Friday, April 1, 2022

Apple's 'friends of the court' in Epic Games case boil down to Apple (astroturfers), Google (indirectly), Roblox: lack of broadbased support for Hermit App Kingdom

Epic Games lost the key parts of the district court's decision in its Apple App Store antitrust case, but together with its allies Epic has made an impact in the legislative arena in various countries and its Ninth Circuit appeal has enormous momentum with support from the Biden Administration, 35 U.S. states, Microsoft, and a group of law professors around "the Dean of American Antitrust Law" Herbert Hovenkamp. Compared to that outpouring of support, what Apple has to show is downright embarrassing.

I kid you not. This is not an April Fools' Day post regardless of the date you'll find below. Apple has zero governmental backing, unimpressive academic support compared to Epic, and when it comes to companies and industry bodies, we're practically talking about Apple applauding itself through astroturfing, Google indirectly backing Apple, and Roblox, which is increasingly controversial over its own treatment of creators. I've also uploaded Roblox's brief, which focuses just on Apple's privacy and security argument, to Scribd.

Even Snap(chat), which was trying to curry favor with Apple toward the end of last year's Fortnite trial, is apparently done supporting Apple after the impact of Apple's "privacy" rules (ATT) on its business--though Apple's astroturfers still point to what Snap said.

Arguably, Apple's most remarkable accomplishment in connection with those amicus briefs is that it succeeded in dissuading the Attorney General of the State of California from joining those 35 other states (the 36 combined are the same who are suing Google over its app distribution terms). Instead, the California AG focuses only on the application of his state's Unfair Competition Law (UCL). That question is relevant only to the meaningless consolation prize Epic won in the first round. I've uploaded the Golden State's filing to Scribd, but it's not worth discussing here.

If its App Store terms and policies were such a blessing for the digital economy, one would reasonably expect Apple to get some serious third-party support, especially after anybody with an interest in preserving the status quo would have been shocked into action by the gigantic support Epic received two months ago.

It's not going to be easy for Epic to get the district court's ruling overturned. U.S. antitrust law is defendant-friendly, and the district judge made a number of factual determinations to which the "clear error" standard of review applies. But it won't be hard for the United States Court of Appeals for the Ninth Circuit to see that Judge Yvonne Gonzalez Rogers ("YGR") of the United States District Court for the Northern District of California made some serious mistakes at least in connection with the single most important part: market definition.

It starts with the fact that Judge YGR defined the relevant market as "digital mobile gaming transactions", as if there had ever been such a thing as an analog mobile gaming transaction. It's just one redundant word, which she adopted from Apple's proposed definition (where it actually did make sense), but it's symptomatic of a fundamentally flawed approach to market definition.

In its response to Epic's appeal, Apple blundered by inadvertently conceding that Epic was right when arguing that there's a smartphone operating system market in which iOS competes with Android--a fact that Apple's primary expert witness disputed. I don't think I've ever seen Apple make a mistake like that in a major dispute--even a default judgment in Mannheim more than a decado ago was just an inconsequential oversight. They have such vast resources and can afford to have many of the world's smartest people work for them. But the notion of iOS not competing with Android because iOS is always just sold or licensed along with devices (and not separately) is so counterintuitive that even Apple's own lawyers failed to stay on message. I looked at it from different sides and the more I thought about it, the clearer it was that what Apple had said was simply an admission that there is a smartphone operating system market regardless of whether iOS is always bundled. And as I analyzed that question, I identified flaws in the district court's decision that I hadn't previously noticed because I wouldn't have thought that a super smart judge would simply misunderstand Epic's market definition and the Supreme Court's Kodak decision by falsely believing that Epic considered iOS a "market"--when Epic's single-brand market argument was not that iOS was the only operating system for the iPhone, but that the App Store was the only app distribution channel for iOS, so while iOS does compete with Android, the App Store does not compete with Google Play.

It is still my hope that the Ninth Circuit and the Supreme Court (which is where I expect this case to go) will determine that this is one of those rare cases in which a single-brand market definition is warranted because Apple can get away with doing very bad things to developers without losing market share where it has to compete. But the judge thought that Epic proposed a smartphone OS market because Apple would have a higher market share than the 15% it has in smartphones--which showed to me that she apparently thought Epic's proposed foremarket (smartphones operating systems, thus a market where Apple faces competition) was already an aftermarket ("Apple's own internal operating systems"). That part of the decision will hopefully be reversed.

Apple's amici can't cure those deficiencies of the district court's judgment, nor can they convincingly claim that the sky would fall if the Ninth Circuit corrected the lower court's mistakes.

