia v. Daimler kind of trial simply can't be held in a regular courtroom under the present circumstances. If it comes to worst, courts may have to rent large conference rooms at hotels. In Munich, there's one room that belongs to the Munich Higher Regional Court and is large enough even for this kind of purpose, but it's on a prison compound and usually reserved for criminal trials. I don't know what they can and will do in Dusseldorf, but should my constitutional rights not be respected on Thursday, I will definitely seek advice from lawyers specialized in constitutional law. Yesterday's ruling by a three-judge panel of the Federal Constitutional Court, led by its president, leaves no doubt that the Dusseldorf Regional Court has a constitutional duty to protect everyone who will enter the courthouse, from the moment we walk through the door. Should the court shirk that duty, a constitutional complaint may be inevitable.

Share with other professionals via LinkedIn:

Wednesday, August 26, 2020

BREAKING: UK Supreme Court upholds lower courts' decisions in Unwired Planet favoring standard-essential patent holders


The latest in a string of judgments in different--particularly, but not only, European--jurisdictions favoring standard-essential patent (SEP) holders just came down in London, where the Supreme Court of the UK announced its decision in the related Huawei v. Unwired Planet, Huawei v. Conversant, and ZTE v. Conversant cases. Note that the order in which I just stated the parties is Appellant v. Appellee, but in each of the three cases the appellant is actually the defendant, and the appellee is the patent-asserting plaintiff. It's also worth noting that Apple intervened in the case, though Apple didn't get to deliver oral argument.

This blog reported and commented on the late October hearing. I had hoped that the top UK court would reverse the prior decisions by the lower courts, the England and Wales High Court in the first instance and the UK Appeals Court. The lower courts held that a UK court should have the authority to enter a conditional injunction: a SEP injunction that would be immediately enforceable unless the implementer takes a global portfolio license on the terms set by the UK court, regardless of what percentage of the defendant's revenues from the accused products is actually generated in the UK.

Lord Hodge, the Deputy President of the UK Supreme Court, just made the announcement, which was broadcast on the court's website. Very regrettably, the outcome is wholesale affirmance.

With all that I had previously written about this case, there's little point in reiterating my views in detail. While the most prominent one of the three related cases, Unwired Planet v. Huawei, has already been settled, the issues are of concern to industry.

The net effect is that SEP holders--especially the most problematic category of them, which is called "privateers" (a term that applies to Unwired Planet and Conversant, who are basically just acting as proxies for Ericsson and Nokia)--can now seek leverage in the UK.

What's already in full swing, but wil inevitably escalate now, is a race to the bottom between jurisdictions seeking to attract SEP infringement cases. It's almost always SEP holders who are first to file (declaratory judgment requests are sometimes seen in the U.S. and the UK, but even in those jurisdictions, patent holders are typically the ones to sue). So the courts that aspire to be leading patent litigation venues are constantly looking for ways to give SEP holders more and more leverage.

Just last week, the Second Civil Chamber of the Mannheim Regional Court ordered a Germany-wide Mercedes sales ban that is very unbalanced. By the way, the FRAND (fair, reasonable and non-discriminatory licensing terms) part of that decision also notes that SEP holders may insist on a global portfolio license, and if the implementer rejects that scope, an injunction enters. That was not the most important or most interesting issue in Nokia v. Daimler, but it shows that territorial overreach is a cross-jurisdictional problem.

But with all that's been disappointing lately on the SEP litigation front, there's a silver lining, too: Next week the Dusseldorf Regional Court will finally hear Huawei's antitrust action seeking to obligate Nokia to make an offer for an exhaustive component-level license on FRAND terms. That issue is of great concern not only, but particularly, to the automotive industry, as a recent joint letter by Tesla, Ford, Daimler and others to the United States Federal Trade Commission, urging the FTC to seek an en banc review of a Ninth Circuit panel's ruling in Qualcomm's favor, shows.

Share with other professionals via LinkedIn:

Monday, August 24, 2020

Judge not inclined to order Apple to tolerate Fortnite's alternative payment system, but Epic's Unreal Engine may be safe until late September

[Update] The order (PDF, upploaded by The Verge) came down a few hours later and is consistent with what Judge Gonzalez Rogers said. [/Update]

On Monday afternoon, Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California held an Epic Games v. Apple motion hearing. At the outset, the judge outlined her initial inclination, which was to

  • deny Epic's motion for a temporary restraining order (TRO) against Apple with respect to Fortnite, but to

  • grant it with respect to Unreal Engine.

That inclination, which may very well--but won't necessarily--become the actual decision (the judge said a written order would come down shortly), is exactly what Epic's lawyers were pursuing as a Plan B when they focused on Unreal Engine in their reply brief.

Judge Gonzalez Rogers reminded attendees of the fact that a TRO needs to be replaced by a preliminary injunction (PI) after 14 days--unless extended by consent--or it simply goes out of effect. Therefore, even if Epic obtained a TRO now, Apple could still try to prevail with respect to Unreal Engine a couple of weeks later--and this goes both ways, so whatever Epic doesn't win immediately, it could still pursue in the next round. The PI hearing has been scheduled for September 28, so the TRO decision will be in effect for about a month. Whatever the court decides on Epic's TRO motion won't be appealable, but a PI decision will be.

Even though this emergency motion had to be briefed over what was basically just a long weekend, the judge was undoubtedly aware of everything that was in the parties' pleadings and the attached declarations and documents. She's familiar with some of the fundamental issues raised by Epic because she's been presiding over two other App Store antitrust cases (Pepper and Cameron) for some time.

That said, a TRO is more preliminary than a preliminary injunction. It appears that the court is very uncomfortable with allowing Apple at this stage to terminate the Epic contract that relates to the Unreal Engine. With respect to Fortnite, however, the case appears clear to the judge. She told Epic's counsel that they "didn't tell Apple you had code in there [for an alternative payment system]" and noted that "this was not an insignificant breach, hence the reason we are here." Counsel for Epic argued that her client merely "ceased complyi with an anticompetitive contract" or, more narrowly, "an anticompetitive provision." That argument, however, didn't seem to get much traction, at least not immediately.

The hurdle Epic faces in this regard is that the court would at this early stage already have to agree that Epic is going to win. It's apparently far too early for that. At least for the time being, Judge Gonzalez Rogers believes the case could go either way. It's "not a slam dunk for Epic or Apple," she noted.

Just like Epic's reply brief didn't even attempt to argue that Epic couldn't simply put back an App Store-compliant version of Fortnite, Epic's counsel wasn't able to explain why a TRO against Apple was absolutely needed. In other words, Epic didn't really give the judge a compelling reason to reconsider her position on Fortnite.

While there wasn't any sign of the judge having second thoughts regarding Unreal Engine either, the related discussion was definitely more interesting. Right now my prediction would be for a TRO to come down with respect to an Epic subsidiary's developer agreement, but it doesn't appear extremely unlikely that Apple might prevail on this one, too, when the court decides on a PI (or when the Ninth Circuit reviews such a PI decision).

