Saturday, November 27, 2021

In Black Friday filing, Epic Games opposes Apple's 9th Circuit motion to stay the injunction

On November 16, Apple filed with the United States Court of Appeals for the Ninth Circuit a motion to stay the Epic Games v. Apple injunction, whih came down in September based on a finding of a violation of California Unfair Competition Law (UCL). Epic had ten days to respond, plus one extra day because the deadline would otherwise have been on Thanksgiving Day.

I continue to believe that the Ninth Circuit is more likely than not to grant Apple's motion. While I don't agree with all of Apple's arguments, and don't disagree with all of Epic's either, there simply are overwhelming reasons to order a stay. It's the most logical and reasonable thing to do. Should the appeals court deny Apple's motion, Apple asks for an additional administrative stay (30 more days) so it can seek Supreme Court review.

After Epic's opposition brief, which I'm sharing below, I have nothing to add, nor do I see a need to modify any of my positions, or to adjust any of my predictions. I do, however, wish to note that Epic's opposition brief simply assumes that Apple would have to continue to allow commission-free purchases being made outside of an iOS app, even though the purchased digital goods or content would be consumed in an iOS app (which is also called "cross-wallet" or "cross-purchase"). That is simply not the case. While the court took note of Apple's current policy, there is absolutely nothing stopping Apple from making adjustments in that regard, should Apple indeed have to comply with the injunction. As an app developer, that's not the way I'd like it to be, but as a commentator I strive to provide correct analysis.

Here's Epic's brief, filed late on Black Friday:

21-11-26 Epic Games Opposit... by Florian Mueller

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Wednesday, November 24, 2021

Deutsche Telekomedy in Mannheim: court informally dismisses antitrust claims against IPCom but urges global settlement including infringement action against Sprint in Texas

This Tuesday, the Mannheim Regional Court gave short shrift to Deutsche Telekom v. IPCom, an "antitrust case" in which the mobile network operator is seeking roughly $300 million in restitution (recovery of past royalty payments plus interest). The court's public hearing list described the cause of action in case no. 2 O 130/20 as "anticompetitive discrimination involving standard-essential patents in connection with patent license agreement dated June 7, 2013." Some other claim(s) had already been voluntarily dismissed by the plaintiff ahead of trial. The remainder was stayed at the end of the trial, but on a basis that allows either party anytime to ask the court to resume the proceedings, which would result in a swift ruling that could have only one outcome: a formal dismissal of the case as clearly meritless. As part of its hold-out strategy, Deutsche Telekom even stipulated to that kind of revocable stay, while IPCom would have preferred a decision. Typically, defendants are happy to just put a case against them on hold, but I'll get to the parties' motives later (here's a shortcut to that part of the post)--and they have a lot do with an IPCom v. Sprint case pending before Judge Rodney Gilstrap in the Eastern District of Texas and slated to go to trial next spring.

If I wanted to go into detail on everything that is deficient about Deutsche Telekom's Mannheim complaint, I'd have to write an even longer post, every single paragraph of which would have to start with "Let that sink in" or "Lo and behold," which would get a bit repetitive. Let's focus on the forest rather than get lost in a multitude of trees--and please take any references to Deutsche Telekom's outlandish theories and allegations as if "Let that sink in" had been put in front of a parenthetical expression in a mathematical formula.

What Deutsche Telekom has been trying to do would--if it worked, which it never will--make it practically impossible for parties to enter into reliably stable settlement agreements that put standard-essential patent (SEP) cases to rest. The licensee could always come back later and relitigate settled issues. And even if--as here--a clause specifically and incontrovertibly ruled that behavior out, the licensee would argue--as Clifford Chance "of counsel" Dr. Joachim Schuetze ("Schütze" in German) did on Deutsche Telekom's behalf--that parties cannot dispose of antitrust law no matter what they put into an agreement.

Deutsche Telekom argues that IPCom acted in a discriminatory manner by--well, the court noted it's not even clear what particular action other than not rescinding the 2013 license agreement Deutsche Telekom is complaining of. Deutsche Telekom says it has been discriminated against because no other carrier besides them has so far taken a license from IPCom. Is that IPCom's fault? Deutsche Telekom alleges that IPCom didn't make enough of an effort to force its rivals to take a license. IPCom's lead counsel, Quinn Emanuel's Jérôme Kommer, stated for the record toward the end of the trial that this is not even factually correct, as there are infringement actions (such as against Vodafone in the UK), but the discussion between the court and the parties didn't even get to facts like that because the case necessarily fails as a matter of law.

What would it really mean--talking about the forest, not just the trees--if Deutsche Telekom, in an alternative universe, could prevail? If they could get out of a license agreement because others engaged in holdout for years on end? Let me give you a couple of examples from the automotive industry, where patent infringement is rampant. Almost five years ago, BMW became the first publicly-announced licensee of the Avanci platform (a pool that contains dozens of cellular SEP portfolios--by coincidence it even includes some Deutsche Telekom patents--and represents a one-stop solution for car makers). Earlier this month, Avanci announced its latest license deals and stated that roughly 25 million connected vehicles had been licensed. An all-time licensing volume of 25 million cars is not a lot given that approximately 70 million passenger cars are sold every year, and infringement is even more widespread when considering that most Volkswagen cars have a license only up to 3G while actually coming with 4G connectivity. So, BMW could have turned around after Avanci's recent announcement like Deutsche Telekom did against IPCom. If Deutsche Telekom got its way, BMW could bring claims against Avanci or every one of its licensors (except maybe Qualcomm, whose de facto licensing rate is higher as its chips are in a lot of cars) that the actual licensing rate is very low and BMW has costs that others have so far avoided by means of holdout. "Discrimination. Avanci's licensors aren't suing Toyota, Volkswagen, you name them."

What if Daimler tried to get out of this year's settlement with Nokia, arguing that the patent holder hasn't been licensing other car manufacturers at a pace that the Mercedes maker would deem non-discriminatory?

Those analogies even fall far short of an accurate characterization of the absurdity of Deutsche Telekom's non-case. I don't know the language of BMW's agreement with Avanci, but it wasn't a settlement of pending litigation. By contrast, antitrust issues had actually been raised by Deutsche Telekom in its multi-year litigation with IPCom, but when Deutsche Telekom--not under duress but purely for the convenience of its then-outgoing CEO--wanted to settle, IPCom negotiated a Section 8.2 of the 2013 agreement that Presiding Judge Dr. Holger Kircher of the Mannheim court's Second Civil Chamber read out during the Tuesday trial. That clause explicitly stated that IPCom was under no obligation whatsoever to conclude license agreements (much less on a particular set of terms) with Deutsche Telekom's competitors. Deutsche Telekom originally demanded that the very opposite be put into the agreement (whether an obligation to sue third parties would have been enforceable is another question), but the final contract stated otherwise. It's not hard to imagine that IPCom saw what Deutsche Telekom was preparing for, and wasn't going to fall into that trap.

It is that clause 8.2 that Judge Kircher noted in his initial discussion of the case which is unusual and single-handedly dispositive, obviating the need to reach any of the other questions, of which there are many and the court appeared very unconvinced of Deutsche Telekom's ability to meet any of a plurality of other criteria for the refund (plus interest) the carrier is seeking. Let me give just some examples: it's unclear what particular conduct on IPCom's part constituted discriminatory behavior; Deutsche Telekom contradicts itself by alleging an abuse of market power without ever recognizing the essentiality of a single one of IPCom's patents to any industry standard; and even if Deutsche Telekom inexplicably prevailed somehow, the refund might be offset by a damages award for past infringement. The latter is an interesting aplication of the Latin rule of dolo agit qui petit quod statim redditurus est ("he who has to immediately return what he is seeking brings a bad-faith claim"): normally that concept benefits implementers of standards because they can avert a SEP injunction if they're entitled to a license (and if their behavior meets certain requirements to benefit from that affirmative defense). The injunction would then be enforced in bad faith as a license agreement would resolve the issue. Here, it cuts in the other direction: if Deutsche Telekom managed to extricate from the license agreement, it would retroactively become a multi-year infringer and owe damages (which, by the way, could even be supra-FRAND).

