Tuesday, April 20, 2021

Similarities and differences between #AppRising and #ClubRising (Super League)--the two hottest antitrust topics at the moment

[Update] Apparently some clubs are trying to withdraw, and it remains to be seen whether that is even contractually possible. Should the SuperLeague project come to an end now because of political pressure and fan protests, that would obviously moot the (otherwise interesting) antitrust aspects. But if it's true that all 12 founding members signed a binding 23-year contract, that may give rise to major contract damages claims. [/Update]

In direct response to--and partly even as a pre-emptive strike before--the announcement that 12 of the most popular and successful soccer clubs are going to set up their own international break-away league, The Super League, European soccer body UEFA and various national associations and league bodies threatened with retaliation, including but not limited to banning those clubs from domestic tournaments and their players from representing their nations. The founders of the Super League had obviously prepared for that scenario, and they are going to file antitrust lawsuits against those sports bodies. At the same time, some observers predict that the associations will allege that the Super League constitutes an anticompetitive cartel.

The European Commission's Directorate-General for Competition (DG COMP) is not at all inclined to act. Instead, the Commission points to other forms of dispute resolution, such as arbitration (though the Switzerland-based Court of Arbitration for Sport farcically ignores even the most basic principles of competition law as its "judges" are handpicked by association officials).

The first national court decision has already come down: further to a motion reportedly filed by CMS's Manuel Sánchez-Puelles, the Juzgado de lo Mercantil nº 17 of Madrid, a commercial court, has entered "medidas cautelares" (basically an ex parte preliminary injunction) barring UEFA and FIFA from adopting or threatening any measure that "prohibits, restricts, limits, places any condition on, directly or indirectly," the creation of the Super League. This is an anti-retaliation decision comparable to a U.S. court preventing Apple from terminating Epic's developer account for Unreal Engine.

In an unmistakable sign that existing competition laws in the EU, its Member States, and the UK (from which 6 of the 12 Super League founding members hail) actually favor the clubs, not the associations, politicians especially in France (Le Parisien: "la France prête à se pencher sur le droit européen pour aider l'UEFA à sanctionner les dissidents") and the UK are already talking publicly about modifying competition law to legalize the assocations' envisioned sanctions.

This means the Super League founders have to win a game not only against their opponents and public sentiment, but also play their most important match on a field with moving goal posts...

As for this blog's focus, rest assured this will be both the first and the last article about the Super League on FOSS Patents. Even with respect to app store issue, I'll have to make a decision very soon. Its historical roots notwithstanding, this blog has over the years evolved into a wireless IP and antitrust blog. Both IP and antitrust often overap in a case, and they are key to innovation policy. Nevertheless, I've received feedback from some people whose views matter a great deal to me and who believe it might be better to start a separate blog for app store issues. At this point, I envision my next post on App Store matters on May 3, when the Epic Games v. Apple trial starts, and it will focus on issues that to the best of my knowledge are not in the trial record but which I consider highly relevant to the issues to be decided. Come May 3, I'll also know whether, where, and how to continue my commentary on App Store issues, taking into account the interests of readers with a narrower focus on patent topics. Occasional digressions into other topics of interest (such as when I wrote about Apple's EU "state aid" case a few times) may occur, but some kind of decision must be made on the focus.

Getting back to the topic of this post, there are some striking parallels, but also some key differences, between the #AppRising (complaints over the current app store tyranny brought by large app developers like Epic, Spotify, and Match Group, but also smaller ones like my own company) and what I'd analogously call the #ClubRising by my former client Real Madrid and its 11 Super League co-founders against the dictatorship of the soccer associations.

What Apple and UEFA have structurally in common is that both are private-sector entities who are regulators (of entire ecosystems) and operators at the same time, and they are monopolists. A top-notch soccer club needs to compete at the highest level, and if the Super League wasn't put in place, the UEFA Champions League would be the only game in town, just like the App Store on iOS. When regulators (and gatekeepers) are also economic operators, or "undertakings" as EU law calls those types of entities, they have an inherent conflict of interest, which leads to self-preferencing. Major self-preferencing allegations in the App Store context relate to how iMessage competes with the likes of WhatsApp, Apple Music with Spotify, or Apple Arcade with other game services. In soccer, the associations run tournaments of national teams (like the World Cup and the Euro), and while the clubs pay the players' salaries, they have to make them available.

It also appears to be an economic law that in scenarios of operator-regulator identity, tying will inevitably happen. All sorts of business terms are imposed on app developers, with Apple purposely now trying to reduce in-app advertising revenues. Clubs participating can't even sell perimeter advertising in their stadia during Champions League matches but have to leave that to UEFA.