The judge expressed concern over Apple having taken an overreaching step by announcing the termination of a developer agreement that "has not been breached." Formally, Epic Games, Inc. (a U.S. corporation) and Epic Games International S.à.r.l. (a Swiss corporation) are separate legal entities. But Gibson Dunn's Richard Doren argued on Apple's behalf that the same individuals manage the accounts, the developer fees are paid with the same credit card for both contracts, and Apple always terminates contracts of affiliate entities when a major breach occurs because otherwise a certain type of non-compliance (here, in the form of offering alternative payment methods) "would spread like a virus."

Mr. Doren also noted that if those two Epic entities were really as separate as Epic argues, there would be "no standing for a restraining order for the benefit of Epic S.à.r.l. as no filings had been made on its behalf (only on the U.S. entity's behalf). Representing Epic, Cravath's Katherine Forrest stresed that they never said the two companies were not affiliated, "just as any corporation may have subsidiaries"--but she insisted that there were "independent contracts" at issue.

All in all, I believe Apple has some interesting points to make with respect to Unreal Engine--and, in practical terms, they argue that Epic can solve the problem by publishing an iOS version of Fortnite that complies with Apple's App Store rules, in which case the developer agreement they need for their work on Unreal Engine will remain in force ("Unreal Engine will be back on track and Fortnite will be back on track," counsel for Apple said). But the court appears inclined to agree that there would be irreparable harm to Epic from such termination.

Assuming that the judge rules the way she was inclined, Epic will presumably claim that Apple had been found to go too far, but that would be an overstatement and oversimplification. There are different priorities at the TRO stage than later on. Judge Gonzalez Rogers said (in the narrow context of market definition, but I think it applies to other aspects of the case as well) that "the battle here will not be won or lost on the TRO and probably not on the [PI]."

It already makes sense to look past the TRO and focus on the PI decision, even though that process wil take another month. Should Epic fail to obtain a PI with respect to Fortnite, it will come under pressure from the Fortnite community to make Fortnite for iOS available again. An appeal of a denial of a PI would probably take too long for Epic's purposes. But would there even be a point in seeking a PI over Fortnite if the TRO decision is based on facts Epic simply can't change--other than continuing to be able to claim that Unreal Engine for iOS is in jeopardy, too?

Share with other professionals via LinkedIn:

Sunday, August 23, 2020

Epic practically gives up on Fortnite, prioritizes Unreal Engine in reply brief pushing for temporary restraining order against Apple

In the Northern District of California, Epic Games just filed its reply brief in support of the Fortnite and Unreal Engine maker's motion for a temporary restraining order (TRO) against Apple (this post continues below the document):

20-08-23_doc43 Epic Games&#... by Florian Mueller on Scribd

Previously I reported on one of the three declarations Epic's lawyers submitted in support of that reply brief: the one by a Microsoft executive because it shows that the Windows, Office and Xbox company is backing Epic against Apple.

Epic's reply brief completely fails to address the legally most powerful part of Apple's opposition to the TRO motion: that Epic brought this situation upon itself, and "self-inflicted wounds" can't give rise to the requested type of relief in the Ninth Circuit. While Epic described as a "hotfix" its tactic of firstly running a Fortnite version by Apple that already contained the code for an alternative payment system and later triggering the display of that option to end users by means of data the Fortnite app retrieved from Epic's servers, Apple's opposition brief said this breach of a longstanding App Store rule became Epic's "hot mess."

Epic's decision not to address the "self-inflicted wounds" part is consistent with my overall impression that they've already given up with respect to Fortnite--not formally in the sense of a partial withdrawal of the motion, but practically. They must have realized that Judge Yvonne Gonzalez Rogers is hardly going to force Apple to offer a Fortnite version via the App Store that clearly breaches Apple's terms. Instead, Epic's reply brief focuses on the Unreal Engine, arguing that even if Apple was in its right to terminate any Fortnite-specific Epic accounts, "the breadth of Apple's retaliation is itself an unlawful effort to maintain its monopoly and chill any action by others who might dare oppose Apple." By "breadth" Epic means that Apple terminated multiple accounts, and that there are two Epic legal entities: Epic Games, Inc. of Maryland and Epic Games International S.à.r.l. of Switzerland. However, Apple argues that all those Epic accounts are managed as one, and Apple generally terminates the contracts of affiliated entities when a major breach occurs.

I don't intend to analyze the contractual part in detail now: the court hearing will take place tomorrow (Monday, 3 PM Pacific Time). Even with respect to the Unreal Engine, I still can't see how Epic would prevail, given that it has a simple option: to comply with the existing agreements while challenging their terms in court.

Share with other professionals via LinkedIn:

Microsoft supports Epic Games' quest for temporary restraining order against Apple, stresses importance of Unreal Engine

After Apple filed its opposition to Epic Games' motion for a temporary restraining order (TRO) in the App Store antitrust dispute in the Northern District of California, Judge Yvonne Gonzalez Rogers allowed the Fortnite and Unreal Engine maker to file a reply brief of up to 10 pages by 9 AM Pacific Time today.

The very first document Epic's lawyers filed in this context is a declaration by Kevin Gammill, General Manager of Microsoft's Gaming Developer Experience division, supporting Epic against Apple by stressing the relevance of the Unreal Engine to Microsoft (this post continues below the document):

20-08-23_doc40 Cv5640 MSFT ... by Florian Mueller on Scribd

I don't doubt that Microsoft and other companies consider the Unreal Engine useful. My own app development company prefers Unity for our specific purposes, but we are fully aware of how powerful and versatile the Unreal Engineis.

However, what Mr. Gammill's declaration doesn't explain is why Epic couldn't live and comply with the Apple Developer Agreement it had been gladly and (very) profitably honoring for years. In that case, Epic's Apple Developer Agreement wouldn't be terminated, and the further development of the Unreal Engine wouldn't be affected by the ongoing litigation.

While Microsoft's Xbox division reportedly keeps the same 30% commission of app revenues as Apple, I already wrote last week that Microsoft presumably hates having to give 30% of its Office revenues on mobile platforms to Apple and Google.

If Apple hadn't revolutionized mobile computing with the iPhone, with Google then being a fast follower (they had the Android mobile operating system in the works, but it would have been more BlackBerry-like and then they changed direction when they saw iOS), Microsoft would still be the dominant operating system company. It wouldn't have to worry about Apple or Google getting a 30% cut. In the old computing world, Microsoft could simply have told Apple and Google that it just wouldn't make Office available on their platforms if it didn't get a better deal. Microsoft has meanwhile found opportunities in other areas, such as cloud computing, but may bear a grudge against Apple and Google because they simply displaced Windows on mobile devices.

