Saturday, October 17, 2020

Fortnite users continue to make in-app purchases on iOS that bypass Apple's payment system: court filing says "Epic is stealing money from Apple"

Two weeks after Fortnite maker Epic Games brought a motion for judgment on the pleadings against some of Apple's counterclaims (particularly the ones that might give rise to punitive damages), Apple filed its opposition brief on Friday evening Pacific Time (this post continues below the document):

20-10-16 Apple's Opposi... by Florian Mueller

One of the disputed theories is called conversion, which Apple describes as follows:

"Stated simply, Epic is stealing money from Apple. Theft is a crime, and 'conversion' is its civil-law analogue. The victim of theft has always had the right to sue for conversion to get its property back from the thief—irrespective of the technical means by which the conversion is accomplished. If, for example, Epic sent an agent into Apple Park and stole cash from a vault, a conversion claim could properly be pleaded. If Epic hacked an Apple bank account and stole cash electronically, a conversion claim could properly be pleaded. And if Epic bypassed IAP to funnel funds that include Apple's revenues and commissions into Epic's coffers, a conversion claim can be—and has been—properly pleaded." (emphases added)

In yesterday's filing, Apple says it has the right to sue Epic not only for breach of contract but also for tort, given that Epic would face tort liability "if [t]c had never executed the contracts with Apple and had instead found another way to smuggle Fortnite and its 'hotfix' payment mechanism into the App Store." Apple argues that a company protecting itself against such behavior through contracts must not be in a weaker legal position than one that doesn't. What Apple does clarify is that it won't seek "multiplicative recovery" if the same conduct on Epic's part constituted both a breach of an agreement and fraud. In other words, Apple would then content itself with only the greater of the two alternative amounts.

It appears that the "hotfix" was just a simple data point on Epic's servers--not program code, but merely a trigger. When the iOS version of Fortnite checked on that data point, it offered an alternative payment mechanism to end users in circumvention of Apple's in-app payment rules.

After the "hotfix" that Apple says became Epic's hot mess, Fortnite was removed from the App Store. That means it cannot be downloaded to iOS devices right now, and Epic has already failed twice (with a motion for a temporary restraining order as well as a motion for a preliminary injunction) to get a court to force Apple to tolerate an iOS version of Fortnite that bypasses Apple's in-app payment system.

At least so far, Apple has not removed Fortnite from the devices of iOS users who downloaded it prior to its removal from the App Store. Those users can't get updates, and they wouldn't be able to reinstall Fortnite if they (the users) deleted it. But so far the battle royale game has remained on tens of millions of devices.

What I didn't know (because I didn't have Fortnite on any of my iOS devices when it was removed from the App Store) is that Epic continues to offer in-app purchases that bypass Apple's system. Yesterday's filing says the following:

"{...] Epic's refusal to deactivate its hotfix makes this a continuing tort, as Epic's bank accounts continue to grow daily with additional stolen amounts. While Epic has repudiated its contractual obligations through its lawsuit, and its claims will be tested in time, Epic's continued siphoning of sales from IAP is just theft, plain and simple."

"[...] Epic's acts of conversion continue to this day [...]"

"[...] Epic to this day is stealing definite, ascertainable sums of money from Apple, and the tort of conversion provides a civil remedy for such conduct."

"The amount stolen by Epic from Apple can be fixed with certainty; the fact that this amount increases with every day that Epic continues its wrongdoing does not relieve Epic of tort liability."

Epic had various reasons for sneaking that alternative payment system past Apple's review process. From an antitrust angle, Epic appears to believe that any purchase made by a user of Fortnite on iOS that bypasses Apple's payment system can later serve as proof that there is "demand" for such alternatives. Epic also wants to make the case for how such alternatives save end users money.

After Fortnite was removed from the App Store, Epic could simply have deactivated that trigger it calls a "hotfix" and resubmitted a version of Fortnite to Apple's app review that would have complied with Apple's rules. But Epic doesn't want to de-escalate. Instead, it takes the position that it's simply allowed to breach an agreement with Apple that Epic claims to be a violation of the antitrust laws and, therefore, illegal and unenforceable.

From the get-go, Epic has viewed its dispute with Apple as a combination of litigation and public relations. When Epic CEO Tim Sweeney declared war on Apple by way of a 2 AM email, he announced that the two companies would be in conflict "on a multitude of fronts – creative, technical, business, and legal" (and possibly "for many years"). By continuing to generate in-app purchasing revenues on iOS without Apple getting its contractual share, Epic demonstrates its determination to fight. But it can't necessarily count on support from the courts.

On Monday, Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California will hold a case management conference relating to multiple App Store antitrust cases pending before her.

Epic Games v. Apple is the highest-profile battle in the App Store Antitrust Wars, but far from the only one as my App Store Antitrust Battlemap shows (click on the image to enlarge):

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Thursday, October 15, 2020

Nokia's latest standard-essential patent licensing offer to automotive suppliers is too little, too late to obviate referral of key questions to CJEU

Earlier this year, Nokia made mediation talks with Daimler and various of its suppliers of telecommunications components fail by refusing to grant exhaustive component-level standard-essential patent (SEP) licenses that would have provided suppliers with the operational freedom they need in order to go about their business. This was not only a disappointment but also a major embarrassment for the European Commission, which continues to be driven by regional protectionism rather than consistent enforcement of competition law and had urged the parties to negotiate even though it was a total waste of time, as anyone knowledgeable about the issues would have predicted.

Roughly eight months later, I have to grant Nokia and its attorneys that they have made some limited adjustments to their position, and that fact appears attributable to last month's Dusseldorf trial more so than to anything the EU Commission has done. Some key players in Brussels are beholden to Nokia, even to the extent that postfactual commissioner Thierry Breton parrots some outdated Nokia-funded propaganda by making an incorrect claim (of Europe being the #1 continent in 5G SEP ownership) from which Nokia's lawyers had already distanced themselves by way of an updated study.

The Dusseldorf Regional Court's strong inclination to refer certain component-level licensing questions to the top EU court--Daimler's lead counsel in the Nokia infringement cases, Quinn Emanuel's Dr. Marcus Grosch, told the Munich I Regional Court last month that he'd be very surprised if it didn't happen--appears to be scaring the living daylights out of Nokia. The decision is scheduled to come down on November 12, and at least the German appeals courts--the lower courts in Mannheim and Munich are too obsessed with forum-selling to do the right thing--will then likely be hesitant to enjoin end-product makers if their suppliers were denied SEP licenses on FRAND terms.

In an apparent effort to dissuade the Dusseldorf court from that CJEU referral, the Karlsruhe Higher Regional Court (which hears all appeals of Mannheim judgments) from staying the enforcement of ill-gotten injunctions against Daimler, and to further encourage the Munich I Regional Court to grant Nokia an injunction against Daimler, Nokia sent new licensing offers to several Daimler suppliers (including BURY Technologies, Continental, Valeo/Peiker, Huawei, Harman, and Renault, which builds an entire vehicle for Daimler) about two weeks ago. At the time Nokia also intended to make such an offer to Bosch, but was waiting for a non-disclosure agreement (NDA) to be concluded.

NDAs didn't prevent all sorts of information to leak from the failed mediation process, and I've been able to find out more about its current maneuvering than Nokia would have liked me to.