Similarly, the 2013 license agreement comes with a saving clause, so even if a clause was deemed anticompetitive, it would merely have to be replaced with the closest enforceable alternative.

Judge Kircher acknowledged that Deutsche Telekom's complaint raises legal questions of first impression, and the parties could not cite to any applicable precedent. But if you ask me, the case is simply an idiocy of unprecedented proportions in connection with SEP licenses and patent settlements. In any event, Judge Kircher noted that the court would never reach those novel questions because of that clause 8.2.

I admire Deutsche Telekom's lead counsel for arguing with a straight face that the decision the court described as inevitable (a dismissal of the complaint) "would allow non-practicing entities to impose a license agreement on one party and then save the costs of enforcing their patents against others." It doesn't make sense because either the patents are weak, in which case the first licensee in an industry doesn't have to take a license anyway, or they can be enforced, in which case it's always going to make economic sense to sue others--not all of them at the same time, but sooner or later a patent holder will collect back-royalties or sue for past-infringement damages even if the patents had expired.

The court debunked Deutsche Telekom's argument that settlement agreements cannot override, or disable, antitrust law. Obviously parties cannot enter into valid and enforceable agreements in a way that would harm the competitive process. But they can enter into agreements--especially settlement agreements--under which they dispose of individual claims, such as the right to seek a refund under specified circumstances. Neither the court nor IPCom's counsel said so, but my view is this: if Deutsche Telekom wanted to do so, it could complain about IPCom's post-contractual conduct to the Bundeskartellamt (Federal Cartel Office of Germany). The contract wouldn't preclude them from that--no valid and enforceable contract ever could. As Judge Kircher explained on behalf of the court (based on his prior internal discussion with Judge Boettcher, who is the rapporteur on this case, and Judge Elter), Deutsche Telekom was full well aware of a scnario in which its rivals might not take licenses from IPCom on similar terms. That's why they originally wanted a clause 8.2 in the agreement that would have stated the very opposite. They ultimately contended themselves with an agreement that leaves no room for the kind of refund claim they're pursing now. They made their bed and have to lie in it.

Judge Kircher said toward the end (when he urged IPCom to stipulate to a revocable stay so the court might never have to hand down a judgment in this case) that everyone in the room (including yours truly) heard from the court in no uncertain terms that IPCom would win. Also, in his introductory discussion of the case, Judge Kircher noted that besides the legal questions he addressed (and none of which the court appeared inclined to answer in Deutsche Telekom's favor), there were several others, all of which he described as predictable--but he wouldn't even get to them.

So why is Deutsche Telekom pursuing that kind of losing case in the first place?

There are three versions of the story. The simple, obvious, and not reasonably deniable truth is that Deutsche Telekom is being a bully (ab)using some of its vast resources against a small German licensing firm, and the chronology of events shows that this complaint was brought a few months after IPCom sued Sprint, which had meanwhile become a Deutsche Telekom subsidiary, in the Eastern District of Texas. There had been some negotiations between the parties over whether Sprint was or was not licensed under that 2013 agreement (which presumably has some "affiliate entities" type of clause), and if so, on what terms Sprint might get licensed. Deutsche Telekom's lead counsel said that it was during those licensing talks last year that Deutsche Telekom became aware of the fact that no other carrier had taken a license from IPCom (which, again, is why IPCom is suing some of them, and no one can seriously expect them to sue the whole world at the same time). Therefore, the semi-retired Clifford Chance lawyer said Deutsche Telekom's C-level executives identified a need to obtain legal clarification of whether this constituted discrimination.

Even Judge Kircher cautiously put the German action into the context of the Texas case and suggested--in other words--that Deutsche Telekom thought an offense was a necessary part of a good defense. He noted that this German case was about having an action with the reverse caption: Deutsche Telekom v. IPCom in Mannheim as opposed to IPCom v. Sprint (a Deutsche Telekom subsidiary) in Texas. The whole reason the judge urged the parties to stipulate to a revocable stay (with the promise to reach a swift decision if a party changed mind) was that he thought it might make sense for them to also settle the Texas case, which according to his representation involves a $70  million damages claim. Assuming that IPCom is seeking willfullness enhancemenets (aka "treble damages"), that would be more like $210 million, and Deutsche Telekom's behavior does appear unusually reckless. So Judge Kircher would like them to take a break from litigation and talk. They spent about an hour outside the courtroom (quite a long interruption--the court originally gave them 20 minutes). But when they returned to the courtroom, IPCom doubted Deutsche Telekom's sincere intentions to settle. Still, based on Judge Kircher promising that, if need be, the court can resume the proceedings and reach a decision in the very short term, IPCom accepted that the case would be stayed--for now.

Deutsche Telekom's counsel actually considered it offensive that Judge Kircher made it sound like they had brought a meritless case in Germany only in retaliation for a patent infringement action in the United States. Actually, if it worked the other way round, a U.S. federal judge would just tell it like it is. I've heard U.S. judges dismiss complaints or appeals as "frivolous", or saying that a party is pursuing some other goals and using the court as a pawn in a global chess game. In Germany, judges have to be more careful: if they speculate on a party's motives while dismissing the merits of a case, it can give rise to motions of censure, seeking (though typically unsuccessfully) the recusal of a judge because of bias. Such complaints can go up all the way to the country's Federal Constitutional Court. Judge Kircher carefully nuanced his remarks, and acknowledged that Deutsche Telekom is in its right to bring novel claims. While I can't read his mind, I know he's got Deutsche Telekom all figured out. But again, a German judge has to tread carefully in a delicate situation like that, and knowing that the plaintiff will leave no stone unturned because money doesn't matter, and seeing that the Clifford Chance firm appears to be more concerned with pleasing a long-standing blue-chip client than with maintaining its reputation in antitrust law.

Whatever I say or write here won't reach the Federal Constitutional Court, so I'll be blunt: Deutsche Telekom's case is nonsensical crap. It's an insult to human intelligence. At all three layers of the law (policy, law, facts), it's a downright insanity. I had a logistically convenient chance to attend the trial, and I went there because I expected I'd have a lot to laugh--and Judge Kircher is always very interesting and often entertaining to listen to. It was a sitcom, not a serious litigation. I had the gut feeling that if Deutsche Telekom had insisted on a ruling, Judge Kircher and his colleagues might even have ruled straight from the bench.

In my opinion, it is not fair that IPCom has to wait until it can recover from Deutsche Telekom its attorneys' fees under the German "loser pays" rule. I also think IPCom is reasonably entitled to a German ruling ahead of the U.S. trial. Judge Kircher is right that normally a defendant has no interest in a case like that going forward. But when a case is this crazy, when it's easily discernible as an attempt to drive up litigation costs in Germany, and considering that it's uncomfortable to stare down the barrel of a gun even if you know it's not loaded, then it is in the interest of justice to throw out a case (though Deutsche Telekom would obviously exhaust all appeals).

What's even more important is to discourage other SEP licensees from turning around many years later just because they can afford it and because a firm like Clifford Chance may gladly do anything to please them. Just the fact that this case even went to trial (because defendants to German complaints--unlike in U.S. litigation--can't bring motions to dismiss, motions for judgment on the pleading, or motions for summary judgments) is now going to lead many patent holders to ensure that license agreements come with a clause like that Section 8.2 of the IPCom-Deutsche Telekom license agreement. What appeared to be an abundance of caution on IPCom's side at the time is now probably going to become a standard clause of SEP settlement contracts, as a result of Deutsche Telekom's action and this trial report, but I owe it to my readership, which includes many (actually, practically all) of the technology industry's top licensing executives to explain what can happen when someone like Deutsche Telekom acts in bad faith further down the road.