Based on today's declaration it's clear where Microsoft stands, and it's not hard to figure out why, but the above declaration really doesn't strengthen Epic's case for a TRO. The key issue is still the one of "self-inflicted wounds," which the United States Court of Appeals for the Ninth Circuit doesn't accept as a pretext for seeking a TRO.

Share with other professionals via LinkedIn:

Friday, August 21, 2020

Apple tells court it "wants Epic on iOS" but Fortnite "hotfix" turned into Epic Games' "hot mess": response to motion for emergency relief

Apple just filed its response to Epic Games' motion for a temporary restraining order (TRO). As no one would have doubted, the iPhone maker opposes the Fortnite and Unreal publisher's motion in the strongest terms (this post continues below the document):

20-08-21 Apple's Respon... by Florian Mueller on Scribd

With respect to Epic's claim of suffering irreparable harm unless the court grants its motion, Apple's opposition brief is consistent with a statement it provided to The Verge a few days ago. The term "status quo" plays a central role here. The purpose of temporary relief is to prevent a party from changing a situation to the moving party's detriment in the absence of an injunction (a TRO is the fastest injunction, even more preliminary than what is called a preliminary injunction). Apple explains to the court that Epic's perspective on the status quo is, in reality, something else: the status quo would be for Epic to simply comply with Apple's App Store terms and policies, and with its developer agreement, while its antitrust complaint challenging those terms is pending. If, however, the court granted Epic's motion, it would allow Epic to get away with a breach of its contractual obligations. The requested TRO would not preserve the status quo. It would force Apple to modify its long-standing App Store terms.

Another key term--in connection with any type of injunction--is "irreparable harm." Epic's motion for a TRO argued that the unavailability of Fortnite on the App Store and, as a further consequence of Epic's non-compliance, the termination of its developer agreement (which would prevent Epic from using Apple's developer tools in the further development not only of Epic's games but also of its Unreal Engine) would constitute irreparable harm. Apple's opposition brief dismisses that theory and distinguishes between irreparable harm on the one hand and "self-inflicted wounds" on the other hand. The Ninth Circuit, which is the appeals court for (among many others) the Northern District of California, stated earlier this year that "self-inflicted wounds are not irreparable injury," quoting earlier decisions in this circuit and in the Seventh Circuit.

Apple's motion stresses that point not only in legalese but also in colloquial terms:

"Apple has offered Epic the opportunity to cure, to go back to the status quo before Epic installed its 'hotfix' that turned into its hot mess, and to be welcomed back into the App Store. All of this can happen without any intervention of the Court or expenditure of judicial resources. And Epic would be free to pursue its primary lawsuit." (emphasis added)

Epic's motion explained what the Fortnite maker means by "hotfix." They submitted a version of Fortnite to Apple's App Store review that seemed to comply with Apple's in-app purchasing rules at the time. However, it already contained program code that made a request to Epic's server in order to find out whether it should offer an alternative payment method in addition to making payments via Apple's in-app purchasing system. A little over a week ago, Epic's server started telling the client (the Fortnite app) to make that additional offer, which is not permitted by Apple's app distribution terms. Epic threw down the gauntlet to Apple:

"Around 2am on August 13, Mr. Sweeney of Epic wrote to Apple stating its intent to breach Epic's agreements: “Epic will no longer adhere to Apple’s payment processing restrictions.'"

The term "hotfix" sounds like Epic just sent some new graphics or similar data down to the client. A "hotfix" is something that doesn't require a formal update, but has an impact on functionality. In this case, the "hotfix" was simply some data--presumably in an XML or JSON format--that told the client to activate some functionality Epic had secretly incorporated into the last approved update. Apple's motion doesn't use the term "Trojan horse," but that's what it is (not in the sense of a computer virus, of course).

The "hot mess" is that Apple had to remove Fortnite from the App Store. The only alternative for Apple would have been to waive a fundamental contractual obligation that iOS app developers have to meet.

Apple's brief quotes some Fortnite gamers (referring to a declaration by Epic's CEO Tim Sweeney):

"Some Epic customers, based on materials attached to Epic's motion, have seen through Epic's subterfuge to understand this is a problem of Epic's making. As one user asked Epic's customer support team after the takedown: 'Did you guys just screw over all your mobile players?' [...] One user predicted Epic would 'remove the illegal (according to Apple) update and be back to normal in no time.'"

That user predicts the same as I also wrote yesterday: I expect the TRO motion to go nowhere, but Fortnite to return to the App Store in the near term.

It's not publicly known how many of Fortnite's 350 million users run the game on iOS, but Apple's motion mentions "[t]ens of millions of iOS Fortnite players."

Unsurprisingly, Apple is not amused by Epic's PR campaign, the latest part of it is a #FreeFortniteCup "with prizes targeting Apple." That tournament will start on Sunday. IGN, a leading games website, wrote that "Epic turns its legal dispute into an in-game event."

All of what I just wrote is unrelated to the merits of Epic's case. For now the question is just whether Epic is likely to persuade the court to enjoin Apple, and I don't see that happening.

Large parts of Apple's response to the motion dispute that anything is anticompetitive about the App Store terms. Apple also disagrees that in-app payments are a separate market from the App Store. But it's too early--just about a week into this litigation--to discuss this in detail. Apple just has to convince the court that this isn't a clear and simple case under settled antitrust law. Apple's lawyers argue that the court would have to "create new law on a scant record" in order to grant Epic's motion.

Judge Yvonne Gonzalez Rogers will preside over the motion hearing (Monday 3 PM Pacific Time; via Zoom).

Finally, just an update to a recent post in which I mentioned three of the Gibson Dunn lawyers representing Apple in this case. The first-named attorney on today's filing signed up shortly after them: Theodore J. "Ted" Boutrous, whom some of you may have seen on TV.

Share with other professionals via LinkedIn:

Thursday, August 20, 2020

Fortnite's absence from Apple's App Store will be short-lived--here's why and on what basis Epic Games will put it back soon

Epic Games provoked Fortnite's removal from the iOS App Store and the Android Play Store by running a promotion that circumvented the in-app payment rules of those platforms--and already had that Nineteen-Eighty-Fortnite video as well as two partly-overlapping antitrust complaints, each more than 60 pages long, prepared at the time.

This legal dispute may very well take years to be resolved and go all the way up to the Supreme Court. Epic Games isn't seriously going to forgo its revenue opportunity on iOS (and Android) for the better part of the 2020s.

Epic would have us all believe that they're idealistic freedom fighters, the Braveheart of the mobile app universe. Realistically, they're more principled than a self-serving Spotify (trying to capitalize on the fact that the EU presently has the least principled competition commissioner in the bloc's history), but neither are they prepared to die for this cause nor are they just drama queens (well, maybe to some degree if that YouTube video is any indication). At the end of the day, they're businesspeople running a company recently valued at $17.3 billion and trying to change some parameters in their favor. Also, I do find it credible that it's not only about money but also about their view of what would be fair.