The structure of Nokia's latest offers still comes with significant field-of-use restrictions that cannot be reconciled with the principle of the free movement of goods in the EU's Single Market and the fact that under the CJEU's Huawei v. ZTE case law, Nokia owes implementers a license on FRAND terms.

Furthermore, Nokia wants to charge royalties based on the value of the end product--a car--as opposed to a reasonable royalty rate. As a result, component makers simply couldn't afford such a license.

But even if one elected to ignore those major issues, Nokia still refuses to extend licenses to certain levels of the supply chain. Its current offers are limited to telematics control units (TCUs) and don't cover network access devices (NAD, often also referred to as connectivity modules) and baseband chips. By contrast, Sharp granted Huawei a license covering all three tiers (tier 1: TCUs; tier 2: NADs; tier 3: baseband chips.

Huawei is a tier 2 supplier to Daimler and suing Nokia in order to secure an exhaustive component-level SEP license on FRAND terms. That case is also pending before the Dusseldorf Regional Court. I don't think Nokia's latest round of offers would obviate a referral of component-level licensing questions to the Court of Justice of the EU with respect to Nokia v. Daimler, but a tier 1 license would certainly not moot the legal issues in Huawei v. Nokia.

Not only is it urgent to refer the question of component-level licensing to the top EU court but there are some worrying developments in SEP case law in Germany that actually require the referral of further questions to the CJEU. One of the two patent infringement panels of the Mannheim Regional Court has recently decided to gut Huawei v. ZTE by focusing on the implementer's counteroffer; the Federal Court of Justice of Germany held in Sisvel v. Haier that SEP holders no longer need to present claim charts to implementers (which particularly disadvantages small companies, but the last thing a dogmatic judge in Germany would care about is the economy); and the Munich I Regional Court applies the Sisvel v. Haier guidance in such extreme ways that it's hard to see how any implementer could actually defend itself there short of simply capitulating and taking a license on the terms dictated by the SEP holder. Most recently, the Munich I Regional Court has practically waived the requirement to provide collateral (bond or deposit) if an injunction is enforced during the appellate proceedings. They still determine an amount that needs to be posted, but it's typically negligible. I'll talk about that some more on another occasion. For now I merely wanted to underscore the necessity to get certain German courts overruled by the CJEU before more damage is done to innovation and competition.

If Nokia keeps improving its offers at the snail's pace we've seen from the failed handset maker in recent years, the CJEU will likely provide further clarification before Nokia ever makes a truly fair and reasonable licensing offer to automotive suppliers.

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Wednesday, October 14, 2020

App Store Battlemap: all antitrust investigations and complaints targeting Apple's App Store and Google Play from around the globe in one chart

Battlemaps are a signature element of this blog. Ten years ago I created a number of them to visualize the smartphone patent disputes between the likes of Microsoft, Apple, Google's Motorola, HTC, and Samsung. Two years ago to the day I published a new one featuring Apple, Huawei, Intel, Qualcomm, and Samsung. And now I proudly present what is--unless I missed something--the first chart to show the global app distribution antitrust landscape--all players and all cases--as a one-pager (click on the image to enlarge; this post continues below the image):

I intend to update this chart from time to time. And here's the PDF version, which comes with two additional pages of explanations and information:

20-10-14 App Store Antitrus... by Florian Mueller

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Tuesday, October 13, 2020

Epic Games insists on conducting discovery of Steve Jobs and Tim Cook's emails: 3.6 million Apple documents are not enough

On Friday, Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California granted Epic Games' motion for a preliminary injunction against Apple only with respect to its developer account for Unreal Engine, but it's still up to Epic itself to #FreeFortnite, though Epic's aggressive attitude makes a Ninth Circuit decision likely to be inevitable before the iOS version of Fortnite will return to the App Store.

Late on Monday, Epic and Apple filed a joint case management statement in preparation of the case management conference Judge Gonzalez Rogers will hold next Monday (this post continues below the document):

20-10-12 Epic Games v. Appl... by Florian Mueller

The document indicates a blame game, with Epic insinuating that Apple is stalling and Apple pointing a finger at Epic for lack of cooperation. And in this context, the names of the founders and CEOs of both companies come up:

Epic says it's already "already made an initial production of more than 16,000 pages from the files of Timothy Sweeney, Epic's CEO." But Apple argues those documents may have been "cherry-picked and omit a significant amount of relevant materials" (which Epic obviously denies). Apple notes that Epic already received a third-party discovery request before it brought its own suit. Allegedly, Epic "told Apple to just wait a bit—only to file suit against Apple before providing any responses to Apple's subpoena."

The court just entered a protective order (on terms on which the parties had agreed) on October 2, and Apple proudly mentions it has since "provided Epic with the 3.6 million documents produced by Apple in Cameron [developer class action] and Pepper [consumer class action], as well as all written discovery requests and responses in those cases." But Epic says Apple should have done so even sooner.

With respect to the custodians (the persons whose files may contain documents of relevance to the dispute), Epic won't be satisfied until Apple produces emails from the archives of Steve Jobs and Tim Cook:

"Apple’s list of six custodians is also facially deficient, as it does not include individuals on whom Apple repeatedly relied during the temporary restraining order and preliminary injunction motions, such as Steve Jobs, Apple’s former CEO, or Tim Cook, Apple's current CEO." (emphases added)

Apple contradicts as follows:

"Epic[] alleges that Apple's proposed custodian list is 'facially deficient' because it includes neither Steve Jobs nor Tim Cook, 'whom Apple repeatedly relied on during the temporary restraining order and preliminary injunction motions.' Epic's statement mischaracterizes the facts. Apple's temporary restraining order and preliminary injunction briefs cite exactly two references with respect to its current and former CEO—Tim Cook's Statement before the U.S. House of Representatives Judiciary Committee, and an AppleInsider article quoting Steve Jobs. Both are publicly available to Epic, and neither supports the need for a custodial collection from Apple's highest executives. To the contrary, Apple’s proposed custodian list includes all fact witnesses who submitted declarations in support of Apple’s temporary restraining order and preliminary injunction briefs—including Philip Schiller, current Apple Fellow and former Senior Vice President of Worldwide Marketing, who is the executive most likely to have information relevant to this case." (emphases added)

Expect some wrangling and bickering at next Monday's case management conference...

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Yet another class action complaint against Google over its Google Play app store practices: claims under Sherman Act and competition laws of 27 states

Earlier today I blogged about the flood of antitrust class actions over app distribution terms. In that case, it was about a new lawsuit brought against Apple in the Superior Court of California. But class action lawyers also have Google in their cross-hairs. Today a consumer class named Bentley et al. proposes to relate its case, which is just a few days old, to Epic Games v. Google and a few other Google Play class actions.

Here's the complaint, which was filed in the Northern District of California on Friday (this post continues below the document):

20-10-09 Bentley Et Al. v. ... by Florian Mueller

That makes it the fourth class action against Google over the Google Play app store in that district. The earlier-filed cases are Carr v. Google (a consumer class like Bentley) and two app developer cases, Pure Sweat Basketball v. Google and Peekya Services v. Google, notably represented by Bonny Sweeney (same family name as Epic Games' CEO).