Apple and Google are competitors, but when it comes to app distribution, their interests are largely aligned. Even Google has problems with Apple's even more restrictive policies, such as with respect to its Stadia game streaming service and instant messaging, where Google calls on Apple to open up instead of cashing in on lock-in and classism. But Google has to defend itself against the same "apprising" and wouldn't want Apple to lose on a basis that would also apply to the Google Play Store.

Google is supporting Apple against Epic's appeal in two ways (besides presumably having lobbied the state of California to limit its submission to the unimportant California UCL part):

  • The Computer & Communications Industry Association (CCIA) has many members, but Google is by far its most influential one. Apple joined as well in recent years. The CCIA filed a brief that addresses market definition, stressing the importance of a two-sided market (in other words, they want Apple to get the same result that American Express won in the Supreme Court). The CCIA's other members include some companies that presumably don't like Apple's App Store terms and policies (Facebook, Shopify), but the CCIA's two-sided market focus may have been a lowest common denominator that Amazon and eBay were also happy to support.

  • Another organization that engages in advocacy on both Apple and Google's behalf is the Chamber of Progress. That one also filed a brief in support of Apple.

Other than getting support from Google and Roblox, both of which are heavily criticized over their own treatment of creators, Apple can basically has just one friend in this context: Apple itself.

I've previously explained that ACT |The App(le) Association does not represent app developers' interests in fair distribution terms. That organization, which is backed by Apple, alternatingly describes itself as an association of small app developers (which never seem to pay any dues nor do they seem to undergo any vetting: you sign up for a newsletter and are considered a member) or as an Internet of Things advocacy group, or as a mix of both. Let me refer you to another blog post I did on ACT two months ago: Apple's astroturfers try to fool ITC with misleading statement concerning Ericsson's complaint, and Biden Administration and Capitol Hill lawmakers with phony poll: both on the same day

Yesterday I mentioned an ACT filing in support of French industrial giant Thales in a standard-essential patent (SEP) context. I'm not aware of a single small app developer who's ever had to defend against SEP litigation--that is so because small app developers simply don't have to implement the kinds of standards around which ACT engages in advocacy.

The brief ACT filed on Thursday in support of Apple against Epic untruthfully claims that small app developers depend on Apple getting its 30% cut from the likes of Epic so Apple can invest. They say Apple competes for developers but their arguments are largely just about Apple improving its products or spending amounts on the App Store itself that even Judge YGR recognized as being small compared to the money Apple makes with the App Store. They point to Snap's statements of almost a year ago, but if Snap still believed in what it said then (it does not because meanwhile it's been impacted by Apple's advertising rules), it could file a brief in its own name and wouldn't need any Apploturfers to speak for Snap.

ACT's brief contains a couple of broken references in the footnotes:

Apple can do better than that.

Finally, I'd also like to mention that despite my criticism of Apple's App Store terms and policies, and of the incredible mistakes that led to the district court's decision against Epic on its key (Sherman Act) claims, there are contexts in which I actually do agree with Apple and would find it intellectually dishonest not to do so.

A couple of law professors support Apple's position that its conduct at issue in the Fortnite case needs to be analyzed under Section 2 of the Sherman Act, not Section 1. That is also my reading of the statute. I wouldn't mind if the question was decided the other way, but I wouldn't consider it a correct outcome.

Also, there's the ongoing enforcement dispute in the Netherlands, with Dutch competition regulator ACM (Autoriteit Consument & Markt; Authority for Consumers & Markets) having imposed €50 million in fines on Apple for alleged non-compliance with a ruling concerning dating apps. Apple's new proposal is now publicly available. They no longer require a separate SKU (shelf-keeping unit, a term from traditional retail distribution that is also applied to digital stores) for the Dutch market. In my opinion, Apple's previous position wasn't unreasonable, but that is another concession. Also, it seems Apple has modified the warning that users get to see in connection with alternative payment methods. Apple still insists on its 27% cut of any income app developers generate through alternative payment methods. Other than the 27% figure being too high for developers who may be eligible for the Small Business Program (15%), I don't think this is a compliance issue: the dating-app ruling doesn't specify what Apple may charge. In my opinion, the ACM should accept this set of rules--and if it is really concerned about Dutch consumers being overcharged when they use dating apps, an investigation of the complainant in the Apple case--Tinder operator Match Group--would actually make more sense.

Getting back to the Ninth Circuit appeal, Epic has until late May to reply to Apple's responsive brief and to respond to Apple's appeal of Epic's consolation prize under state UCL. Epic could also comment on the amicus briefs supporting Apple, just like Apple tried to discredit Epic's amici. Given that Apple opposed an amicus brief by the Epic-Spotify-Tinder Coalition for App Fairness at the stay stage, I was actually surprised to see that Epic didn't object to a filing by ACT | The App(le) Association--but it seems the parties agreed on a very permissive approach to amicus curiae submissions.

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