I've been following high-stakes commercial disputes like this for a long time. There's only one circumstance that sets this one apart from cases like Apple v. Samsung or Oracle v. Google: Epic Games is privately-held, with a majority belonging to its founder Tim Sweeney, roughly 40% of the shares to China's Tencent (which also owns well over 90% of Supercell, for example), 1.5% to Sony (which I understand wants a 30% cut from developers just like Apple), and the rest to some financial investors and maybe some key employees. Officers of a publicly-traded company have a fiduciary duty toward other shareholders, which makes their key decisions more predictable. Here it's a major unknown how much leeway Mr. Sweeney enjoys--it depends on his non-public agreements with all those minority shareholders, some of whom have a purely financial interests and only one of whom (Tencent) may actually like the idea of Epic Games acting as a proxy warrior.

But even if Mr. Sweeney truly considered this a holy war and Epic's minority shareholders supported or simply couldn't do anything about it, Fortnite would realistically return to the App Store in a matter of weeks--or maybe months should it take surprisingly long.

There are litigants like Apple who mostly just let their lawyers speak and largely refrain from commenting on pending cases in public, and there are the likes of Qualcomm (who published an infographic when asserting patents against Apple) and Nokia (who are incessantly vocal about their ongoing dispute with Daimler and its suppliers of mobile communications components). The way Epic Games started this leaves no doubt they're at least as PR-focused as Qualcomm and Nokia combined. I don't want to take a position on accusations of Epic seeking to "weaponize" Fortnite gamers for its purposes, but it is fair to say that a mobilization effort of that nature and stature is unprecedented in smartphone-related litigation.

At least on Twitter I don't get the impression that Epic is off to a good start. They thought they came out swinging, but so far it appears Apple actually has broader support in the court of public opinion than Epic, which is a potential sign of some miscalculation on Mr. Sweeney's part. He may have made the mistake to assume that end users care as much about that 30% App Store cut as he and other developers do. I am an app maker--as I've repeatedly stated and will soon be more specific about when I announce my new game--, so Epic's campaign could theoretically benefit me, but I also have a reputation at stake here as a smartphone litigation commentator.

Someone as successful as Mr. Sweeney is ultimately rational, so what's the end game here with respect to Fortnite's availability on the App Store?

Epic would love to obtain a temporary restraining order (TRO) in order to deal Apple a first blow. That would be "la puerta grande" for Fortnite to return to the App Store. The motion hearing will take place on Monday, and I predict that Judge Gonzalez Rogers is going to be more than reluctant to enjoin Apple at this stage. From the perspective of a judge, it doesn't make sense that someone would purposely breach an agreement and then ask a court to enter an order within a matter of days only to prevent the other party (that met its own obligations) from triggering the contractually defined consequences of such conduct. As Apple told The Verge, they're happy to make Fortnite available again, provided that Epic honors the related agreements, which it had been doing for years and very profitably so.

Should Epic totally surprisingly get its TRO, then Fortnite will be back up on the App Store within about a week. Assuming the far more likely outcome, which is that Epic's TRO motion will be denied, it will happen, too--just a little bit later.

From a rational perspective, Epic has nothing to gain from a protracted unavailability of Fortnite for iOS after failing to win a TRO:

  • By bringing the TRO motion, regardless of how much of a long shot it was in the first place, Epic has already shown to the court of law and the court of public opinion that it strongly believes in its views.

  • Apple won't have to worry about damages Epic might be seeking later on. In that scenario, it would still be clear that Epic had access to the App Store and to Apple's developer tools, and all it had to do was to stop running a promotion that didn't comply with Apple's in-app payment rules. That wouldn't give rise to a huge damages award even in a best-case scenario for Epic.

  • Maybe Epic is trying to work something out with Google (interestingly, I still haven't seen a TRO motion against the Android maker), but even if that happened, very few iOS users would switch to a different mobile operating system just because of Fortnite.

  • There comes a point at which Epic's own iOS user base is going to be annoyed.

All things considered, I believe the most likely development is that the court will deny Epic's motion for temporary relief and Epic will then say it's disappointed but at least it tried, and now it must live with the decision, and in the interest of their customers, they will comply with Apple's rules again (for the time being, while pursuing their litigation) in order to make Fortnite available for iOS again and to ensure continued access to Apple's developer tools with a view to the Unreal Engine as well.

Whether a federal judge will be comfortable with the notion of her court being used as a PR tool by a multi-billion-dollar games company is another question. That may or may not be Epic's second miscalculation in the early stages of this dispute.

Share with other professionals via LinkedIn:

Wednesday, August 19, 2020

Epic Games' App Store antitrust case against Apple reassigned to Oakland judge presiding over Pepper v. Apple and Cameron v. Apple class actions

[Update] The schedule concerning Epic's motion for a temporary restraining order set by Judge Gonzalez Rogers is similar to the one previously ordered by Judge Chen, with Apple to respond on Friday (by noon Pacific Time) and the hearing to be held on Monday (at 3 PM Pacific Time). [/Update]

Approximately 18 hours ago, a clerk's notice already mentioned the possibility of Epic Games' antitrust action against Apple over its App Store terms and policies being reassigned to Oakland-based United States District Judge Yvonne Gonzalez Rogers. The following related case order just came down, and this means Epic Games v. Apple travels over the San Francisco-Oakland Bay Bridge (this post continues below the document):

20-08-19 order relating cases by Florian Mueller on Scribd

Judge Gonzalez Rogers is already presiding over two class actions against Apple that involve allegations similar to those brought by Epic:

  • Pepper v. Apple is a consumer class action that started in 2011 and went all the way up to the Supreme Court, a 5-4 majority of which allowed it to go forward despite earlier SCOTUS case law (Illinois Brick) denying consumers the right to claim indirect antitrust damages.

  • Cameron v. Apple is a class action in which three app developers (Donald R. Cameron of California, Pure Sweat Basketball, Inc. of Illinois, and Barry Sermons of Georgia) allege Apple abused a monopoly. That case is structurally more similar to Epic's lawsuit as it's an app developer--not consumer--case. It was brought last year. The Gibson Dunn firm represents Apple in that case, as it does against Epic.

Note that Judge Gonzalez Rogers wrote any motions would have to be renoticed, which applies to Epic's motion for a temporary restraining order (TRO) as well.

What remains to be seen is whether Epic's case against Google will end up in Oakland, too. Epic's two app distribution antitrust cases involve many common questions of law and fact. Maybe Epic v. Google will be consolidated with Epic v. Apple.