The new Bentley complaint brings claims under § 2 Sherman Act, § 1 Sherman Act, and the following 27 state competition laws (starting with California, thereafter in alphabetical order) that the class action lawyers apparently deem favorable to their cause and where they have been able to recruit class action members that paid for Android app downloads and/or in-app purchases:

  1. California Cartwright Act

  2. Arizona Unform State Antitrust Act

  3. District of Columbia Antitrust Act

  4. Hawaii Antitrust Laws

  5. Illinois Antitrust Act

  6. Iowa Competition Law

  7. Kansas Restraint of Trade Act

  8. Maine Monopoly & Profiteering Laws

  9. Maryland Antitrust Laws

  10. Massachusetts Consumer Protection Laws

  11. Michigan Antitrust Reform Act

  12. Minnesota Antitrust Law of 1971

  13. Mississippi Antitrust Laws

  14. Nebraska Junkin Act

  15. Nevada Unfair Trade Practices Act

  16. New Hampshire Consumer Protection Act

  17. New Mexico Antitrust Act

  18. New York Donnelly Act

  19. North Carolina Antitrust Laws

  20. North Dakota Uniform State Antitrust Act

  21. Oregon Antitrust Law

  22. South Dakota Antitrust Laws

  23. Tennessee Trade Practices Act

  24. Utah Antitrust Act

  25. Vermont Consumer Protection Laws

  26. West Virginia Antitrust Act

  27. Wisconsin Trade Regulations

That's what they call diversity jurisdiction.

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Flood of antitrust class actions over app distribution spills over to state court: Beverage v. Apple pending in Superior Court of California

Just after I wrote in my previous post (Class action complaint against Apple over offering Apple Arcade while not allowing Microsoft xCloud, Google Stadia, Facebook Gaming, GeForce Now ) that "[a]pp distribution antitrust cases--especially class actions--are springing up like mushrooms now," another case was mentioned in yet another joint case management statement (a filing that my next post will cover in more detail):

Beverage et al. v. Apple, Inc., No. 20-cv-370535, filed in the Superior Court of California on September 17, 2020

That is a state court. I haven't obtained the complaint yet, but it's obvious that this must be a case raising Unfair Competition Law (UCL) issues. State UCL and federal antitrust law (Sherman Act) have some overlaps.

Epic Games and other plaintiffs in federal court have brought state UCL claims in addition to claims under federal antitrust law. Federal courts can rule on state law claims under the diversity jurisdiction rule (28 U.S.C. § 1332), which applies since Epic Games v. Apple involves companies from two different states (California and North Carolina) and is undoubtedly about more than $75K, in addition to the factual overlap between Epic's Sherman Act and UCL claims (supplemental jurisdiction under 28 U.S.C. § 1367).

Both Apple and Epic have reserved the right to file a motion to relate that Beverage case with the set of federal lawsuits in Judge Yvonne Gonzalez Rogers's court. Also, a court can take the initiative to relate cases (sua sponte).

The logistical implications here would be significant. Even though both courts are based in California, one is a federal district court and the other a state court.

One possibility would be for the state court to simply stay its case until the federal cases have been resolved (including all appeals), especially given that Judge Gonzalez Rogers is really determined to resolve those app store matters swiftly. I can't imagine any judge would have set a more ambitious schedule in Epic Games v. Apple.

Will there be even more filings? It's possible that the recent Congressional report, which the Pistacchio complaint (see my previous post) mentions, inspires further filings. Some class action law firms may still be looking for parties willing to become class action plaintiffs...

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Class action complaint against Apple over offering Apple Arcade while not allowing Microsoft xCloud, Google Stadia, Facebook Gaming, GeForce Now

App distribution antitrust cases--especially class actions--are springing up like mushrooms now. A few days ago I was wondering about the connection between Epic Games CEO Tim Sweeney and Bonny Sweeney, a San Francisco-based antitrust lawyer suing Google over its Google Play terms on an indie app developer's behalf. But there's also a new case against Apple. It was filed five days ago and I just became aware of it because it was referenced in a case management statement. The new complaint is Pistacchio v. Apple and alleges that consumers overpaid for Apple Arcade because of Apple not allowing allegedly competing services such as Google Stadia, Microsoft's xCloud, Facebook Gaming, and Nvidia's GeForce Now (this post continues below the document):

20-10-08 Pistacchio v. Appl... by Florian Mueller

As the aforementioned case management statement notes, the Pistacchio case appears to be related to the other App Store cases already pending in the Northern District of California (Epic Games v. Apple, Pepper v. Apple, and Cameron v. Apple. Presumably it will soon be assigned to Judge Yvonne Gonzalez Rogers. And then the question will be what implications this will have for the schedule. Potentially, this new case could even cause a delay for Epic Games v. Apple.

In addition to its own Google Stadia service, Google does allow xCloud (Xbox Game Streaming), Facebook Gaming, and GeForce Now on Android. Whether the unavailability of those alternative game services on iOS actually results in Apple Arcade games being more expensive is going to be hard to prove--but without evidence that there is such an effect, the theory of harm will be limited to the vague notion of "limited choice, stymied innovation, and reduction of quality of service associated with subscription-based mobile gaming services on iOS" (para. 16 of the Pistacchio complaint).

As always in antitrust cases, and especially in those app distribution cases, market definition is the single most important question. The Pistacchio complaint is centered around a very narrow one, the "iOS Subscription-Based Mobile Gaming Market." Why only iOS and not including other platforms? Why only "mobile" when gamers play on all sorts of devices? Why only "subscription-based" when gamers actually have the choice between free-to-play games with in-app purchases, free-to-play games without in-app purchases, free-to-play games with optional subscriptions, pay-for-download games, and so forth?

In the Pepper case, the Supreme Court basically sidestepped the Illinois Brick doctrine regarding indirect purchasers' antitrust standing by holding that consumers are direct purchasers from Apple, also paving the way for the Pistacchio complaint:

"When [Pistacchio] and the Class purchased Apple Arcade, they did so directly through the App Store and paid Apple directly, using their credit card or other payment sources."

This new complaint also tries to get mileage out of the recent Congressional report, Investigation of Competition in Digital Markets, and the ongoing European Commission investigation of Spotify's complaint against Apple. By the way, there is a discovery dispute between Apple and counsel for the plaintiffs in the earlier-filed class actions over whether any documents Apple provided to the European Commission must be produced in the private U.S. antitrust actions in the Northern District of California. That one may have to be resolved by the court.

The Pistacchio complaint was filed on the same day on which Microsoft made a public statement on app distribution terms (seeking to distinguish Microsoft's own Xbox developer terms from mobile app stores on the basis that console hardware is less profitable, a theory that Judge Gonzalez Rogers has meanwhile rejected in the Epic case as being unsupported by antitrust case law and which long-standing Microsoft critic Dr. Roy Schestowitz dismisses as "Microsoft 2020 Spin: We're a Tiny Little Startup Challenging Giant and Evil Monopolies"). But the Pistacchio complaint quotes an earlier and shorter statement by Microsoft:

"[W]e do not have a path to bring our vision of cloud gaming with Xbox Game Pass Ultimate to gamers on iOS via the Apple App Store. Apple stands alone as the only general purpose platform to deny consumers from cloud gaming and game subscription services like Xbox Game Pass."

But the complaint mentions an example in which a game streaming app ultimately was approved by Apple after complying with the App Store terms: Steam Link.