The sad reality is that some settlement negotiations will now take longer, or in a worst-case scenario, might even fail when parties find it hard to agree on a "Deutsche Telekom-IPCom" clause. The bottom line could be even more--and more protracted--litigation, courtesy of a deep-pocketed and utterly unreasonable German carrier. The case is a comedy, even a travesty, but the potential impact of Deutsche Telekom's outrageous behavior on global SEP licensing negotiations is more of a tragedy.

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Monday, November 22, 2021

O-RAN entails 'medium to high' security risks according to study released by German government agency: paradigm shift needed to avoid 'security debacle'

In a recent post on O-RAN I discussed European concerns over the contemplated standard for the modularization of mobile network infrastructure being driven by geopolitical objectives (America first, Chinese bogeyman) rather than technical merits. The situation appears to be a lot worse than that. Today one of the world's most well-respected and independent IT security authorities, the German Bundesamt für Sicherheit in der Informationstechnik (BSI; official English title: Federal Office for Information Security) released an 86-page study (PDF; in German) that must give some people not only food for thought but possibly even pause.

The government agency's risk assessment--to be precise, the BSI commissioned and funded the study, and did not influence the researchers' independent work--focused on the following objectives: confidentiality (of data), integrity, accountability, availability, and privacy. The study took three different stakeholer angles: that of a user of a 5G network, that of an operator of a 5G network, and that of the state (i.e., the public interest). In light of the lack of specificity of the current version of the O-RAN specs, the risk assessment relates to a "worst-case perspective" in which none of the optional security measures have been implemented and a "best-case perspective" based on the assumption of all optional security measures actually having been put in place.

The renowned security experts took into consideration that the leverage of potential attackers varies greatly. Therefore, they evaluated how much damage could be done by a totally external attacker, a 5G user, an "insider", a cloud operator, and a RAN operator.

Here comes my translation of the two final and most important paragraphs of the executive summary (all emphases in original):

"As a result of the risk assessment, it has been identified that medium to high security risks emanate from a multiplicity of the interfaces and components specified in O-RAN. This comes as hardly a surprise as the current development process of the O-RAN specifications is not guided by the paradigm of 'security/privacy by design/default' and the principle of multilateral security (minimal trust by each participant [in the other components]) has not been heeded.

"As a result of conducting this risk assessment, various possibilities for improvement with respect to risk mitigation have been identified. Those are stated as recommendations toward the end of the report. It is key for security improvements to be incorporated into the specification now in order to avoid this time around a security debacle like the one that occurred in the development of 3GPP standards."


I'll read the study in detail, but I did want to share the (unfortunately bad) news right away. It is known in the telecommunications industry that the European Commission is also performing a risk assessment, and it will be interesting to see what comes out of that effort. At first sight, the BSI-commissioned analysis is thorough and probably reliable. There really do appear to be serious issues, but again, I'll need some more time to digest the study.

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Computer-implemented inventions must make direct impact at execution time as opposed to organizational recommendations for design time: patent-eligibility

In its weekly roundup, IAM (Intellectual Asset Management magazine) noted that "[p]atent suit numbers are falling in Dusseldorf and Mannheim but are on the rise in Munich as the city’s courts develop a strong pro-plaintiff reputation." I'd like to comment on that, also because I reported on the premiere session of the Munich I Regional Court's third patent litigation division (the 44th Civil Chamber under Presiding Judge Dr. Georg Werner) last week. If you wish to skip directly to the part on software patent-eligibility in light of Solas OLED v. Samsung, please click here.

Munich is definitely an attractive venue for patent holders, and that is so for a variety of reasons not least including the one noted by IAM. The Munich court still does throw out or stay cases that don't meet a certain standard, and that's why the first case the 44th Civil Chamber heard appears, for now, unlikely to be the first in which it will grant an injunction. I'll get to the fundamental weakness of the patent-in-suit in that Solas OLED v. Samsung case again in a moment--the headline of this post relates to it.

If we assumed for discussion purposes that better-than-average chances of winning favorable rulings are a major factor in this, then Munich would simply be beating Dusseldorf at its own game. For many years--actually, a couple of decades--it was no other court than the one in Dusseldorf that consistently and shamelessly set a low bar, only to attract as many patent cases as possible to a city that is anything but a major center of technological innovation, as opposed to the Munich area with BMW, Siemens, Linde, and so many others. Comparing Munich to Dusseldorf is like Silicon Valley vs. Chicago at best, Pittsburgh at worst.

By the time I got involved with patent policy (2004, the European legislative process on computer-implemented inventions aka software patents), Dusseldorf already had a reputation for disadvantaging defendants in different ways. I know this from discussions with patent litigators and patent attorneys in the mid-2000s, and I know there was at least one German media report at the time that discussed the issue.

The biggest part of the problem is that Dusseldorf is the venue that exacerbated the practical impact of bifurcation: the German approach under which alleged infringers don't have a full invalidity defense in the infringement case itself, but must separately litigate validity, with the infringement court merely performing a rough assessment as to the likelihood of success in order to decide on whether to stay the infringement proceedings pending a parallel invalidation action.

It was Judge Dr. Thomas Kuehnen ("Kühnen" in German) who many years back created case law according to which an infringement case should not be stayed even if the patent is reasonably likely to be invalidated: no, according to the Kuehnen doctrine on stays, the standard is so exacting that the patent has to be extremely likely to be invalidated. Dusseldorf didn't become a popular patent venue just because of the quality of its judges: it lowered the bar for patent assertions to succeed, which in turn attracted many cases, and the more cases a court gets in a field of law, the more expertise its judges will build over time. But there's absolutely no indication that those Dusseldorf judges were smarter than their counterparts in Munich or Mannheim at any given point in time.

The economic damage that the Dusseldorf court has dealt to actual innovators over the years due to its unbalanced decisions must be huge. One particularly shocking and embarrassing case is now getting more attention: Schweitzer-Mauduit v. Julius Glatz. I discussed that one in a Halloween post calling it a creepy patent case. Meanwhile, Frankfurter Allgemeine Zeitung, the most famous German newspaper, has also written about it. What I learned from the FAZ article is that the number of layoffs may be closer to 30 or 35 than the 60 I had previously heard. And I heard that the plaintiff, a publicly traded U.S. company represented by Quinn Emanuel, even sued (over its actually invalid patent) the couple that runs the company (and owns many of its shares) personally, seeking 17 million euros in damages from those people, depriving them of the benefits of their company's liability limitation.

Suing executives personally in Germany is a tactic I discussed in a post last year. Those who were pushing for the recent German patent "reform" bill missed out on a huge opportunity, and one of the smaller things they could have accomplished (if that group had not been mostly a mix of amateurs and saboteurs) would have been to do away with executive liability for patent infringement. While the law allows this, the question is, of course, whether a firm like Quinn Emanuel Germany should engage in such practices that the clients it mostly works for (in Germany, that means companies like Google and Daimler) sharply disapprove of. In that SWM v. Glatz case over a cigarette paper patent, QE Germany acted in such questionable ways that I was thoroughly disappointed to find out about it. The Frankfurter Allgemeine article just adds to that unfavorable impression of what they did in that case.