For those looking to understand the parties' positions in Cameron v. Apple, the most recent pleading that provides such an overview is Apple's answer to the class action plaintiffs' amended complaint (this post continues below the document):

19-11-11_doc74 cv3074 Apple... by Florian Mueller on Scribd

Epic was undoubtedly aware of the existence of the Pepper and Cameron cases when it brought its complaint, though it didn't mention the other cases. Anyway, what Judge Gonzalez Rogers is presiding over is already (with or without Epic v. Google possibly being thrown into the mix) a huge set of cases. The bad news for Epic is that things may take more time than if Epic's case stood alone--even though the schedle for the TRO motion didn't change, but I still don't expect that one to succeed.

While we're on the subject of related cases, there are two developments in other jurisdictions:

Complaints and investigations, however, don't prove that anything about Apple's practices was or is illegal. Otherwise Epic (40% of whose shares belong to China's Tencent) could just have let those other cases, especially the Cameron class action, unfold.

Share with other professionals via LinkedIn:

German patent judges turn legality on its head: limited patent term justifies antitrust violations and other types of injustice (Nokia v. Daimler)

These days the FOSS Patents blog is more of a "FOSS Antitrust" blog, but when I chose the name more than ten years ago, I had no idea. So at the moment I'm primarily following the FRAND issues in key automotive cases (with Germany being the patent litigation hotspot it's traditionally known for, while falling behind in innovation) and the app store cases in the Northern District of California.

The most outrageous part of yesterday's Nokia v. Daimler decision by the Mannheim Regional Court involves antitrust law, too. The court's press release already said that the "relatively short remainder of the term of the patent-in-suit led the three-judge panel to exercise its discretion to the effect of denying a stay of the case for the purpose of referring to the Court of Justice of the EU certain questions of competition law raised by the Federal Cartel Office of Germany.

Actually, the European Patent Office's Espacenet search delivers an October 2007 priority date, meaning the patent is still going to be valid for more than seven years .

What was--to my dismay--unsurprising is that German patent judges would deem the limited term of a patent to weigh in a patentee's favor with respect to pretty much any question that has a bearing on access to injunctive relief. It's the exact opposite of what I typically see when eBay v. MercExchange is applied in the United States.

Before bashing the Mannheim court's Second Civil Chamber for this line of reasoning, I firstly wanted to obtain the exact wording of the relevant passage, as opposed to relying exclusively on the court's press release. Meanwhile I've been able to take a look at it, and it's every bit as outrageous as I feared.

Here's how the Mannheim court's Second Civil Chamber justified its denial of the request for a referral and a stay:

  • The judgment notes that a majority of the proposed questions to be referred have been rendered irrelevant by the court's holding that Daimler and its suppliers weren't willing licensees. (Not only do I disagree with that conclusion, but under Huawei v. ZTE it doesn't matter anyway as the court didn't consider Nokia's proposed terms to be FRAND-compliant either.)

  • Even against the background of that (legally erroneous) conclusion, the court acknowledges that two of the questions proposed by the Federal Cartel Office for referral to the CJEU remain outcome-determinative:

    1. whether a SEP holder is free to choose whether and at what level of a supply chain it grants a license, and

    2. whether Art. 102 TFEU establishes qualitative, quantitative or other criteria for offering a FRAND license to the supply chain.

  • The court then stresses its discretion with respect to granting or denying a stay, and notes that an injunction is only available during the patent term, which in the court's opinion poses a risk that injunctive relief might not be able to be enforced anymore.

The CJEU would just need a couple of years to decide, so there would have been plenty of time for a referral anyway. But that's not even the point I'm most concerned about.

The structural problem is that German patent judges generally hold the limited term of a patent against defendants, not against patentees. They often do the same in connection with stays pending a validity determination.

I do understand the difference between "law" and "justice," but I am concerned when judges knowingly and willingly favor, promote and create injustice.

Even if the patent expired in a matter of months, or in 2021 or 2022, that wouldn't give Nokia the right to breach the antitrust laws. If the CJEU answered the Federal Cartel Office's question regarding supply chain-level SEP licenses in Daimler's and its suppliers' favor, Nokia would simply have no case. Its infringement litigation campaign against Daimler would--as it in my opinion does--constitute a highly abusive act. The Mannheim Regional Court's Second Civil Chamber is fine with that possibility. All that matters is to rule in the patentee's favor.

That said, I do give the Mannheim court credit for having stayed two other Nokia cases because the patents were so extremely likely to be invalid that it appeared to be the right choice. Also, Nokia lost one Mannheim cases on the grounds of non-essentiality. But those are technical questions--which is the category of issues German patent judges are comfortable dealing with. Once antitrust law comes into play, they pretty consistently--with a few notable exceptions--prioritize the interests of patent holders over the public interest, and over other fields of law, especially antitrust law.

It would take meaningful legislative reform to bring about change, but the German automotive industry is at the bottom of the IP policy learning curve and getting over it at a snail's pace (to put it mildly). I actually expect patent injunctions to be even more readily available in Germany when the reform process is over than when it began, simply because the modified statute won't help defendants except in a "one in a million" type of exceptional case, while case law is clearly going downhill in the meantime. Contrary to misconceptions and political lies, that's not just a problem with case law at the lower levels: the Federal Court of Justice of Germany is no more balanced than any of the lower courts. Even a patent extremist like Judge Dr. Thomas Kuehnen of the Dusseldorf appeals court is a "moderate" at this stage compared to the country's top court (in practical terms) for patent cases...

Share with other professionals via LinkedIn:

Apple gets more time to respond to Epic Games' motion for a temporary restraining order--Monday hearing postponed, case may be transferred to Oakland

Within about 20 minutes of my post on Gibson Dunn representing Apple against Epic Games' App Store antitrust complaint in the Northern District of California, the following clerk's notice came in:

"Per the Court's discussion with the parties, Defendant shall have until Friday, August 21, 2020, to file an opposition to [17] Plaintiff's motion for a temporary restraining order. The hearing on the motion is temporarily vacated. Should the instant case be transferred to Judge Gonzalez-Rogers, briefing and/or hearing dates may be subject to change."

These are the practical implications:

  • The deadline for Apple to respond to the motion has been pushed back from noon on Wednesday to midnight on Friday.

  • There won't be a Monday hearing.

  • The case may be transferred from the San Francisco division to Oakland, where United States District Judge Yvonne Gonzalez Rogers is based.

  • In the event of a transfer to Oakland, Apple might get even more time and/or Epic might be allowed to file a reply brief ahead of the hearing.

I've previously expressed doubts over whether this motion for a temporary restraining order (TRO) was truly as urgent as Epic's lawyers claimed. Originally they would have preferred a hearing to be held the same day, which would practically have required Judge Edward Chen to make a decision without the benefit of an opposition filing. With the court having vacated the Monday hearing, Apple's ultimatum for a termination of Epic's developer agreement may expire prior to a decision on the TRO motion. While there is no doubt that Epic sooner or later needs access to Apple's developer program, it's not like the Unreal Engine would instantly stop working for any of Epic's licensees in the event of a termination.