Two months ago Epic CEO Tim Sweeney even predicted that "games with user created modes" (I guess that's a typo and he meant "mods") such as Fortnite, Minecraft (which belongs to Microsoft), and Roblox would be affected by a change in Apple's App Store guidelines (this post continues below the tweet):

So far, only Fortnite has run into problems, but not because of mods. It was removed as a result of Epic's strategic decision to fall out of compliance with the App Store rules.

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Sunday, October 11, 2020

In the increasingly insane world of patent litigation, antisuit injunctions are of no more value unless accompanied by anti-anti-antisuit injunctions--ex parte, of course

This is a follow-up to the Tuesday post entitled The day that international comity died was when the UK Supreme Court handed down its injudicious Unwired Planet ruling. It's not just that international comity in patent litigation is history: so is sanity--and in this case it's not about sanity in a literal sense (Experts call plexiglass shields used by Munich I Regional Court "absurd" and useless to protect against COVID-19, even if they were several times larger), but--figuratively speaking--in the antisuit context. And once again, UK and German judges are to blame because they've brought about a situation in which other jurisdictions will have to take ever more extreme measures.

Also on Tuesday, Professor Thomas Cotter mentioned on his much recommended Comparative Patent Remedies blog a Chinese court's antisuit injunction against InterDigital in connection with its standard-essential patent (SEP) litigation against Xiaomi in India, and the fact that InterDigital had asked the Delhi High Court for an anti-antisuit injunction. And he asked: "Ah, where will it all end?"

If sanity isn't restored in the near term, we may have to use a more mathematical notation like "Anti1suit/Anti2suit/Anti3suit/... Injunction" or "A1SI/A2SI/A3SI" lest we end up writing about anti-anti-anti-anti-anti-anti-antisuit injunctions.

Indian lawyer Rajiv Kr. Choudhary reported on his Tech Law Blog on Saturday that the Delhi High Court had indeed granted InterDigital's motion for an anti-antisuit injunction (PDF), just like the Munich I Regional Court had granted one to Nokia against Continental last year (surprisingly affirmed by the Munich Higher Regional Court).

Unless the Chinese court that had enjoined InterDigitroll in the first place can hold them in contempt of court because of their petition for an A2SI running counter to the spirit of the A1SI, Xiaomi might now move for an A3SI, as Continental did (unsuccessfully, however) in Northern California.

What this escalation means in practice is that every party considering a motion for an antisuit injunction--at least in a patent (especially SEP) litigation context--may now conclude that a conventional A1S1 doesn't do the job. It did 8 years ago for Microsoft against Motorola, and in 2018 for Samsung against Huawei, but the world has undoubtedly changed after the escalation in certain other cases.

The more promising course of action now is to

  • move not only for an A1SI but to request a concomitant and broad A3SI, and

  • to do so ex parte (even requesting that the court hide it from the other party until the decision comes down).

But even that won't necessarily help as the other party may find a court that is willing to grant an A2SI as a pre-emptive strike. In that case, a plaintiff fearing an A1SI might have to bring an ex parte motion for an A2SI along with the complaint.

In some situations, the sequence and nature of the injunction requests may not even matter as much as how much the enforcement of one decision hurts the other party. If you obtain an A1SI in a jurisdiction that will impose draconian sanctions on the other party, while the A2SI was granted in a jurisdiction that will impose only a small fine on you, then you might just feel like pulling the trigger and enforce your A1SI in contempt of the A2SI--but that's unlikely to be a good strategy, given that you would then totally offend the court hearing the case, and the patentee presumably sued you in that particular jurisdiction because you have substantial business interests there.

The 1975 Oscar Best Movie One Flew Over the Cuckoo's Nest took place in a mental hospital. Fast forward by 45 years and it's become a patent court--possibly even the premium version with plexiglass shields.

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Saturday, October 10, 2020

Judge converts Epic Games v. Apple TRO into preliminary injunction, says Epic lost credibility with court, and disagrees with Microsoft on Xbox

A few hours after I wrote that this Friday (October 9) and Monday (October 12) were the days on which the United States District Court for the Northern District of California was particularly likely to rule on Epic Games' motion for a preliminary injunction (PI) against Apple, and consistent with what I had told a major newspaper after Epic's temporary restraining order (TRO; blog post), Judge Yvonne Gonzalez Rogers has effectively converted the TRO into a PI (this post continues below the document):

20-10-09 Order on Epic Game... by Florian Mueller

The outcome is the same as at the TRO stage in terms of Epic not being allowed to bypass Apple's in-app payment rules with Fortnite, Apple not being allowed to terminate the developer account for Unreal Engine that formally belongs to an Epic entity in Switzerland, and the court once again declines to hold that one party or the other is likely to prevail on the merits. My report on the PI hearing already stated in its headline that Epic was struggling to persuade the court of its likelihood to win.

While the TRO was a pre-PI decision, the PI is preliminary to a hypothetical permanent injunction that may or may not come down after the bench trial to be held in Oakland in May 2021. Whoever loses will likely appeal, and then it's another question whether a permanent injunction coming down at that point will or will not continue to be enforced.

Judge Gonzalez Rogers acknowledges arguments made by either party with respect to the merits, but the issues are too complex and important to be pre-decided at this point. In particular, the judge notes the highly factual nature of market definition. Here, there are even two market definition disputes (while most antitrust cases involve just one): the question of whether the iOS app distribution market (better for Epic) or the wider games distribution market (better for Apple) must be looked at, and with respect to Epic's "tying" claim the question of whether in-app payments can be separated from the app distribution market. Judge Gonzalez Rogers is not prepared to decide on market definition, even on a preliminary basis, at this early stage--and she also notes that Epic focuses on harm to competitors so far, while any bottom-line impact on consumers under the rule of reason (where Apple could prevail by showing that what it does is ultimately good for consumers) would also need to be considered. Ultimately, the antitrust laws are meant to benefit consumers.

The PI order gives both parties some guidance as to where they bear the burden of proof and on what aspects of the case they must do more going forward. For instance, Apple will later have to convince the court that what its app distribution terms are designed to achieve cannot be achieved with softer rules. Only Epic, however, is told that "adamant[ly]" taking unreasonable, "baffling" positions has already made it lose some of its credibility with Judge Gonzalez Rogers. Footnote 7 says:

"Epic Games disputes that its use of the hotfix was deceptive where it is common practice in the gaming and software industry. The deceptive conduct does not derive from Epic Games’ use of the hotfix specifically, but from using a hotfix to clandestinely add features in violation of the guidelines and its agreements with Apple, and then failing to disclose such code. Moreover, Epic Games did this despite receiving an unambiguous refusal from Apple only a few weeks prior to the introduction of its hotfix. The record further reflects that while hotfixes are commonly used in the industry, their uses are generally to fix or patch critical bugs or defects—not to enact substantive and significant new features. Epic Games’ adamant refusal to understand this basic distinction is not only baffling, but undermines its credibility with this Court." (emphasis added)

Regardless of the party to be reproached (here, Epic, but in other contexts it would also apply to Apple), I think courts should do this more often and tell parties very clearly when their lawyers persistently engage in framing to the extent that it is an insult to human intelligence. It happens in all sorts of contexts all the time. As a litigation watcher, I find it annoying, and I think it must be even worse for judges.