I do, however, wish to clarify that what QE Germany did in that particular case is presumably an outlier. As for my criticism of their performance (i.e., rate of success) when they were defending Daimler against Nokia, it was definitely the poorest set of results I had ever seen from them, and a look behind the scenes revealed that they had gotten some cases stayed, but Nokia was really beating them in the nullity and opposition proceedings and would have won two or three more injunctions pretty soon. The results don't support Daimler's decision to work with QE Germany: they could have worked with just about any other German patent litigation firm (as my post noted), given that they lost big-time and could have had those poor results at a (much) lower cost. I still believe that QE Germany would get better results if they did what every other patent litigation firm in Germany does (at least I'm not aware of any exception): to have patent attorneys involved every step of the way to benefit from their technical knowledge and patent prosecution expertise.

Solas OLED v. Samsung raises fundamental question of software-related patent eligibility

Finally, my follow-up to last week's commentary on the patent-in-suit in Solas OLED v. Samsung, which relates to the recognition of multitouch gestures.

The infringement-related part of the discussion showed an issue that is familiar from other cases involving software architecture patents: compared to physical aspects (such as whether a certain layer is made of a particular material), it's much harder for courts to determine whether a certain structure is actually found in program code. Last week some reference was made to "pointers" being passed along. So, is passing a pointer on from one code segment to another the same as passing the data on? Is a certain object raw data (whatever the capacitive touchscreen measures with its horizontal and vertical wires) or is it the result of some kind of evaluation? Is a "server" a separate computer or could it just be a subroutine of a computer program (Apple's "quick links" patent)? In the U.S., those questions go before juries unless they can be resolved purely through claim construction. In Germany, the courts try to decide them based on the pleadings.

It doesn't appear exceedingly likely that Solas OLED will even win the infringement ruling it is seeking. But in any event, that patent-in-suit is outrageous.

I'll use some Microsoft terminology now because almost all of the coding I've done over the last 20 years has been on the Microsoft .NET framework (where C# is the predominant programming language). There's the important distinction between "design time" (which is when programmers edit code in the development environment--Visual Studio in that case) and "execution time" (which is when the program actually runs on a computer).

Even those favoring a broad scope of patent-eligible subject matter in connection with software should draw the line where the benefits that a patent claims to generate are purely relevant at design time, not at execution time.

To recognize a multitouch gesture like pinch-to-zoom (clearly multitouch because you need two fingers), it is one possible strategy to identify single-touch gestures (such as when each of the fingers taps on the screen) and to then discern a multitouch gesture based on a combination of previously-identified single-touch gestures. That's a step-by-step approach. But it's also possible to proceed directly to the multitouch analysis (based on the raw data)--and that multitouch analysis could, theoretically, even be implemented with AI algorithms, which would just figure out the most efficient path based on experience.

This is the key point now: If the "one-two" approach of firstly identifying single-touch gestures and then recognizing multi-touch gestures based on a number of single-touch gestures (like firstly identifying trees, then saying all these trees are a particular type of forest) had technical advantages at execution time, there might be something patent-eligible about the claimed invention. Not so here. The patent specification itself merely suggests that directly analyzing raw data for multitouch purposes is more error-prone (and harder to test), meaning that humans who write the program code are more likely to deliver quality work under the "one-two" approach than the direct one.

There's no such thing here as inherently superior reliability (and/or efficiency) for technical reasons. It's all about reducing the complexity of a problem for the human mind by breaking up the software design process into two steps. You can't claim the human mind in a patent.

The Munich court knows the position of the Federal Court of Justice on interpreting an issued patent: for infringement purposes (invalidity is another story), courts have to assume that the patent examiner granted the patent because there was some technical benefit somewhere. In this case, the Munich court reasonably says that the patent argues it makes it easier to add support for new gestures. The claims do not refer to the addition of new gestures: they just talk about recognizing gestures (whether old or new), as opposed to referring to (for example) an entry system for defining a gesture. But based on the specification, it is correct to say that if the patent purports to solve any problem, it's the problem of supporting programmers tasked with writing gesture recognition code.

Whether raw data is analyzed directly or whether there is the two-step approach taught by the patent, code can be reliable or unreliable. You can write perfectly reliable and efficient code either way. Or you can leave it to an AI system, which will then figure out over time what works best for its purposes.

If it's all about simpler, cleaner code from a human perspective, then we're not at the level of automation. Even software developer tools may meet the machine-or-transformation test. But there has to be an automated process. You start some program code, and it does something that other code can't do, or it does the same but outperforms the state of the art (by being faster and/or more reliable and/or more secure and/or using less memory, bandwidth etc.).

It's really astounding that whoever examined that patent application at the German Patent & Trademark Office failed to see that there was no such thing as a technical effect. It's about a coding style and mere probabilities of whether programmers will do a better job one way or the other. It's not about a specific process implemented in software and yielding per se technical benefits.

If the mere proposal to break up a complex software development problem into smaller building blocks because they're easier to digest for the human mind and save the effort of reinventing the wheel was patent-eligible without specific execution-time benefits, we'd see a deluge of additional patent infringement cases against the entire technology industry.

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Friday, November 19, 2021

After Google's announcement of bad-faith compliance with in-app payments law, South Korean lawmakers must go back to the drawing board if they respect themselves and want to be respected

Barring the unforeseeable, I intend not to comment again on app store matters after this post until the Ninth Circuit has ruled on (and most likely will have granted) Apple's motion for a stay of Epic's injunction. But a follow-up to the previous post, which I just linked to, is warranted by Google's official announcement of how the search giant and mobile operating system market leader intends to "comply with the [new South Korean in-app payments] law" (quotation marks are not enough to put this into perspective). I had not addressed this part in my previous post, but it's the same pattern as what Apple intends to do--and Google's announced new terms just took effect yesterday.

The issue is precisely the same one. The South Korean law theoretically requires Apple and Google to do what Epic Games has so far failed to win in court (except in the eyes of a journalist who may never stop reiterating clearly erroneous legal interpretations) and the odds tend to be against Epic's appeal). Yet the bill proves pointless, useless, worthless in practice. But I strongly suspect that this is not how the South Korean legislature wants to be seen, so this is presumably not the end of the story.

The tax and review tyranny of the two leading mobile app stores (Apple's iOS App Store and Google's Android equivalent named Google Play) is under attack on multiple fronts in different ways. There is litigation, which has so far not helped in any meaningful way other than exposing certain issues; there are antitrust investigations, the mere specter of which already played a key role in getting Apple and Google to change some of their terms; and there are legislative initiatives, with South Korea theoretically having been ahead of the rest of the world but now risking to be nothing more than Apple and Google's laughing stock.

Here's the problem with what Google describes as compliance with the South Korean law requiring alternative in-app payment options:

"Service fees for distributing apps via Android and Google Play will continue to be based on digital sales on the platform. We recognize, however, that developers will incur costs to support their billing system, so when a user selects alternative billing, we will reduce the developer’s service fee by 4%."

So, if you're large enough that you normally pay 30%, the Google Play tax goes down to 26%; if you're eligible for small business terms, or if you're large and a particular customer's subscription has been in place for long enough, it's reduced from 15% to 11%; and for Google's Media Experience Program, it changes from 10% to 6%.

4% is just marginally above payment processing fees. If developers don't use Google Play, they have to use some other service or, if large enough, they might opt to work directly with credit card companies. To put this into perspective, let me quote the website:

"Visa and Mastercard tend to charge merchants between 1.5% and 2.5% to accept their credit cards, whereas American Express charges between 2.5% to 3.5%."

So Google's reduction would leave a margin for third-party payment processing of only about 2.5% in the best case and 0.5% in the worst case (Amex's peak rate).

As a result, end users wouldn't save enough money to even bother to enter payment credentials elsewhere.

No app developer could profitably offer users a non-negligible discount if they used an alternative payment system. The saving (on what the developer owes Google) is just not going to make a difference.