Share with other professionals via LinkedIn:

Gibson Dunn lawyers to defend Apple against Epic Games' App Store antitrust action in the Northern District of California

Approximately 20 hours before the deadline Judge Edward Chen gave Apple to respond to Epic Games' motion for a temporary restraining order (TRO) with respect to Epic Games' access to the App Store and Apple's developer tools, two high-profile L.A.-based antitrust lawyers just appeared (electronically) before the United States District Court for the Northern District of California as counsel for Apple:

  • Daniel G. Swanson, who co-chairs Gibson Dunn & Crutcher's Antitrust and Competition Practice Group, and

  • Richard J. Doren, a member of the same firm's Executive Committee.

  • [Update] Just after this post went live, a third Gibson Dunn partner, Jay P. Srinivasan, appeared as well. [/Update]

Gibson Dunn frequently represents Apple as well as parties whose interests are aligned with Apple's. The two most important cases of this kind that I've followed are the second Apple v. Samsung case in the Northern District of California and the Apple v. Qualcomm antitrust and contract litigation in the Southern District of California. In the latter case, Gibson Dunn worked for Apple's contract manufacturers (Foxconn/Hon Hai, Pegatron, Compal, and Wistron)--and squared off with the very firm on the other side that filed Epic Games' complaints against Apple and Google: Cravath, Swaine & Moore of New York City.

The first Epic Games v. Apple court clash is presently scheduled to take place on Monday in the form of a Zoom videoconference.

Epic's motion for a temporary restraining order (TRO), a type of court order that comes down even faster and is even more preliminary in nature than a preliminary injunction, faces a high hurdle. The court is almost certainly going to ask why Epic can't just live and comply with the same app developer agreement it had been honoring for years, gladly making a billion-dollar amount, while this litigation is ongoing. Monetary damages would be available even though Epic is so far seeking only injunctive relief. But U.S. courts generally don't enjoin a party if the movant can be made whole at a later stage by means of a payment. This vaguely reminds me of a long shot the Cravath firm already tried for Qualcomm in 2017. They totally unsurprisingly failed to obtain--preliminary injunctions against Apple and the aforementioned four contract manufacturers to enforce royalty payments.

Counsel for Epic may also have to explain why at least one aspect of the TRO they are seeking against Apple--Fortnite's availability on the App Store--isn't being pursued through a similar motion against Google in the same district, at least not yet.

Share with other professionals via LinkedIn:

Tuesday, August 18, 2020

Mannheim Regional Court orders Germany-wide Mercedes sales ban over Nokia patent despite Nokia having violated EU competition law

The Mannheim Regional Court's Second Civil Chamber (Presiding Judge: Dr. Holger Kircher) has just ordered a Germany-wide sales ban against Daimler over a standard-essential patent (SEP) held by Nokia. The court issued a press release (in German) to announce this decision in case no. 2 O 34/19 over EP2981103 on an "allocation of preamble sequences").

What I'm still trying to find out is the amount of the security Nokia will have to give in the form of a deposit or a bond. According to Bloomberg, the court set the amount at €7 billion.

Unless this has changed since last time I checked, Nokia's litigation campaign against the Mercedes maker does not target cars that come with telematics control units (TCUs) supplied by Samsung subsidiary Harman. However, in parallel cases before the Munich I Regional Court, Daimler argued that a sales ban would still affect roughly half of its German sales during the relevant period.

The shocking part of the court's announcement is that the injunction came down despite both Nokia and Daimler having failed to make fair, reasonable and non-discriminatory (FRAND) licensing offers in the court's opinion. But the Court of Justice of the EU laid out a SEP injunction roadmap in Huawei v. ZTE five years ago under which the patentee firstly has the obligation to make a FRAND offer. For several years, German courts declined to enjoin an implementer of a standard in that situation without even looking at the implementer's counteroffer. However, very recently the positions of the Mannheim and Munich courts have changed in this regard by practically reverting to the old German Orange-Book-Standard approach of looking at the implementer's (counter)offer first--an approach they seek to justify by misreading EU case law.

From what I heard, the other patent-specialized division of the Mannheim Regional Court--the 7th Civil Chamber under Presiding Judge Dr. Peter Tochtermann--is still in line with CJEU case law.

Daimler will now have to petition the appeals court (Oberlandesgericht Karlsruhe = Karlsruhe Higher Regional Court) for a stay of the enforcement of the injunction Nokia just obtained. Nokia will certainly seek an adjustment of the security amount.

The Mannheim court also declined to refer certain component-level SEP licensing questions to the CJEU, a referral that Germany's antitrust authority (Bundeskartellamt, Federal Cartel Office) had recommended in a written submission. It's a disgrace that Nokia sues Daimler despite Daimler's suppliers all being interested in taking a license to Nokia's cellular SEP portfolio on FRAND terms. By contrast, Sharp, another major SEP holder and--like Nokia--a contributor to the Avanci pool, recently granted an exhaustive component-level license to Huawei, which indirectly covers Daimler.

Apart from having to give security, and besides the possibility of the Karlsruhe-based appeals court staying the injunction pending its appeal, Nokia faces significant risks on the antitrust front. Both the European Commission's Directorate-General for Competition (DG COMP) and the German Federal Cartel Office will now have to give serious consideration to taking immediate action against Nokia so as to prevent the enforcement of the injunction. They can slap Nokia with fines that would really hurt. If the EU Commission doesn't act, it becomes all the more obvious (as if it wasn't already) that EU competition commissioner Margrethe Vestager is merely a political opportunist and shameless protectionist who will go after any U.S. tech company even over absurd theories that the EU's own court disagrees with (such as the Apple tax case) while letting Nokia get away with clearly anticompetitive behavior.

So far, Nokia's patent infringement campaign against Daimler has been largely unsuccessful. Some patents were not infringed while various other cases got stayed pending validity determinations by the Federal Patent Court. Theoretically, a single successful enforcement effort could coerce Daimler into a settlement, but for the reasons outlined above, it's probably "too little, too late" for Nokia to get its way now--unless some antitrust watchdogs want to make themselves completely ridiculous, of course.

Share with other professionals via LinkedIn:

First Epic Games v. Apple court clash (videoconference) scheduled for next Monday; Apple has until noon on Wednesday to respond

A few hours ago, I wrote in my post on Epic Games' motion for a temporary restraining order (TRO) against Apple with respect to the removal of Fortnite from the App Store and iOS devices as well as an ultimatum that could lead to the termination of Epic's developer agreement (with implications even for the Unreal Engine used by many other game companies) that "the court is likely to hold a preliminary injunction hearing, possibly on very short notice, or at least a TRO hearing before enjoining Apple in any way." Epic had asked the court to hold a hearing as soon as possible, ideally even on the same day (Monday by local time), but as I looked at how Epic's lawyers described the urgency of the situation, the earliest date that seemed somewhat critical was August 28.