Microsoft is not formally a party here, though it practically intervened (through sworn declarations) as an Epic supporter. Given all the attention that Microsoft's public statement on app distribution terms (blog post) got this week, it's interesting to see that this judge--at least for now--disagrees with Microsoft's view that video game consoles like the Xbox can still have the kind of business model that Epic and Microsoft believe Apple and Google should not have:

"First, Epic Games avers that the iOS market is distinct from other video game platforms because Sony, Nintendo, and Microsoft do not make much profit, if any, on the sale of the hardware or console—unlike Apple, which allegedly makes significant profits from the sale of each iPhone. This distinction is without legal precedent under section 2 of the Sherman Act. Indeed, Sony, Nintendo and Microsoft all operate similar walled gardens or closed platform models as Apple, whereby the hardware, operating system, digital marketplace, and IAPs are all exclusive to the platform owner. As such, a final decision should be better informed regarding the impact of the walled garden model given the potential for significant and serious ramifications for Sony, Nintendo and Microsoft and their video game platforms."(emphases added)

The Windows and Xbox company tried to distinguish the Xbox from the iPhone making the very same distinction that a judge has now, in diplomatic terms, held to make no sense whatsoever. So far, Microsoft appears to have hoped it could have its cake and eat it: keep imposing similar terms as Apple and Google on XBox game makers while forcing Apple and Google to give Microsoft and others more favorable terms. Microsoft would be well advised to make up its mind on the appropriate Xbox game distribution terms sooner rather than later.

It's worth noting that the order makes reference to the COVID-19 pandemic in a couple of contexts:

  • "these continued difficult times that is the COVID-19 pandemic era, where gaming and virtual worlds are both social and safe" (by launching a game very soon, I'm going to make a contribution in this regard, too)

  • "the continued ongoing pandemic has demonstrated the imperative for substantial digital and virtual innovation"

Epic can now appeal the denial of the Fortnite-related main part of its motion to the Ninth Circuit, while Apple can appeal the consolation prize Epic got with respect to Unreal Engine.

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Friday, October 9, 2020

Afraid of losing the Android-Java copyright case, Google was looking for patents to countersue Oracle, but failed to find any suitable ones

I just published a detailed fact check that highlights at least ten major untruths Google's lawyer told the Supreme Court on Wednesday. Over the last 24 hours I received information on what was going on inside the Googleplex about four to five years ago. At that stage, Oracle had won its first Federal Circuit appeal against Google (the one over copyrightability), and the case had become a pure copyright case, as Oracle didn't pursue its patent infringement claims on appeal.

There was a lot of concern on Google's part that they were going to lose the "fair use" retrial. So they were asking themselves what they could do to gain leverage.

In the patent litigation context, the way most disputes between companies of the Oracle-Google type end is a cross-licensing deal: if both sides had "nuclear" patents, "mutually assured destruction" would ultimately solve the problem.

I know from a first-rate Google source (which I must protect and which contacted me through non-Google channels) that Renny Hwang, by now Google's patent litigation chief but then already on this case, conducted a search for patents that Google could use to countersue Oracle.

The criteria that Mr. Hwang defined were the following four:

  • They had to be capable of inflicting serious damage.

  • They had to target Oracle's core business, not just one of the various lines of business Oracle had acquired over the years (such as the MySQL open source database).

  • They absolutely positively had to be no search patents, even though Google had identified at least four search technologies in Oracle's offerings that it could have attacked. Google's strongest patents are in search--but with Google being a monopolist in that market, it couldn't seek injunctive relief over search patents without serious antitrust implications. The latter is my explanation--my source just told me that search technologies were off limits, and antitrust is a plausible reason.

  • They had to be homegrown as opposed to patents acquired from the likes of IBM. It would have looked bad in the eyes of a judge and, especially, jury if Google had countered litigation over Sun's homegrown IP with patents acquired from third parties.

It turned out Google didn't own any patents that would have met all four criteria at the same time. Therefore, they didn't bring a countersuit.

What my source doesn't know for sure is whether Google was going to sue right away (possibly delaying the retrial by persuading Judge Alsup to consolidate all claims, in which case Google would have told the jury "look, they also infringe on our rights") or, which I actually consider more likely, would firstly have threatened Oracle with a countersuit in an effort to work out a settlement.

I've been able to verify that my source is indeed a person who at the time held a position with Google in which the source would have been likely to be in the know. I try to be careful about "inside baseball" except when it's too relevant not to share with you, my esteemed readers. Earlier this year I broke the news on an EU-ordered patent/antitrust mediation effort between Nokia, Daimler and many of the world's leading automotive suppliers failing. No one has been able to find out who my sources were, but the accuracy of the information was subsequently confirmed.

I wish to reiterate, and elaborate on, something I said in my previous post (the fact check): I have my longstanding positions on this dispute, but there are other contexts, such as the ongoing Epic Games app distribution antitrust cases, in which I believe I'm more balanced than others who would simply blame Google for all sorts of things. Google does many good things, and I actually supported Google's core positions on EU copyright reform last year (in blog posts and by speaking at a couple of demonstrations, including the largest one of all those anti-Article-13 demonstrations). Also, in 2014 I expressed positions during an Apple v. Samsung trial that were definitely closer to Google's than Apple's. In fact, Google paid for the lawyers who successfully defended Samsung against two of Apple's patents-in-suit. And even in connection with Oracle v. Google, I said I wanted Google to win cert, though I was hoping for SCOTUS affirmance unlike everyone else who supported Google's petition.

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FACT CHECK: Ten falsehoods and fallacies Google's lawyer told the Supreme Court about Oracle's Android-Java copyright case

I live-tweeted about the Google v. Oracle America oral argument before the Supreme Court, and about five minutes into the hearing I already felt that Google was likely to lose the copyrightability part. After all justices had indicated where they stood on that question, or what they were interested in, there was no more doubt to me that Oracle will win that part by a unanimous or near-unanimous decision--but "fair use" is harder to predict, with a remand to the Federal Circuit being a possibility. Yesterday I published the justices' copyrightability statements/questions and commented on them.

Timothy B. Lee, who opposes API copyrightability, wrote on Ars Technica that Google's Supreme Court faceoff with Oracle was a disaster for Google, and it appears the finger-pointing is already in full swing. Lots of law professors supported Google for ideological reasons and maybe because they were misled about the expressive and original nature of API declaring code. One of them, Cornell's James Grimmelmann, is quoted by Ars Technica as blaming Google's lead Supreme Court counsel, Thomas Goldstein, for having done "an abysmal job." I actually saw Mr. Goldstein at his best when he represented Qualcomm before a Ninth Circuit panel earlier this year, and I wouldn't attribute to his performance on Wednesday an outcome that can and actually must be explained with the spuriousness of Google's non-copyrightability argument. Of course, one could have tried to take a different angle on the issue, and Professor Grimmelmann would have preferred Mr. Goldstein to make a more coding-centric argument. Considering how the justices approached the subject, however, Mr. Goldstein's strategy might have been the better choice--just that declaring code is program code, and program code is copyrightable if it's original and expressive.

What I don't like, though, is how he played fast and loose with the facts and the procedural history of the case, especially in the "fair use" context. I heard him say a variety of things that flew in the face of what I knew about this dispute that I've been following for a decade, longer than any other. But without verifying this based on the documents I've downloaded since August 2010, particularly by fact-checking against the Joint Appendix that was submitted to the Supreme Court (Volume 1 (pages 1-341), Volume 2 (pages 342-725)), I didn't want to accuse him of lying before at least refreshing my recollection. The bottom line is that his representations to the top U.S. court lacked veracity, even to the extent that I think he owes the justices an apology.