The same would happen in the U.S. if the Epic Games v. Apple injunction ever got enforced (which it never might).

As I wrote yesterday, Apple has already declared its intent to levy its app tax on payments made by users who follow external links that take them out of an iOS app to complete a transaction. I'm sure Apple would not offer "sweeter" terms in that hypothetical scenario of Epic enforcing its consolation-prize injunction (again, I think the injunction will be stayed, and I don't think the anti-anti-steering injunction based on California UCL is all that solid).

The difference is just that the Epic Games v. Apple judgment explicitly authorizes Apple to do this. The judge recognized Apple's right to tax app developers. The South Korean law, as far as I can see, neither endorses the app tax nor does it prevent Google from at least trying to get away with bad-faith compliance that is not against the letter of the law.

Whether Apple will play the same game in South Korea or just stop selling devices there remains to be seen. South Korea is pretty much "Samsung Country." It might not be worth it for Apple to serve a limited number of Korean customers if it has to make the kind of concession that no other jurisdiction, for the time being, requires it to make. It could always return to the market later, and various South Korean Apple fans would probably buy their devices abroad.

But Android is huge in South Korea, so Google won't leave the market: it just capitalizes on the in-app payment law's biggest structural weakness.

In the short term, this may be the right move for Google. It might backfire, however, in the event that South Korean lawmakers recognize that their original bill was not intelligently designed, and come back to require an equal footing for alternative app stores, ruling out that alternative app stores can be taxed. But that would then raise the question of whether South Korea would expropriate Google (and Apple, if the iPhone maker even wanted to stay in that market under those circumstances). There is intellectual property involved, even though--ironically, in no small part as a result of Google's 11-year litigation with Oracle--it would be hard to enforce profitably through infringement litigation. Here, the platform makers can just leverage the market power of their platforms. And at some point the question would then be whether any jurisdiction could and would force them to make their developer tools available to everyone. Theoretically, third-party developer tools could do the job. Practically, constant operating system changes might put alternative tool makers at a fundamental disadvantage, or simply out of business.

There would be challenges even if alternative app stores were allowed. But app store diversity would be structurally stronger and more enforceable, provided that the platform makers would be barred from self-preferencing or from sabotaging third-party app stores. Any restrictions of access to API, or performance degradations by design, could be proven with the help of technical experts, and then those companies could be fined.

So far, Russia and Japan have been most effective, though I think that the European Commission, just by looking at certain issues over many years, was intimidating enough that Apple started to lower its fees, such as the 15% rate for long-running subscriptions (most subscriptions are actually not in place for very long, so what looks like a generous gesture has limited financial impact in practice).

Russia broke the app review monopoly by enabling its government to dictate what Russian apps Apple needs to pre-install. There was some doubt about whether Apple would accept this, but ultimately Apple wanted to keep the rubles rolling and acquiesced. Japan reached an "e-reader" settlement with Apple, which has global impact, but the jury is out on whether Apple will figure out a way of rendering it a lot less effective, such as by restrictions on cross-purchases.

South Korea initially appeared to make the boldest move, but after Google's announcement the question is just whether Apple will adopt the same approach or, more likely, refuse to comply altogether. Either way, the South Korean bill doesn't help developers or consumers in the slightest as things stand.

The South Korean parliament needs to amend its bill or Google will be laughing all the way to the bank.

And there's a geopolitical issue here: South Korea is somewhat dependent on the United States (not just for military reasons). For a variety of reasons it may not be feasible in the foreseeable future, but the best solution for countries like South Korea and even Japan, Russia, India, or possibly Latin American countries, would be to cooperate more closely than ever with the European Union on the regulation of digital markets. I'm not doubting the good intentions of U.S. lawmakers, such as the one and only David Cicilline (just one example), to address these issues. But should it turn out that the U.S. government would ultimately stand behind Apple and Google once countries like South Korea seriously regulated digital marketplaces, smaller countries might have to team up with others lest they be bullied around.

Microsoft is on the right side of history with respect to app distribution. It never did anything even 1% as bad as what Apple and Google have been doing for more than a decade now. But there was a time when Microsoft's conduct raised issues, and in a way, Google's announcement reminds me of Microsoft having been forced by the European Commission (and the EU judiciary) to offer a "Windows N" edition without the Media Player: it did nothing to create additional opportunities for alternative media players as customers saved nothing, Microsoft obviously had no incentive to promote it, and hardly anyone ever spotted, much less purchased, a "Windows N" edition. However, the far more important part of the EU Microsoft case involved network protocols, and that one did have an impact. Interestingly, in that part of the case IP was key (as Microsoft could have tried to enforce patents against third-party implementations of its protocols, and asserted copyright over documentation), and the EU ensured that only a small license fee could be charged. Also, Microsoft has been extremely careful to avoid antitrust issues ever since (there may still be occasional complaints, but they don't appear to have substance), which is more than Apple and Google can say at this stage.

Google's announcement is just the South Korean equivalent of "Windows N": a jurisdiction tells them to offer choice, and the target of the new regulation says "you can have choice, but it's not our problem whether anyone will actually end up choosing the alternative we are forced to provide."

South Korea didn't get this right the first time because Google can just provide a choice that makes no business sense. But no one is ever beaten unless they give up the fight. Better luck next time, South Korea! And may lawmakers and other decision makers (judges, regulators) around the globe learn from South Korea's initial mistake.

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Thursday, November 18, 2021

In filing with appeals court, Apple explicitly states its intent to impose its app tax even on purchases made when users click on external links

On Tuesday, Apple filed with the United States Court of Appeals for the Ninth Circuit its expected motion to stay the enforcement of Epic Games's anti-anti-steering injunction, and after showing you the document below, I'll focus on only one important aspect. Here's the motion:

21-11-16 (9th Cir.) Apple M... by Florian Mueller

There's a lot in that motion that I don't agree with, yet I continue to believe--as I explained in my previous post on this topic--that Apple's motion meets reasonable requirements for staying an injunction. But in this post I won't elaborate. I'll focus on what Apple would do if the injunction ever were to be enforced (which I don't consider likely anyway, as this is another See I Told Ya So item. In a recent post on a journalist's misinformation concerning the actual effect of the injunction, I stated the following:

Nilay Patel's tweet [which said that app developers could just offer external links with a "30 percent less" offer] is wrong for another--independent--reason. As I've explained on earlier occasions, Apple could still collect a revenue cut [emphasis added] using its gatekeeper power and claiming intellectual property rights. Developers could try to challenge the reasonableness of those terms, but that would be a whole new case.

In that same post, I also wrote (with respect to Apple's representation to the district court that implementation of the injunction would involve a lot of effort):

The context is that Apple's counsel said his client wouldn't just strike an enjoined passage from its rules but would replace it with a new rule, and that new rule would involve a significant implementation effort. For example, if that new rule involved an obligation to pay Apple a commission, Apple might have to implement some kind of reporting system for payments made outside the app [...].

Apple's appellate motion leaves no doubt that there wouldn't be--even with that injunction hypothetically getting enforced at some point--such a thing as a free lunch:

"[T]he injunction requires a change to the App Store business model that will interfere with Apple’s ability to efficiently collect its commission. As noted above, the district court found that Apple is entitled to charge a commission for use of its iOS platform and that 'IAP is the method' Apple has chosen to collect its commission. [...] But requiring Apple to allow in-app links or advertising would allow developers to circumvent IAP—making it harder, if not impossible, for Apple to collect a commission for those purchases." (emphasis added)

"The injunction would raise Apple's cost of commission collection compared to other platforms, who have similar anti-steering rules they are permitted to enforce." (emphasis in original)

"Apple would have to develop new App Review processes, write and enforce new Guidelines, and implement alternative solutions for collecting its commission—an undertaking the district court acknowledged could be costly." (emphasis added)

Apple's concerns are all about the practical aspects of collecting its commission--there's no reason to believe Apple would not want to get paid even on payments made after users click on external links presented by an iOS app.