Governmental regulators may have other shortcomings, but at least they're typically not revenue-oriented. When the regulators are private-sector entities, they make rules designed to maximize their profits: Apple's App Store tax, and unfair revenue-sharing terms for the Champions League.

Apple is a publicly-traded company, and its management must and does optimize for shareholder value. Those sports bodies are organized as clubs with a "one member, one vote" rule. The problem with "one member, one vote" is that majorities are quite often formed against an economic majority. That is also an issue with the European Patent Office, whose leadership often makes decisions over large countries' objections. For an EPO or UEFA or FIFA leader, the name of the game is to curry favor with many small and (relatively speaking) poorer members. Apple doesn't have any such governance issues, of course.

Many Fortnite gamers were and still are disappointed they can't download the game, or any updates, with their iPhones. Many Apple "fanbois" defend the iOS tyranny. And Apple argues that Epic is not a David, but another Goalith. A Politico newsletter today notes that "Epic recently hit a $28.7 billion valuation and another founding member [of the Coalition for App Fairness], Spotify, boasts a valuation of $72 billion — in other words, not exactly 'the little guys.'". But a major advantage that Epic and other complaining app developers have is that what they're fighting for would ultimately benefit all developers. Apple's Small Business Program (the 15% cut) wouldn't have been implemented if not for Epic's and Spotify's efforts--and doesn't solve all the problems that alternative app stores would do away with for good. By contrast, the backlash against the Super League--from the general public and some of Europe's most powerful politicians--is huge, and for now even many of the founding clubs' fans appear to favor the status quo. There's a lot of debate over whether the viability of the so-called "football pyramid" is in danger. Clubs like Everton FC, who have not been invited to the Super League as co-founders (though they could still qualify as five sports will be available to non-founders), are adamantly opposed. However, I don't know any app developer who'd have to fear any negative impact if Epic won. Apple suggests that the viability of the App Store is at stake, but the numbers clearly show it's not. The Super League has committed more money to grassroots soccer and women's soccer than the Champions League is generating for those activities at the moment, yet the common perception is that the rich will get richer and the others won't be able to compete.

With respect to legislative initiatives, there's another interesting difference. Soccer associations may benefit from new legislation, including that the UK government may penalize Super League participants through a restrictive application of immigration laws to work permit requests. With respect to app stores, however, the "rebels" are pushing for new legislation, and lawmakers appear to increasingly understand app developers' concerns. The Antitrust Subcommittee of the United States Senate will hold an app store hearing tomorrow. Apple will send an in-house lawyer, but didn't want to let any its star witnesses at next month's Epic trial testify on Capitol Hill. Apparently, all of the witnesses at tomorrow's Senate hearing will be lawyers.

Apple's critics can coordinate their political activities and lawsuit to some degree. They appear to tread carefully. For example, if all major games companies were to gang up on Apple and demanded different App Store terms left they'd stop publishing iOS apps, there might be a cartel issue in that hypothetical scenario. The Super League does constitute horizontal cooperation of economic significance. That doesn't make it per se illegal, nor do some people's policy preferences for the "football pyramid" change the standard for competitive harm. With five spots available to non-founders, the Super League has an argument that access to that new tournament is fair, reasonable, and non-discriminatory (FRAND). The UEFA Champions League qualification system is designed to please smaller countries' soccer associations for the "one country, one vote" reason I explained further above. In terms of strength, there really is no reason why only four English Premier League clubs should participate in the Champions League, while clubs from small countries may qualify through matches against rather weak opponents.

Alternative app stores, such as a hypothetical iOS version of the Epic Games Store, would have to become wildly successful before they would have an antitrust duty to deal on FRAND terms. That wouldn't practically happen--but they'd simply face competitive constraints, unlike Apple, the feudal ruler of the iOS kingdom.

The "to be or not to be" question in the mobile ecosystem is whether an app is available on Apple's App Store and the Google Play Store. In soccer, it's the Champions League at the European level, and leagues like the Premier League in England or Primera División, also called La Liga, in Spain. The alternative to the app store monopoly is to have multiple app stores. In soccer, it would not be possible to run numerous parallel competitions. The same app could, however, be available via multiple iOS app stores, possibly with some features allowed on one store but not on another, or prices differing.

Both types of "rebels"--the Epics of the world and the Real Madrids of the world--face major challenges. #OpentheAppStore will likely take years, as Apple will see those disputes through. The Super League plans to kick off (literally) in the late summer of next year, as UEFA doesn't own all stadia and soccer balls (while Apple holds all the keys to the iOS kingdom), the main threat sanctions, competition authorities not wanting to act against public sentiment, and lawmakers potentially moving the goal posts.

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