In the following, I'll highlight ten misrepresentations, in increasing order of relevance to the "fair use" decision:

10. "No summary judgment"

In connection with the standard of review, Oracle told the court that most fair use determinations are made by judges on summary judgment. This case is one, however, in which fair use was put before a jury, but the Federal Circuit determined that judgment as a matter of law (JMOL) was warranted. Justice Gorsuch asked Mr. Goldstein the following question:

JUSTICE GORSUCH: Briefly, just to follow up on -- on that, Justice Sotomayor's question.

Mr. Stewart [Deputy Solicitor General of the United States] argued that if -- if we were to uphold the jury verdict or send it back on fair use, that we would be negatively impacting summary judgment practice and that most district courts take these questions up as a matter of law in summary judgment.

Justice Gorsuch raised a legitimate concern, one that may very well be shared at least by his conservative colleagues, and Google will need at least one conservative vote to win a remand. As part of his response, Mr. Goldstein said: "Oracle didn't move for summary judgment in this case."

What Mr. Goldstein overlooks are three inconvenient facts, any single one of which makes his statement less than truthful:

  • In the first Federal Circuit appeal (the one that resulted in a copyrightability holding and a remand of "fair use" for retrial), Oracle clearly argued that the fair use question should be resolved by the judges and not be put before a jury.

  • On remand, Oracle simply wasn't allowed by Judge William H. "I taught myself Java" Alsup to bring a motion for summary judgment. Here's the related excerpt from a February 2, 2016 hearing transcript:

    THE [DISTRICT] COURT: All right. Now I want to go to another thing. I -- that you all are bombarding me with. I don't intend to entertain summary-judgment motions and dispositive motions. Whose idea was that?

    We had the Federal Circuit order me to give you a trial. I'm going to give the trial. And if the evidence shows that Rule 50 [judgment as a matter of law, which comes at a later stage than summary judgment] should be granted at the end of the trial, okay. I can do that on the evidence at trial.

  • Google itself had moved for summary judgment on fair use back in 2011 (and lost, as I reported at the time).

9. "Java SE was not in smartphones"

Google argues that its use of the Java API declaring code is "transformative," which would weigh in favor of fair use (the first factor is "the purpose and character of the use"). But the problem is that transformative use in copyright is clearest when you create, for instance, a parody of something, or a cover version of a song 50 years later that has a completely different style. Google just claims that they took Java SE (SE means "Standard Edition") to smartphones, but that has simply been disproven over and over.

While Mr. Goldstein conceded that Google didn't really have a strong case for the court determining that what Google did was fair use, so his realistic best case is a remand based on the standard of appellate review of a jury verdict, he nevertheless repeated that long-debunked misrepresentation to the Supreme Court:

"[T]he jury was entitled to conclude based on the record evidence that this was an entirely new context, the Java SE was not usable in this particular -- in a smartphone"

What a disgrace.

Even Danger, Andy Rubin's company that subsequently created Android, used Java SE in the T-Mobile Sidekick smartphone. On page 370 of the Joint Appendix I found that old Rubin testimony about how they used Java SE:

Q. And that was the Sidekick/Hiptop that we talked about?

A. Yes.

Q. And you put Java to SE APIs in Hiptop; is that right?

A. Yes. We created our own implementation of the Java 2 SE APIs for Hiptop.

11 pages before that passage, Mr. Rubin confirmed that the Sidekick was a smartphone:

Q. And when you described that Sidekick phone as one of the—the first smartphone, I believe you said, is it the kind of smartphone that we’re familiar with today, the modern Android and iPhones?

A. More or less. I mean, it did a lot of the same functionality. It allowed you to surf the Web, get the full Web on a phone. It had a larger screen. The screen could be in landscape or portrait mode. It did instant messaging. It did email and things like that.

So what Mr. Goldstein said was plain wrong even with respect to Java SE, in the words of Android's founder--and Java SE was furthermore used to build the SavaJe platform, "a Java OS for advanced mobile phones" as Wikipedia says. But focusing on just Java SE is nonsensically narrow anyway. Many years back I explained that Java itself was used in BlackBerry and Nokia smartphones.

8. "Google expert said expressly Android has not superseded Java SE"

This here relates to the fourth fair use factor ("the effect of the use upon the potential market for or value of the copyrighted work"). Oracle's multi-billion-dollar damages claim is based on how Android displaced Java in the smartphone market, where it already had significant traction as explained before.

The breadth of the following statement by Mr. Goldstein toward the end of the hearing makes it a falsehood or even something much worse:

"Mr. Rosenkranz says that Android supplanted and superseded Java SE. Page JA 255. The market harm expert says expressly Android has not superseded Java SE."

Actually, when I looked up the passage of the Joint Appendix that Mr. Goldstein, it turned out that he misleadingly took the statement out of context. There is one answer by Google's market harm expert that says the following:

"It has not superseded – Android has not superseded Java SE."

But just a few lines above, the same Google expert referred to Java SE as a programming platform for only personal computers! Here's the full passage, and it belies Mr. Goldstein's sweeping claim:

Q. Can you please tell us what your understanding is.

A. Java SE is one of the Java applications programming platforms. And it’s the one that specifically was designed for desktop computers.

Q. Did you reach an opinion as to whether or not Android had superseded Java SE in the market? [emphasis added]

A. I have.

Q. Can you please tell the jury what that opinion is.

A. It has not superseded – Android has not superseded Java SE.

Q. Do you have reasons for reaching that opinion? If so can, you explain them?

[1898] A. Yes, I have two reasons. The first is that the two products are on very different devices. As I just mentioned, Java SE is on personal computers. Android, on the other hand, is on smartphones. [emphasis added]

The full context leaves no room for doubt. But here, again, there's something to add: literally minutes after that Google expert left the stand, Google made an announcement (do you believe that timing was pure coincidence?) that Android was going to compete with Java SE in the desktop computer market (see two 2016 blog posts of mine about this: 1, 2).

7. "API declaring code is barely creative"

In connection with the second fair use factor ("the nature of the copyrighted work"), Mr. Goldstein made the following statement that flatly contradicts even Google's own testimony:

"importantly, the fact that the original material here, the declarations, is barely creative"

As I already reported in 2011, Joshua Bloch, Google's chief Java engineer and top Java expert, testified the following:

Q. Would you say that designing APIs is a creative activity?

[objection to form, by Google lawyer]

THE WITNESS: Yes, absolutely.

So here you have Google's Supreme Court lawyer in 2020 saying the opposite of what Google's top in-house Java expert said nine years earlier when he testified under oath. Which one of the two do you believe? And which one of the two (if any) would you say is more likely to have told a lie than the other?

6. "new declarations only written in a new language"

Throughout this dispute Google has been trying to portray the APIs as being inextricably linked to the "free" Java programming language (the commands). Even the district court didn't buy that.

But Mr. Goldstein reiterated this on Wednesday:

"The computer scientists' brief at page 18, the Microsoft brief at 14, explain that both Apple and Microsoft, Oracle's examples, did re-implement prior interfaces. The reason that they didn't use these interfaces is they were using a different language, as if they were writing in French, rather than English."