Anybody dreaming of a "30 percent less" option in connection with external links is barking up the wrong tree. The app tax will be imposed one way or the other. Collection may be more cumbersome, but Apple's position is that it's entitled to its commission and that's what even the Epic Games v. Apple judgment says.

The consolation prize that is the Epic Games v. Apple injunction is not a promising avenue. Developers need a breakthrough, but it will have to happen on other fronts--such as in the legislative arena. It's truly impressive that Epic Games CEO Tim Sweeney and the executive director of the Coalition for App Fairness (which Epic co-founded) were able to discuss mobile app store issues at a Korean event ("The Global Conference for Mobile Application Ecosystem Fairness") with high-ranking politicians from Korea, Europe (French Secretary of State for Digital Affairs Cédric O, who happens to be half-Korean), and the United States (Republican Senator Marsha Blackburn sent a video message). Here's an English-language report by a Korean newspaper on that event.

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Wednesday, November 17, 2021

Munich I Regional Court's third patent litigation division (44th Civil Chamber) held its first-ever patent infringement hearing: multitouch patent case against Samsung

For only the second time in more than a year, I went to the Landgericht München I (Munich I Regional Court) today. The case itself--Solas OLED v. Samsung Electronics (case no. 44 O 9702/21)--lacks everything that a patent infringement action needs in order to be taken seriously. If it raises any interesting question at all, it's whether Google is supporting Samsung against a case that targets the Android operating system. I'll get to that later. I'd have attended that hearing even if the case had been outside of my industry focus. All I wanted to see the court's third patent litigation division's premiere session. Icing on the cake: I got to see a new courtroom, too.

Here's a picture of the Munich I Regional Court's 44th Civil Chamber that I took with my limited talent and a Google Pixel phone (click on the image to enlarge):

In the middle, you see Presiding Judge Dr. Georg Werner. To his right (from the beholder's angle), his deputy, Judge Dr. Anne-Kristin Fricke (who brings not only patent but also significant competition law expertise to the table and is the rapporteur on today's case). To his left, Judge Dr. Franziska Greiner-Wittner.

Don't infer from the medieval-looking banner behind the judges that this courtroom (Lenbachplatz building, room 101) is old-fashioned. It used to be a library, but has recently been transfomed into a courtroom--and with a view to videoconferencing capabilities, it presumably has better technical equipment than any other courtroom in Munich.

In recent years, the Munich court's patent infringement panels have clearly demonstrated thought leadership, arguably to a greater extent than any other trial court in the world:

It is no secret in the local patent law community that Judge Dr. Werner, who is also very well-liked in academia, made important contributions to the development of patent jurisprudence in Munich. Consistency is assured: the court's three patent litigation divisions (the 7th, 21st, and now also 44th civil chambers) will be perfectly synced. There was a time when Munich plaintiffs viewed the 7th Civil Chamber the "grand prize" in the lottery that is the assignment of new cases to a division. The only way to engage in "judge-shopping" was to amend existing complaints by throwing in new patents, which claims were immediately severed but remained with the same division. That's a thing of the past. If you're looking to assert patents in Munich, your case will be put on a very similar timeline and your chances of success will be at the same level no matter which of the three divisions your complaint gets assigned to.

Before he became the 44th Civil Chamber's Presiding Judge, Judge Dr. Werner left the 7th Civil Chamber (where he was Judge Dr. Matthias Zigann's deputy) earlier this year and took over a non-patent division that nevertheless heard cases with an IP element. He's since presided over a number of hearings and trials, so it came as no surprise that his moderation of today's session looked like he'd been doing this for many years.

Next year we'll probably start to hear about landmark decisions by the 44th Civil Chamber, but the case they heard today is just too weak to lend itself to anything spectacular.

Non-practicing entity Solas OLED asserts patent against Samsung that doesn't even make a technical contribution to the state of the art

Ireland-based patent licensing firm Solas OLED is suing Samsung over a number of patents in different venues, and a Texas jury has already awarded it more than $60 million in patent infringement damages.

There are cases in which NPEs (or the ones who sold them patents) came up with a brilliant idea before anyone else patented it. But there are also cases in which someone just tries to obtain a patent on a technique that is not innovative in any respect, and the plan is just to capitalize on legal uncertainty by suing those who make actual products (like Samsung), hoping that a court will be gaslighted into an overbroad claim construction resulting in a lucky punch for some troll. And Samsung has a hard-earned reputation for declining to feed the trolls.

The German Patent and Trademark Office can be anyhing but proud of having issued German patent DE102009019910 on gesture recognition. The court phrased it diplomatically today, but Judge Dr. Werner noted their real struggle to identify some claimed inventive substance. Let's keep in mind that when that patent was filed in 2009, capacitive multitouch touchscreens were already in widespread use: the first iPhone was launched in 2007, and the first Android devices not much later. This doesn't mean that there wouldn't be any more room for multitouch patents, or even gesture recognition patents, but a claimed invention has to make a technical contribution to the state of the art as it solves a technical problem with technical means. This particular Solas patent makes no technical contribution, and here's why:

The closest thing to a technical contribution that the court--only hesitantly, for good reason--identified is found in paragraph 15 of the specification of the patent. The argument for patentability comes down to saying that a particular way to structure computer program code is more efficient to develop and easier to test than another. However, this is not a software patent of the kind that is considered a computer-implemented invention, which solves a technical problem with technical means involving a computer program. What this is all about is a software architecture, if not a coding style.

The patent fails to provide any efficiency gains at the machine level. If it has any effect, it has to do with how to organize the work that computer programmers perform. It's astonishing that some German patent examiner granted that patent application in clear contravention of § 1 PatG (§1 Patent Act), which is the German implementation of Art. 52 of the European Patent Convention (EPC). There is no technical effect here: all that the patent specification itself claims is that it#s "hard to reliably and efficiently add code to identify a new gesture in an existing code segment, and that testing such code presented difficulties.

Reliability and efficiency can justify the patent-eligibility of a software-related invention under European case law. But that applies only if the invention is technically superior and, therefore, more reliable and more efficient. In this case, there's nothing that would stop programmers from developing equally (if not more) reliable and efficient program code for the purpose of the identification of new gestures whether or not they choose the code structure claimed by the patent. Sure, some programming styles are more error-prone than others, but that's not capable of establishing technicity. Technicity means that you develop a program, execute it, and the execution of the code then reliably delivers a tangible benefit. Otherwise the authors of books like Clean Code could also have filed for patents before publishing their works...

Any machine-learning algorithm would make it even less time-consuming to teach a system to recognize new gestures. The patent in question does not contain a specific solution to the problem of recognizing new gestures: the whole argument is that if you modularize (or one might also say "partition") the code and have one Turing machine (state machine) for the identification of single-touch gestures and a second that interprets a timestamped sequence of single-touch gestures as multi-touch gestures, you'll find it easier to write the additional program code needed to recognize new gestures. But someone still has to write that code. That someone is a human being. And if you let a very good programmer A write such code under a different software architecture, the result may be even more reliable and the development process even more efficient than if an average programmer B was assigned to the task but adopted this particular architecture.

The human factor here distinguishes the claimed invention in question from cases in which the EPO's boards of appeal and national courts have deemed software patents valid. This here is not a computer-implemented invention, but purely about how human beings organize their work (i.e., the code they write). The EPO itself has always made it clear, including in debates during the European legislative process on CIIs in the 2000s, that program code is not patent-eligible due to the exclusion of "computer programs as such" under the EPC. Firstly identifying single-touch gestures and then putting those intermediate results together and perform some further analysis is not just trivial: it simply fails to meet the European technicity requirement.

