Thursday, December 23, 2021

Mixed news for Apple: App Store accusers lose their most effective voice as Spotify's top lawyer Horacio Gutierrez joins Disney--but State of California may support Epic Games on appeal

Yesterday I saw on LinkedIn that Horacio Gutierrez is leaving Spotify. He served as Spotify's Head of Global Affairs and Chief Legal Officer for six years after a long and successful career at Microsoft where he was basically the #2 lawyer (and would easily have become #1, but Microsoft already has the one and only Brad Smith). Now he is joining Disney as General Counsel and Secretary (press release on BusinessWire).

Horacio and I didn't always agree. We've known each other for well over a decade, and about each other for even longer as we were on opposing sides of the European software patent-eligibility debate in the early to mid 2000s. Even when we were partly aligned, we weren't of exactly the same opinion. But as an app developer (currently working on a new app, not a game this time) I'm profoundly disappointed because this means the App Store-critical movement loses the most effective and forceful advocate it ever had. There are some other people I consider similarly important, but at least for now they are acting in the background.

Disney also faces the gatekeeper problem of mobile ecosystems (Apple's and Google's "vice-like"--maybe they meant "vise-like"--grip that the UK's competition authority called out this month), but at least for the time being and probably for the foreseeable future, they're nowhere near as antagonistic as Spotify. Apple's insatiable appetite for grabbing additional revenue streams by leveraging the monopoly power it enjoys in its single-brand aftermarket make it a possibility that Disney, too, will feel as threatened by the app distribution duopoly as Spotify, but it's not sure to happen, and not on the horizon for now.

Horacio's career move is a great opportunity for him, possibly a childhood dream-come-true, but leaves a gigantic vacuum. This is the second major loss for the Epic-Spotify-Tinder Coalition for App Fairness this month. The first blow was when the CAF was stigmatized as a lobbying front that saw an amicus curiae brief rejected by the most influential regional appeals court of the United States, the Ninth Circuit (despite the normally rather permissive practice when it comes to accepting such submissions).

Spotify, which has to compete with Apple Music on the exact opposite of a level playing field, was the first major app developer to make a strategic (in that regard, Epic has room for improvement) effort to instigate antitrust investigations and legislative initiatives targeting Apple's abuse of its App Store monopoply. Spotify launched a website--Time to Play Fair--that raised issues hardly anyone out there was aware of. I doubt they reached huge numbers of people, but certainly some of the powers that be. Constant dripping wears away the stone, while Epic's more "explosive" and dramatic approach apparently wasn't to Judge Gonzalez Rogers's liking and may not be viewed favorably by the appeals court either.

Horacio started writing letters to Apple in which he (rightly, in my opinion) accused Apple of antitrust violations and demanded a change of behavior. At some point, parts of the correspondence were leaked by the parties (first by Spotify, then by Apple) to the media. Those kinds of exchanges are a prelude to formal antitrust complaint. Spotify brought an EU antitrust complaint against Apple a few years after Horacio had joined. In 2020, the EU launched formal investigations, and this year handed down a Statement of Objections (SO), which is like a preliminary ruling. I'm concerned that it's "too little, too late" if competition enforcement limits itself to cases in which Apple directly competes with other companies, and Spotify is a subscription business, so any remedies might ultimately not benefit those of us who rely on in-app purchasing. My next app will have a subscription model, but also IAP offerings.

Shortly before the Epic Games v. Apple trial, the United States Senate held a hearing on mobile app stores and the need for supplementary legislation designed to specifically address those issues (on top of generally strengthening antitrust enforcement, which is also badly needed). Horacio was clearly the most persuasive panelist, owing to the unique combination of Spotify being a prime victim of Apple's misconduct and Horacio being so strong. He was authentic and sophisticated at the same time--it was really great to watch his performance. He apparently anticipated Epic's defeat when he stated clearly that litigation under current U.S. antitrust law was not going to bring about a solution, and especially not soon enough.

Epic's Tim Sweeney has also done great things. He apparently can't deal with people putting the finger in a wound for the sake of accurate analysis, which is why he unfollowed me on Twitter after I started explaining the narrow scope and uselessness of Epic's consolation-prize UCL injunction and predicted precisely what was going to happen (clarification of scope by district court and stay by appeals court). That's OK. I continue to like and share tweets of his that I agree with, and I wish him luck, but some mistakes have been made by Epic that the Fortnite maker can't correct anymore. In fact, Mr. Sweeney himself made a far stronger argument in some Twitter debates against Apple's "Progressive Web Apps" smokescreen than Epic did in court. It has helped and continues to help that Mr. Sweeney draws attention to Apple's behavior and double standards. But Horacio was the far better chess player in the competition policy arena and the kind of advocate who can convince politicians and regulators of the need to take action.

The Coalition for App Fairness needs a new strategic leader whose primary challenge it will be to make the CAF a credible voice of many developers even though there is no indication that anyone other than Epic, Spotify, and Tinder company Match Group has contributed substantial funding or has much of a say. It has to define its focus more broadly than just dealing with the 30% cut, and it also needs to find outside counsel capable of taking on Apple. As a motion to quash subpoenas shows, the CAF was at some point represented by the Kanter Law Group, the law firm of Jonathan Kanter, who is now the U.S. antitrust chief (official title: Assistant Attorney General, Antitrust Division, DOJ).

Let me also report on a new development in the Epic Games v. Apple appellate proceedings: the State of California will file an amicus curiae brief with respect to the California UCL injunction, but has explicitly indicated it may support Apple, Epic, or neither party, depending on what exactly the scope of Apple's cross-appeal is going to be. The briefing schedule is as follows:

"First cross appeal brief due 01/20/2022 for Epic Games, Inc.. Second brief on cross appeal due 02/22/2022 for Apple, Inc.. Third brief on cross appeal due 03/24/2022 for Epic Games, Inc.. The optional cross appeal reply brief is due 21 days from the date of service of the third brief on cross appeal."

Normally, this means a stakeholder supporting Epic would have to file in late January, and an Apple amicus would have to file on March 1. However, the state of California wants to await Apple's brief and then decide. Should it side with Epic, then it wants to support Epic's second appellate brief (which will be Epic's response to Apple's UCL cross-appeal). That makes sense and I'm sure the motion will be granted.

It's going to be a tough call for the State of California. On the one hand, Apple is the state's most important and iconic company (though all the worldwide noise around App Store monopoly abuse threatens to adversely affect Apple's image at least in certain circles). On the other hand, California is a progressive state that would like its state UCL to be strong and to have a broad scope. And if California had already decided to support Apple, the Golden State wouldn't have to request this extension as the motion changes nothing about the briefing schedule in that event (to support Apple, California would have to file by March 1 one way or the other). They need the extension only to preserve their ability to support Epic or neither party, which they'd normally have to do in late January. So it does look a little bit like Epic may actually get some support from the State of California for competition policy reasons, but if so, it would only relate to a secondary issue (anti-anti-steering). In an even better scenario for Epic, the State of California would make points in the UCL context that also have persuasive impact on the Ninth Circuit in connection with the (infinitely more important) federal antitrust claims.

Finally, here's the procedural motion by the State of California:

21-12-22 Motion by State of... by Florian Mueller

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