As I noted yesterday, the Supreme Court is well aware of the fact that Apple and Microsoft (the latter even supporting Google here on fair use, though not on copyrightability) created smartphone operating systems without stealing anything from Oracle. Sure, Apple relied initially on Objective C and Microsoft on C# (the latter being pretty basically a Java clone, which I personally used a lot and like a great deal). But Oracle's Supreme Court brief notes that Spring and Log4J both wrote different declaring code for their own prewritten programs in the Java language that perform similar functions to those in Java SE.

5. "APIs never licensed separately from the Java language"

This is technically somewhat related to the previous item. And just as untruthful:

"The evidence at trial, for example JA 56, is the former CEO of Oracle saying that the APIs were never licensed or sold separately from the language, in contrast to his just base [?] assertion that IBM was paying for it."

Sun and Oracle offered the Specification license, which does exactly that, and large companies like IBM, Microsoft, SAP, Red Hat, and Oracle (before it acquired Sun) all took Specification licenses to the declaring code and then wrote their own implementing code. The Joint Appendix mentions all of that, mostly on pages 301-304 and 402-409. It's a fact that I fought against Oracle's acquisition of Sun, especially but not only in the EU, and Microsoft and SAP were co-complainants, which is also well-documented in the media. They wanted to prevent the deal from happening because of that very type of license!

Also, don't be misled: the "CEO of Oracle" here was Jonathan Schwartz, who despite his legal department telling him as early as 2007 that he should sue Google, never wanted to act. He was Sun's last CEO, he failed, and that's why Sun lost its independence. Oracle had to buy Sun because it was about to go bankrupt without an acquirer. Again, I know that subject well because I was a vocal opponent to the deal. I even organized and conducted a Wall Street analyst briefing (Westin on Times Square) in October 2009.

4. "no proof IBM paid for declaring code"

The passage I quoted under the previous subhead suggests that IBM was not paying for it. But there was undisputed trial testimony that IBM, and others, paid for a license to the declaring code without simultaneously licensing the implementing code (pages 301-304 and 402-410 of the Joint Appendix).

3. "Oracle seeking to block millions of apps"

Mr. Goldstein said:

"Here you have minimally creative declarations and they are being invoked to block the publication of millions of programs on an innovative smartphone platform."

The "minimally creative" part, which contradicts Google's own in-house Java expert's testimony, is totally incorrect anyway, but what's just as wrong is this allegation that the case is about blocking millions of apps in any way.

Oracle gives all programmers a free license to use Java SE to write apps that run on numerous licensed platform implementations of Java SE, including from Oracle's competitors. I'm sure I'd know if Oracle had ever sought any kind of relief against a single app or app developer just because they used the Java APIs. This case has nothing to do with app developers writing applications that run on Java SE. This case is about companies who build rival platforms. Oracle is simply seeking to require companies who seek to use Oracle’s investment to create a direct rival platform to take a license and agree to the compatibility requirements that benefit developers. All rival platform developers complied--until Google decided to just use the stuff without taking either an open-source or a commercial license, both of which Sun offered.

2. "industry expectations and practice"

Industry doesn't make the law. Congress does, courts interpret it. But courts do take the world outside into consideration, and Mr. Goldstein said the following:

"I don't think there is actual debate about the expectations of the industry. And they have nothing to do with licensed reuse of interfaces. The --there is a widespread consensus in the industry and among computer scientists that this has been the practice."

Concern about "upending" an industry practice is a potential factor in the Supreme Court's decision. But what Google's lawyer describes as "undisputed" was actually controverted by some, and even the district court disagreed with Google. It excluded Google's "industry custom" expert because he did not have the goods. He sought to testify about an industry custom of unlicensed copying without identifying any examples of unlicensed copying — relying instead on licensed copying (page 470). Having failed to establish the record for its argument in the most sympathetic court it ever faced in its history, Google tried to establish the point with amici curiae who similarly did not distinguish between licensed and unlicensed re-implementations and who conflated open-source use pursuant to a license with unlicensed use. At any rate, large software companies like SAS, Synopsys, and Mathworks along with the CEO of EMC (Joseph Tucci) and the former CEO and CTO of Sun Microsystems (Scott McNealy) all submitted amicus briefs refuting that there was such a thing as an industry-wide consensus of unlicensed copying being above board.

1. "benefit to developers"

It's almost funny how Google tries to paint a picture of being so altruistic that it really just had the best in mind for app developers ("reusing the minimally creative declarations allowed the developers to write millions of creative applications that are used by more than a billion people"--and "minimally creative" was addressed further above, but here the focus is on the alleged concern for developers).

It's not that I, as an app developer, am not grateful to both Apple (which didn't take anything from Oracle/Sun) and Google for the market opportunity they've created. My posts on the ongoing app store antitrust matters (such as 1 and 2) hopefully reflect my efforts to be a voice of reason in that context amid all the bashing of platform makers that I see elsewhere on the web.

But as a developer I depend on copyright and also want platform makers to respect it. Google could have benefited developers without Java, and if it wanted to do Java, it could simply have taken any of multiple licenses offered by Sun and Oracle and benefited developers. Google even rejected the free open-source license. All that Google would have had to do was agree that it and anyone who reused its code would also make their code available on such terms ("copyleft"). Google refused that quid pro quo because it concluded it would not be in its business interest (Joint Appendix, page 367). Helping programmers looks like a pretext to me, also in light of the various ways that Google protects its own APIs now and tries to lock app programmers into Android in various ways.

The bottom line is that Mr. Goldstein said a number of things that were misleading at best and mendacious at worst. He's impressive, but he may have gone too far in his vigorous efforts to secure the best possible outcome for his client Google.

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Bonny Sweeney suing Google on indie app developer's behalf--what's the connection between her and Epic Games CEO Tim Sweeney?

At times it feels there's not a day on which nothing happens in those app store antitrust cases. Yesterday, Microsoft threw its weight behind the Coalition for App Fairness (CAF) and Epic Games' complaints, but in a political sense and without joining the CAF or formally intervening in those lawsuits--and, by the way, Microsoft is reluctant to apply the goose-gander principle to the Xbox, at least for the time being. Then, today and Monday are two particularly likely days for Judge Yvonne Gonzalez Rogers to enter an order on Epic Games' motion for a preliminary injunction against Apple. And here's just a quick procedural update on the Google cases pending in the same district, but before a different judge (Judge James Donato) and in a different city (San Francisco, not Oakland).

Yesterday Judge Donato held a joint case management videoconference in all three Google cases pending before him and which he decided to relate: Epic Games v. Google, Carr v. Google (consumer class action), Pure Sweat Basketball v. Google (app developer class action), and Peekya Services v. Google (another app developer class action). Peekya sells an Android app that costs approximately three bucks to download, depending on the country where the customer resides. This may or may not be a coincidence--should it be one, then it's a really funny one: the attorney who appeared on Peekya's behalf is Bonny E. Sweeney, a San Francisco-based partner of Hausfeld, a major law firm especially in competition matters. Hausfeld represented 40 law professors who supported the Federal Trade Commission against Qualcomm.

Mrs. Sweeney is co-chair of Hausfeld's U.S. antitrust practice. So let there be no doubt she was chosen for this case because of her qualifications. But isn't it odd that a lawyer going after Google over its Google Play store terms for app distribution and in-app purchases has the same family name as Epic Games CEO (and tireless anti-Apple tweeter) Tim Sweeney?