The way such patents are usually shot down in Europe is, however, not on the basis of Art. 52 (or its equivalent in Germany, § 1 Patent Act). Normally, all non-technical claim limitations are ignored in the novelty analysis, and what is not novel cannot contribute to an inventive step either. In this case, I don't think the piecemeal approach is appropriate, and prior art is not needed: the patent itself doesn't claim any technical efficiency or reliability gain; it merely claims that human beings who adopt the structural recommendations of the patent are more likely to arrive at a good result.

It speaks volumes that the closest thing to a technical contribution identified by the court is totally detached from the claims, which do not in any way address the question of how to support new multitouch gestures.

Other than a mention of four invalidity contentions brought by Samsung, validity was not discussed today, however. First hearings in Munich--unless infringement is conceded--do not address validity; it's too early for that. The focus was on the infringement analysis. Samsung disputes Solas OLED's allegations of infringement, arguing that Android's MotionEvent object does not have the two separate types of state machines described in the patent.

Samsung's lawyers--Allen & Overy patent litigators Dr. Jan Ebersohl and Denise Benz, and Zimmermann & Partner patent attorney Dr. Joel Naegerl ("Nägerl" in German)--have jointly achieved that the court is, for now, unconvinced of Solas OLED's case. In the U.S., the court would construe the patent, but would then let a jury decide the factual questions. In Germany, courts resolve these cases based on the pleadings, and Samsung's non-infringement argument may be sufficiently substantiated that Solas OLED will not overcome that hurdle.

It also became known today that Samsung has also, out of an abundance of caution, raised a proportionality-based affirmative defense to Solas OLED's prayer for injunctive relief. However, not only does it appear unlikely that the court will reach that question (as the patent may be neither infringed nor valid), but this year's patent "reform" bill falls into the "plus ça change" category anyway. Of course, defendants like Samsung cannot leave that stone unturned. It's just not going to help unless a plaintiff makes a huge mistake.

What Solas OLED is doing in this litigation gives NPE litigation a bad name. They're trying to monetize the mistake that the German Patent & Trademark Office made when it granted this patent. If they won, other Android device makers and, therefore, Google itself would have to be concerned. I didn't see any Google representative in the room, nor did Google appear to formally intervene. Maybe Google doesn't support device makers the way it should--or neither Google nor Samsung take this case seriously, which I couldn't blame them for.

I'm pretty sure that the 44th Civil Chamber's first patent injunction will come down next year (anything else would be a statistical anomaly), but in a rather different case. Despite today's case being a stupid one over a bad patent, the 44th is off to a good start.

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Sunday, November 14, 2021

Epic Games v. Apple is the wrong vehicle for an anti-anti-steering injunction, but other app makers might bring an anti-steering case against Apple's Google ads

After a See I Told Ya So type of post on the (now clarified by the district judge) narrow scope of the Epic Games v. Apple injunction and a follow-up (Which part of 'external' does a @reckless journalist fail to understand?), I thought I was done with that topic until the United States Court of Appeals for the Ninth Circuit orders the fairly likely stay of the injunction. For two reasons, however, I decided to chime in once more at this stage:

  • As a result of too much coverage and commentary that is based on unrealistic assumptions (and in some cases even misconceptions), there still is confusion out there, with people talking about what would happen in a few weeks' time when the injunction would take effect (which it probably won't anyway).

  • Forbes contributor John Koetsier has raised an interesting issue of proactive steering by Apple, which I believe could give rise to an interesting case in which app makers would seek an anti-steering injunction (anti, not anti-anti) against Apple: Apple Quietly Buying Ads Via Google For High-Value Subscription Apps To Capture App Publisher Revenue

    Click here if you wish to skip the part on Epic v. Apple and jump directly to the part on that separate (but also steering-related) issue.

It's a funny coincidence that 2021 is the year of the anti-antisuit injunctions (they've been around for a few years, especially since the 2019 Nokia v. Continental ruling in Munich, but are now very much en vogue) as well as the year of the Epic v. Apple anti-anti-steering injunction: an injunction against an anti-steering provision in Apple's App Store guidelines.

Dreamers will be dreamers, but there are overwhelmingly strong reasons for the appeals court to stay Epic's injunction.

The Epic v. Apple injunction isn't stayed until the Ninth Circuit has spoken. But it's possible to predict with a reasonably high likelihood what's going to happen. We just have to look at the whole issue from the perspective of an appeals court:

  1. Apple has already started to comply with one part of the injunction under a class-action settlement.

  2. The enjoined rule has been in place for about a decade. Why would its abolition be so urgent now that one couldn't just give the appeals court the necessary time to form an opinion on the issue?

  3. The appeals court sees that Epic lost on nine counts and prevailed on only the least important one. Of course, a party could also lose on 100 counts and prevail on the 101st, but the analysis at the stay stage is quick and superficial, so it does play a role whether the appeals court gets the initial impression that Epic had a strong case or feels that Epic's case generally appears a bit weak.

  4. This is a huge factor: there is no precedent in the U.S. where an anti-anti-steering injunction ultimately got upheld. Much to the contrary, the U.S. Supreme Court held in Amex that anti-steering rules are procompetitive. Shortly thereafter, a healthcare-related anti-steering case got settled, with a result that lawyers described as "opening the door to steering by insurance companies."

    Apple has a very strong argument for a stay here because the Ninth Circuit will think hard and long before allowing the enforcement of an injunction of a kind for which there is no appellate precedent and which at first sight cannot be reconciled with the Supreme Court's Amex decision.

  5. Of course, Judge Yvonne Gonzalez Rogers tried to distinguish her anti-anti-steering injunction under California's Unfair Competition Law from Amex, but I believe the appeals court will not be persuaded--at least not immediately, and that's what matters at the stay stage--of her reasoning. She basically said that Amex was about steering in a strict sense, with retailers encouraging customers to use a different credit card, while Apple's rule in question is about whether customers will know about the existence of certain alternatives at all. At the stay stage, it's sufficient for Apple to sow the seeds of doubt. If the appeals court feels that there is a possibility of the injunction not being upheld, that (combined with harm to Apple, which I'll address in a moment) will be enough for the injunction to be stayed pending the appellate proceedings.

    The appeals court probably won't buy that attempted distinction. There is nothing in Apple's rules that prevents cross-platform app makers from promoting their apps for other platforms (where they don't owe Apple any commission) through other channels. It's another story that Apple complicates those efforts (that's the second part of this post--Apple's own proactive steering). From the appeals court's vantage point, it probably won't be immediately clear why it's so very critical that app makers communicate the existence of alternatives to their customers in their iOS app. Apple's analogy is that it's like someone promoting in an Apple bricks-and-mortar (or, more accurately, glass-front) store the availability of certain products at a lower price in another shop across the street.

  6. Apple just needs the combination of significant doubt about the injunction's ability to survive the appeal and significant harm to its business. The mere fact that Apple would need a different set of rules for the U.S. market (while based on California law, the injunction applies nationwide, but not worldwide) and other world markets is already an issue. Apple does have the right to replace the enjoined rule with a new one, and that may involve an engineering effort (such as for a reporting system in case Apple collects a royalty on sales generated by links within an iOS app). Epic will dispute all of that, but the appeals court is going to take Apple's averments seriously.

The fact that Judge YGR didn't stay her injunction means nothing. By staying it she'd have shown that a decision that it took her months to make wasn't solid. Now the ball is in the appeals court, and I'd be somewhat surprised if the injunction didn't get stayed.

Anti-anti-steering is the wrong way to tackle the App Store monopoly.