With Apple not having appointed counsel (as this litigation was just brought late last week), a same-day hearing would have been tantamount to an ex parte TRO (an order without hearing the other party), which didn't appear reasonable to me under the circumstances of a lengthy and complex motion on the heels of a complaint that spanned more than 60 pages.

And indeed, Judge Edward M. Chen of the United States District Court for the Northern District of California apparently got the same impression, which is why he set a TRO hearing (to be conducted via Zoom) for Monday, August 24:

"CLERK'S NOTICE SETTING HEARING AND BRIEFING FOR [17] MOTION FOR TEMPORARY RESTRAINING ORDER: Hearing re: [17] MOTION for Temporary Restraining Order and Order to Show Cause Why Preliminary Injunction Should Not Issue and Memorandum of Points and Authorities In Support Thereof set for 8/24/2020 10:00 AM in San Francisco before Judge Edward M. Chen. Opposition due by 8/19/2020, 12:00 noon. No replies. Hearing to be conducted by Zoom Webinar. Information to follow. (This is a text-only entry generated by the court. There is no document associated with this entry.) (afmS, COURT STAFF) (Filed on 8/17/2020)"

That order came down about 20 minutes after my blog post (compare the timestamp of my tweet to the time of the docket entry--3:57 PM Pacific) that predicted there wouldn't be an immediate decision without hearing Apple.

The motion schedule gives Judge Chen a few days to weigh his decision before Apple's threatened termination of Epic's developer agreement would kick in.

It wouldn't even be the end of the world for Epic if a termination of that agreement on the 28th had effect for only a limited period of time (until the court would decide whether to grant a preliminary injunction). The Unreal Engine would continue to run as part of any games that incorporate it, provided that Epic's customers meet their contractual obligations vis-à-vis Apple. As I mentioned twice before, my own app development company is about to launch a game built with Unity (a competitor to Unreal Engine), and we don't depend on Unity's developer agreement either--just on our own.

Therefore, Epic's lawyers won't necessarily be able to convince Judge Chen next week that a TRO is actually needed to prevent the catastrophic harm Epic's motion describes as imminent. Apple may very well be able to convince the court that Epic and its engine licensees would be affected only after a number of months (at least).

Primarily, however, I guess Apple will argue that Epic should simply comply with its contractual obligations until its complaint has been adjudicated. Even if the court(s) ultimately agreed with Epic that Apple's 30% App Store cut (which Epic's complaint calls a "tax") was "supra-competitive," Epic could recover any hypothetical overpayments later. (Epic's complaint specifically doesn't seek damages, presumably because Epic seeks to avoid a jury trial, but that's Epic's choice and relates only to last week's complaint in its current form; Epic could still amend it or bring follow-on complaints.)

The deadline for Apple's response to the TRO motion is quite short: noon on Wednesday (August 19) by Pacific Time. I still haven't seen any appearance of counsel for Apple in this case. But any extension that Apple might request would reduce the amount of time Judge Chen would have to prepare for the Monday hearing. Then, it's just a videoconference, so it could be easily postponed by a day or two.

There are other developments relating to this dispute. According to The Information, Epic Games is trying to forge a coalition of other companies disgruntled with Apple's (and presumably also Google's) app distribution terms. On Twitter, an app developer lists a number of companies who might share some of Epic's views and concerns, but also expresses doubts any of them would throw down the gauntlet to Apple the way Epic did:

A couple of days ago I reported on Facebook's public criticism of a decision made by Apple's App Store department and mentioned how Microsoft, Amazon, and Oracle (the latter only because of its litigation against Google) might benefit from Epic's campaign. In Microsoft's case it's another question how the company's XBox division views this. From what I hear, its third-party developer terms are similar to Apple's. But Office is a higher priority for the Windows company.

Share with other professionals via LinkedIn:

Monday, August 17, 2020

Epic Games asks district court to order Apple to keep Fortnite on App Store and end user devices, and to enable further development of Unreal Engine for iOS and Mac

Epic Games' antitrust action against Apple in the Northern District of California is so fresh the iPhone maker hasn't even appointed counsel yet--and the Fortnite publisher is already urging the court to make a far-reaching decision of temporary effect. Epic filed and published (PDF) a motion for a temporary restraining order (TRO), which it would like the court to issue as early as today, and which would (if granted) have to be replaced by a preliminary injunction (PI) within a couple of weeks as a TRO, which courts can issue without hearing the other party, is meant to provide some ultra-short-term protection only.

Epic's argument for this incisive and instantaneous court order is based on both Apple's decision to remove Fortnite from the App Store (which in a next step could entail the removal of Fortnite from end user devices) and a 14-day ultimatum Apple gave Epic to "cure[]" its "violations" of the Apple Developer Program License Agreement, threatening otherwise to terminate that contract. Epic tells the court that termination of its developer program license agreement would have effects going beyond Fortnite (with respect to which Epic showed the court a variety of user comments and messages reflective of confusion surrounding the game's future on iOS devices): it would also affect Epic's ability to further develop the Unreal Engine (which many action games are built on) for iPhones, iPads and Macs.

The "retaliatory" actions by Apple that Epic would like the court to prevent for the duration of this litigation would undoubtedly have huge impact on Epic's business. My app development company relies on Unity, not the Unreal Engine, but just the abstract notion of the same happening to Unity scares me. At the same time, for the sake of a balanced perspective, Apple didn't really have an alternative to the actions it has taken. If Apple had condoned Epic's clear breach of its contracts with Apple (contracts that Epic argues contain terms Apple imposed by virtue of its market power and that Epic wants the court to hold to violate the antitrust laws),

  1. Apple would have appeared to agree with Epic that the disputed contract terms are unenforceable, and

  2. other developers would have been encouraged to take similar steps (offering in-app payments circumventing the in-app payment system Apple operates in connection with the App Store).

In other words, don't attribute to malice what can be adequatedly explained with a need for Apple to act consistently with its own legal perspective. And while Epic's motion describes the balance of hardships only from a Fortnite and Unreal Engine vantage point, the court order it's seeking could actually encourage a number of other developers--including some very large ones--to breach their contracts with Apple, at least if they have the wherewithal to afford a legal spat with Apple in the same district.

The court will base its decision on a mix of a prima facie assessment of who's more likely to prevail (which Epic obviously suggests is beyond doubt, still takes Epic dozens and dozens of pages to argue) and the aforementioned balance of hardships.

My guess is Judge Edward Chen will be unconvinced of the need for issuing a TRO without giving Apple the chance to respond. Apple's August 14 notice to Epic regarding the developer agreement sets a 14-day deadline. And while Fortnite gamers are used to getting new content rather frequently, a couple of weeks won't make a difference in that regard either. Therefore, I believe the court is likely to hold a preliminary injunction hearing, possibly on very short notice, or at least a TRO hearing before enjoining Apple in any way. Epic really hasn't made the case for an ex parte TRO as far as I can see. I'm not taking a position on the merits of Epic's complaint (see 1, 2, 3, and 4) here, and not even on its prospects for securing a PI.