The Peekya case is the most recently filed one of those anti-Google app store antitrust cases. On September 30, Peekya issued a press release, in which it alleged that "Google has abused its dominant position atop the market." The same press release quotes Mrs. Sweeney as follows:

"Giant platform companies like Google have achieved unprecedented power. Hausfeld is proud to be paving the way for the enforcement of antitrust laws in these technological markets."

But Epic isn't mentioned in the press release. Maybe someone can shed some light on this. As a lawyer representing Apple against Samsung once said, "I'm old enough not to believe in coincidences anymore."

It's quite a challenge for the judge to juggle those four cases, which overlap in some ways but not in others.

Judge Donato has decided that Epic is more equal than the others. All others are required to file a consolidated amended complaint by October 21, but Epic can still maintain a separate complaint. So Mr. and Mrs. Sweeney won't have to consolidate their complaints. But even the "little guy" cases won't be fully consolidated at this time, the judge notes.

I would actually have singled out the Carr case because it raises consumer--not app developer--issues. Then, Judge Donato may have had reasons for this that I couldn't figure out.

All parties--even Epic--have to file a proposed case schedule by October 16.

One piece of bad news for Google: "Discovery will not be stayed on the basis that a motion to dismiss is pending." Google had asked for a stay, and Epic had argued that a stay would only be warranted in case of a strong showing of such a motion succceding. This has been a bad enough week for Google on the litigation front because its Supreme Court hearing (against Oracle) was described by one of its most loyal supporters among journalists (Ars Technica's Timothy B. Lee) as a "disaster" (as I mentioned in my fact check post today). Now it also appears Judge Donato is not--at least not yet--impressed with Google's attempts to get Epic's case thrown out at the earliest possible stage.

On October 29, the next videoconference will be held to discuss the further steps in those Google Play antitrust cases.

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Thursday, October 8, 2020

Desktop OS monopolist Microsoft criticizes app distribution terms of smartphone OS makers Apple, Google: closing ranks with Epic Games, Spotify

Everyone in the industry has known for years that Microsoft hates the notion of Apple and Google retaining 30% of whatever end users pay for and in Microsoft Office and other smartphone apps. Microsoft was exceedingly hesitant but ultimately accepted. The word "hates" has a meaning here that transcends purely financial considerations--in fact, Microsoft has been in business for more than long enough to know and remember that traditional distribution channels used to ask and get up to about twice that margin when Office was installed from a bunch of DVDs, CDs, or floppy disks. There's also a psychological problem here. The need to agree to a revenue split that the likes of Epic Games and Spotify--midgets compared to Microsoft--are fighting against is nothing short of a major humiliation for Redmond. The combination of a revenue split one would rather avoid (or at least minimize) with a constant reminder of having lost in the smartphone operating system (OS) market--and, in fact, no longer being the world's #1 OS company if all device categories are considered--presumably feels toxic.

In an alternative universe in which Microsoft would have extended its desktop operating system monopoly (as a matter of fact, Microsoft didn't even appeal an EU court decision that concluded it was a desktop OS monopolist) to smartphones, which it tried very hard but ultimately unsuccessfully,

It's not like Microsoft hadn't found other great opportunities, such as its Azure cloud. It's a terrific, innovative company and has reinvented itself. Of course, it's still milking its Windows and Office cash cows. But paying what the likes of Epic describe as the "Apple tax" and "Google tax" is comparable to a dethroned king having to pay for the upkeep of his castle after decades of being in the position to tax his subjects (which Microsoft still can and does, but in other ways and other markets).

In the wake of a Congressional report that, among various other topics, also discussed app distribution terms, Microsoft informally joins the Coalition for App Fairness (CAF).

There's also a close personal connection here: Horacio Gutierrez, Spotify's legal and licensing chief, was Microsoft's head of IP and widely considered its #2 lawyer (after Microsoft President Brad Smith). I've said it on another occasion that Spotify couldn't have made a better hiring choice. But that doesn't mean I necessarily agree with his positions.

A few years ago, Microsoft and Google actually made peace in the sense that neither was going to instigate antitrust investigations against the other. Those EU antitrust complaints against Google had been backed by Microsoft. But then Microsoft left certain organizations. Now, while Microsoft hasn't formally joined the Epic-Spotify-led CAF yet, it's in a de facto anti-Google alliance again. Who knows--maybe Google will (again) lend support to anti-Microsoft initiatives at some point.

Microsoft is apparently going to make adjustments to the app distribution terms on Windows to the extent it's necessary to be CAF-aligned. From an app developer perspective, I actually welcome that move, and it may very well shield Microsoft against allegations of hypocrisy as far as Windows app store commissions are concerned. But what about the XBox? Microsoft writes:

"We also operate a store on the Xbox console. It’s reasonable to ask why we are not also applying these principles to that Xbox store today. Game consoles are specialized devices optimized for a particular use. Though well-loved by their fans, they are vastly outnumbered in the marketplace by PCs and phones. And the business model for game consoles is very different to the ecosystem around PCs or phones. Console makers such as Microsoft invest significantly in developing dedicated console hardware but sell them below cost or at very low margins to create a market that game developers and publishers can benefit from. Given these fundamental differences in the significance of the platform and the business model, we have more work to do to establish the right set of principles for game consoles."

That's a non sequitur distinction. It means that the device maker can just let app developers pay for what consumers get. And what should Google say then? Google makes Android available on open-source terms. Whether or not it actually does get paid by device makers, I'm sure it's much less than the price of an Xbox.

At least Microsoft promises to give further thought to "the right set of principles for game consoles." That is very vague. When? What? How? And why not now?

Is Microsoft really giving up much? Certainly not with respect to Windows. The alternative would have been for Microsoft to make technical changes to Windows so as to prevent direct installations. Apart from the enormous logistical effort this would have involved in order to avoid major disruption, it would have raised antitrust issues because Windows is clearly a destop OS monopoly. By contrast, Apple and Google are fiercely competing with each other in a two-horse race. And while Microsoft would have imposed terms now that it's been a monopolist for several decades, Apple and Google asked for the same 30% when they started (and therefore weren't monopolists), and if anything, the terms for app developers have only improved since then. Now, as an app developer I'm always happy about further improvement. But for now I'm talking about it from an antitrust perspective. If Microsoft leveraged its monopoly to impose something it hadn't done in decades, that would be much easier to attack than the fact that Apple and Google haven't made their terms more favorable to app developers.

There have been times, even quite recently, when Microsoft's market capitalization was the highest of any company at least in this industry. Today, Apple is about $400 billion ahead, and Alphabet about $600 billion behind. Doing some damage to those companies would make it easier for Microsoft to reclaim the top spot.

Microsoft is calling for a constructive dialog, which is always good to have. But whatever Microsoft does with respect to its own platforms is motivated by the factors I outlined in this post, and probably others I'm not even aware of. What I see happening here is that some of those who dislike Apple's and Google's app distribution terms create their own app stores or sweeten the terms of existing app stores only to up the pressure on Apple and Google. It's something one can also observe in the patent licensing space where deals are sometimes struck and targets are picked primarily for the purpose of establishing "comparable transactions" and then they impose the same terms on others.

If regulatory agencies are simply looking for "evidence" they can hold against Apple and/or Google, they might make use of those "comparables." It's another question whether any courts that may one day have to review their decisions, or make their own decisions (such as in Epic Games v. Apple and Epic Games v. Google, both in the Northern District of California), will be impressed once they figure out what's going on and why.

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