I generally don't believe that tackling Apple's anti-steering rule is a good strategy. There are more fundamental issues, but they involve the fact that Apple doesn't allow alternative app stores (not even "sideloading").

Anti-anti-steering cases have so far failed in other contexts. Why would it suddenly work here?

As long as Apple is not considered a monopolist (and under the Epic v. Apple ruling it is not), it can just change some other rules and promulgate new rules that would render any anti-anti-steering injunction inconsequential.

It would make a lot more sense to challenge Apple's proactive steering than its anti-steering guideline.

John Koetsier's article, which I mentioned further above, reveals some conduct by Apple that to the best of my knowledge has not previously been written about. In order to ensure that subscriptions to certain services (such as Tinder) are made on iOS, which then entitles Apple to its commission (though it cuts it in half after the first twelve months of a given subscription), Apple places Google ads that promote such subscriptions and steer users (through links) directly to the App Store.

Apparently Apple did so without the specific consent (i.e., any kind of cooperative-advertising agreement besides the standard Apple Developer Agreement) of the affected companies, and this is all about steering as opposed to demand generation. By advertising iOS-based subscriptions in connection with specific keywords (presumably always just the brands of the affected services), Apple doesn't drive additional customers to third-party services: instead, it redirects to the App Store some of the traffic that would otherwise reach those companies' websites. If someone already searches for Tinder, but then clicks on an ad placed by Apple that is exclusively meant to ensure that any subscription would be subject to Apple's app tax, there's no benefit--but significant harm--to the actual service provider.

As the article explains, this also drives up advertising costs for those services in connection with the relevant keywords (i.e., their brands).

It might be hard (though not necessarily impossible) to challenge that practice under federal antitrust law. But the broader concept of unfairness under state competition law might have scope for preventing Apple from doing this. On the one hand, it prohibits steering on iOS, which (again) it may just be in its right to do (even if one believes, like I do, that Apple should be forced to allow alternative app stores). On the other hand, Apple itself engages in steering (on Google) and distorts the market by making it harder for app developers to promote alternative ways of buying subscriptions.

After the recent Japanese "e-reader" settlement, which is about competition in content distribution, this issue is even more relevant than before.

What Apple is doing according to the Forbes article is like if governments spent money on advertising designed to drive airline passengers into non-duty-free stores. It's just absurd when a tax authority spends advertising dollars just to prevent customers from discovering and accessing legally tax-free channels.

That kind of advertising does nothing to generate incremental sales of Apple devices. It is purely about Apple torpedoing efforts by service providers like Match Group (which offers Tinder) to promote ways in which end users can obtain Apple-tax-free subscriptions.

Google's role in this raises questions, too. Google obviously benefits from this directly, and Google itself might at some point want to do the same. But let's stay focused on Apple. An injunction that would prohibit Apple from placing such ads (without explicit prior consent by the service providers in question, which presumably all of them would withhold) would be an anti-steering injunction against Apple. It would be novel, but to me it would make a whole lot more sense than an anti-anti-steering injunction like the one in Epic v. Apple.

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Thursday, November 11, 2021

Unease growing in Europe over 'America First' agenda behind O-RAN initiative: telecommunications infrastructure treated as geopolitical football

Yesterday was the first of two days of a conference organized by the European University Institute's Florence School of Regulation on Transatlantic Relationships in Innovation Policies: Converging Agendas?

I tuned in because "IP and standard-setting" (with a focus on 5G) were announced as key topics. However, that first day, apart from a keynote by Qualcomm's Alex Rogers (in which he called out Apple on taxing app developers while complaining about SEP royalties), was largely about technology-related trade policy in general, and the O-RAN initiative (for modularizing telecommunications network infrastructure) was actually the key topic.

About two months ago I discussed the implications of O-RAN for patent licensing and litigation. Since then, I've seen two articles in German media that reflect European skepticism of OpenRAN:

  1. Two weeks ago, Frankfurter Allgemeine Zeitung published an opinion piece on O-RAN by Professor Torsten Gerpott, who teaches strategic and telecommunications management at a German university. He does not consider subsidies for O-RAN projects a wise use of German taxpayers' money as it does nothing to increase the country's digital sovereignty. In Professor Gerpott's opinion, Open RAN is more of a geopolitical football than a solid technological concept. To that expert it's pretty clear that open interfaces do not make an entire network infrastructure open: if you connect multiple black boxes over open standards, you need more energy and still depend on those black boxes--and on a systems integrator, which is a similar dependency as a single-vendor relationship. In other words, it's not as "open" as the name suggests, and it's certainly not the same as relying on 100% open-source modules.

    Professor Gerpott mentions the absence of evidence that "open" network concepts have enabled major new entrants to compete in infrastructure markets. But in any event, he says, breaking up network infrastructure with O-RAN is "not necessarily desirable from an EU point of view as two European vendors--Ericsson and Nokia--have a strong market position." Instead, the O-RAN architecture would benefit U.S: tech companies and platform operators that do not play a major role in the current RAN market.

    The op-ed concludes that O-RAN is not a "(r)evolutionary network architecture driven by technical ideas" but rather "a geopolitical approach in order to shut out Chinese vendors and strengthen U.S. tech companies." The headline of that article warns against "false hopes" connected to Open RAN.

  2. Just two days ago German tech news website Golem reported on statements by Vodafone's chief technology officer, who said Vodafone did not want to "prematurely commit" to Open RAN. Vodafone is actually running some Open RAN trials in a few European countries, but is concened about "losing our two major vendors" Nokia and Ericsson. The CTO said Vodafone "does not want to shift the emphasis to North America[n vendors]."

    A Nokia executive who spoke at the same event (hosted by the German ministry in charge of infrastructure) said that "despite lots of progress a lot remains to be done" concerning O-RAN, as some technical hurdles have yet to be overcome.

Against the background provided by those two articles, some of what I heard yesterday at that transatlantic trade policy conference was easier to understand:

  • The European Commission's head of unit for trade relationships with the USA and Canada, Matthias Jørgensen, didn't specifically mention O-RAN. He did, however, note that the U.S., Europe and other major players on the global stage all want digital sovereignty (yet also aspire to be world market leaders). And he noted different perspective on, for instance, platform regulation, though I think those differences may be greater between the executive governments on both sides of the pond than between lawmakers (for example, the "Open App Markets Act" in the U.S. won't necessarily be weaker than the EU's Digital Markets Act).

    Mr. Jørgensen noted that the EU had a better relationship with the Biden Administration than its predecessors, but that "America First" was still the U.S. approach to trade policy.

    I find it hard to see how the EU would embrace O-RAN, a Trumpian initiative that the Biden Administration appears to be supportive of, given the damage it might do to Ericsson and Nokia only to create opportunities for certain U.S. hardware makers and cloud operators like Amazon (which also had a speaker at that conference).

    Also, the European Commission is known to be involved with O-RAN at the ETSI level, and it is the Commission's responsibility to consider all implications of a proposal like O-RAN, including the security aspects of relying on (non-European) cloud service providers.

  • Deutsche Telekom's EU affairs VP Roland Doll sounded a bit like Vodafone's CTO in the Golem article I mentioned further above. It looks like Deutsche Telekom, too, would want to ensure that European vendors continue to be major players in the telecommunications infrastructure market. Deutsche Telekom is concerned that the only major cloud service providers in the world are American (Amazon, Microsoft, Google), and Europe cannot compete in that field.

It's easier to see why Europe isn't enthusiastic about O-RAN than to argue that Europe stands a lot to gain from it. As long as that is the situation, there is even a risk of a split, with different world regions potentially developing their own standards and relying on their own vendors.

This could have profound implications, ultimately even for cellular standards, so I'm going to keep an eye on developments related to O-RAN.

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