Share with other professionals via LinkedIn:

Sunday, August 16, 2020

How Apple's and Google's defenses to Fortnite maker Epic Games' antitrust lawsuits over their app store policies will likely differ

This is already my fourth post in three days on Epic Games v. Apple and Google. For your convenience, here are the headlines (and links to) to the previous three posts:

Meanwhile I've found the time to juxtapose the two complaints--Epic Games v. Apple and Epic Games v. Google--in an effort to identify their overlaps and differences. By just looking at the (largely consistent) tables of contents as well as the (almost identical) prayers for relie, one can tell that the narrative and the thrust are pretty much the same. But there are significant differences from an antitrust law perspective. While not very likely to be outcome-determinative, the delta will have an impact at all stages of proceeding.

What matters only in the court of public opinion--mainstream and social media--is how Epic's complaints recall Apple's and Google's idealistic communications of many years back (Apple's "1984" commercial and Google's "Don't Be Evil" motto as well as its promises of Android openness). Hypocrisy isn't an antitrust violation. In terms of geographic market definition, Epic defines the relevant markets with respect to Apple as worldwide markets, but excludes China with respect to Google, which won't lead to a different outcome either. Instead, let's focus on legally relevant differences.

The situation Epic Games is facing in practical terms is the same: Fortnite has been thrown out of Apple's App Store as well as the Google Play Store, meaning that new users can't download it and existing users can't receive updates. In either case, this was the platform owner's response to Epic's offering of rebates contingent upon purchases that would have circumvented Apple's and Google's in-app payment systems. So there's a behavioral overlap. Antitrust law, however, is concerned with unilateral conduct only against the background of monopoly power. In that regard, Epic faces unique challenges with respect to each adversary (technically, there are multiple Google defendants, but they belong together):

  • Google's market power stems from its platform (Android), but almost all Android devices are made by companies (original equipment manufacturers, or OEMs) other than Google, such as Samsung, which operates an app store of its own. Google controls the OEMs' behavior through its license agreements--unless they license the core Android code base on open-source terms (without the brand and various proprietary components, including but not limited to Google's propriertary apps).

  • Apple doesn't license iOS to OEMs, so it's completely in control, and its terms and policies are even more restrictive (Apple doesn't even enable Android-style "sideloading"), but iOS runs on far fewer devices than Android does. Apple will likely argue that the huge numbers of Android devices in use constitute a competitive restraint, though this depends on market definition.

In terms of previous decisions by courts and regulators, there's nothing in the U.S. that helps Epic. The Supreme Court heard Apple v. Pepper, a consumer class action case over the 30% App Store cut, but only with a view to the narrow question of an entitlement to damages awards by those indirectly harmed. Google, by contrast, has been slapped with a massive fine by the European Commission over its Android business model, but that's a different jurisdiction (and even within that one, it's merely a decision by an executive agency, not a judicial body). Epic says Google's conduct has been "condemned by regulators the world over," which is hyperbole and ultimately won't help a United States District Court resolve the dispute.

It's instructive to compare the counts of those two complaints:

  • Count 1 in either complaint alleges a violation of § 2 Sherman Act by monopoly maintenance in the app distribution market on the given platform.

  • Only with respect to Apple does Epic Games allege a denial of an essential facility (breach of an antitrust duty to deal) under the same pagraph (Count 2 of the complaint against Apple). The hurdle for something to constitute an essential facility is very high, so apparently Epic's lawyers concluded that this was worth pursuing only with respect to Apple, which controls 100% of the relevant market, and not Google, which controls by far and away the most important--but not the only--distribution channel for Android apps.

  • § 1 Sherman Act then comes into play with respect to contract terms Apple and Google impose on third parties. In Apple's case, the allegation of unreasonable restraints of trade under § 1 is exclusively about the iOS Developer Agreement (Count 3), while Epic brings two such counts against Google: Count 2 over its dealings with OEMs, and Count 3 over its developer agreement.

  • The next three counts walk in stride again: unlawful monopoply maintenance in the in-app payment processing market (Count 4), unreasonable restraints of trade in the in-app payment processing market (Count 5), and tying of a given app store to an in-app payment/billing service.

  • The claims under California state law (Cartwright Act and Unfair Competition Law) are materially consistent again, with just the need for an extra claim against Google as the alleged unreasonable restraints of trade involve not only the companies' developer agreements but also Google's OEM contracts.

I mentioned market definition before. Epic defines a market for app distribution on either platform, and alternatively offers a narrower definition of this for the product group of games (my focus as an app maker, too). Then there's a payment processing markets for each platform, either for all apps or, alternatively, specific to games. With respect to Google's market power as the maker of the platform that runs on 95% of all mobile devices that don't come with an operating system belonging to their manufacturer, Epic defines a "merchant market for mobile operating systems," which makes sense.

Epic's complaint already addresses Apple's and Google's anticipated lines of defense. § 63 of the complaint against Apple states that "competition in the sale of mobile devices does not constrain Apple's power in the iOS App Distribution Market because iOS device users face substantial switching costs and lock-in to the iOS ecosystem." But that pre-emptive strike probably won't end the debate. I must admit I'm still in the process of forming my own opinion. From the perspective of an app developer, I do wish to reach either audience, which is why my forthcoming game is developed using the cross-platform Unity engine. Android has a larger installed base, while the iOS audience is more affluent on average. What I'm still thinking about is this: if Google didn't have pretty much the same app distribution terms as Apple, I could see a competitive restraint because users would find out (and the media would sooner or later tell them) that many apps would offer the same in-app purchases at a significantly lower price on Android than on iOS. That would affect the total cost of ownership, and might create an incentive for switching.

Apple's defense is going to depend on market definition to a greater extent than Google's, which will argue that Android is open source and that apps can, in principle, be installed on Android devices without going through the Google Play Store (though only a minority of users source their apps elsewhere, and automatic updates are the prerogative of apps distributed through Google's store). In other words, Google has more options for muddying the water, for erecting and attacking strawmen, and for creating smokescreens. However, Epic wisely chose to put the case before professional judges rather than juries.

It doesn't appear likely, yet it is possible that the two defendants fare differently in court. If so, Google would have better chances of getting away unscathed, simply because a chain is as strong as its weakest link and the Google-related chain has an extra link: OEMs. But if the ubiquity of Android played in Apple's favor, the opposite outcome would be conceivable, too.

Apple and Google will now have to appoint counsel, and they'll then have to decide whether to merely respond to the complaint or to bring motions to dismiss. It's too early to discuss a motion that hasn't been and may never be filed, but it's not going to be easy to identify any structural deficiencies in Epic's pleadings so far.

Share with other professionals via LinkedIn: