Thursday, June 16, 2022

Will Apple's 'Sherlocking' practice draw antitrust scrutiny? Alternative app stores would not solve--but in many cases alleviate--the problem.

There's nothing wrong with Apple making the iPhone and the iPad so attractive that customers will pay those premium prices. I'd still prefer Android even if I wouldn't save a cent, but that's subjective. The real issue is that Apple, like any company, wants to grow as fast and as big as possible. The path of least resistance and maximum profitability is to leverage its market power as long as judges, lawmakers, and regulators let them get away with it. "To leverage its market power" is the non-judgmental way to put it. Unfortunately, in some contexts it is appropriate to accuse Apple of monopoly abuse, or at least to raise the question of whether that's what's happening.

Even where there is no antitrust violation, reasonable people may wonder whether Apple--almost a decade after its "thermonuclear war" on Android subsided--is now strategically interested in weakening intellectual property rights. "Might makes right" is so much more convenient and profitable when you're as powerful as Apple. Three of the most important wireless innovators--Ericsson (which is continuously making headway in its 5G patent dispute with Apple), Qualcomm, and Nokia--call out Apple on its standard-essential patent (SEP) devaluation crusade. In order to devalue patents, Apple even purports to advocate the interests of small IoT device makers.

At this year's Apple Worldwide Developer Conference (WWDC), Apple shocked the developer community by "Sherlocking"--obliterating--an unusually large number of reasonably popular apps made by small companies:

For an explanation of how the term Sherlocking was coined, and for various examples of apps that were Sherlocked at WWDC 2022, let me refer you to this article by TechCrunch's Ivan Metha. TechCrunch is particularly concerned with the risks facing startups.

As the article recalls, an Apple offering named Sherlock replaced a third-party app named Watson. Considering that Sherlock (Holmes) and (Dr.) Watson are famous fictional friends and coworkers. It shows Apple's utter contempt for app developers that it chose "Sherlock" as the name of a substitute for a third-party app named "Watson." It's an example of adding insult to injury. And it may be in Apple's DNA, as Steve Jobs himself admitted they "have always been shameless about stealing great ideas" (in reference to Picasso saying that "good artists copy, great artists steal").

Before Apple runs roughshod over large parts of the tech industry, intervention by courts, lawmakers, and regulators--with major new antitrust investigations that may curb only a couple of Apple's practices having been announced just this week in the UK and Germany.

Sherlocking must be looked at from two angles: in an aggregated form, which suggests structural remedies, and on a case-by-case basis.

The structural problem is that Apple's App Store monopoly allows it to keep track exactly of how well certain apps perform. By injecting itself into the relationship that developers have with the users of their products (as Horacio Gutierrez--then with Spotify, now Disney's chief lawyer--described it), Apple actually has more data than developers. And one of the two antitrust investigations I just mentioned raises the issue of self-preferencing in connection with app tracking, which is so hypocritical because Apple argued that its ATT policy was needed to ensure customers' privacy but actually meant "rules for thee, not for me." Self-preferencing also affects app distribution.

Alternative app stores wouldn't fully solve the problem, but at least developers who don't trust Apple would have the option to distribute their apps through channels where Apple can't collect data. It could still try to do that at the operating system level, but that would become a privacy issue.

There are politicians who believe a breakup of certain Big Techs is needed. Sen. Elizabeth Warren (D-Mass.) has been advocating that solution for a while. I'm not at the point yet at which I believe Apple's app business would have to be separated from its device business, though if Apple continues to become bolder and bolder even in the face of increasing antitrust scrutiny and legislative initiatives, even I may reach that point further down the road. For the time being, my position is that surgical intervention is insufficient and powerful remedies are key, but it should be a key objective to get there without the nuclear option. To be honest, I consider it "only" unlikely, but not entirely inconceivable, that I might join the Break Up Big Tech campaign during my professional life.

Even a hypothetical breakup wouldn't necessarily solve the Sherlocking problem in all respects. Apple would still have to be allowed to improve iOS and the basic set of default apps provided to customers. New features could still render existing third-party apps superfluous, though post-breakup Apple might have only one incentive: to make the iPhone and the iPad better products. In a hypothetical best-case scenario, the apps to get Sherlocked post-breakup would only be the ones that don't pass the test of "Is it a feature or a product?" That is, by the way, one of the questions venture investors ask themselves routinely when they evaluate opportunities. And it's the question that startup founders must ask themselves. In fact, before I embarked on my current project--which will be a productivity app--I spent weeks to really think this through, creating slide decks that were initially just for myself as I sought to get clarity on the question of whether what my app will do (and in an early implementation already is doing) would justify installing a separate app as opposed to a few features being added to existing apps that already have a large user base. And while I've answered the question, it makes me happy every time that I see and feel (when actually using the thing) how the underlying idea requires and justifies a stand-alone app. I never lose sight of the feature-or-product question.

The first example of this year's victims of Sherlocking in that TechCrunch article looks to me like something that was more of a feature than a product: an app named Camo already enabled the iPhone to serve as a webcam. That's a nice idea, but when you have a camera, it's not that hard to just utilize it for a webcam purpose. And Apple deserves credit for having announced a Camera Continuity API that will make it easy for all sorts of apps to integrate that feature--plus there's going to be a special mount as a result of a partnership between Apple and Belkin.

TechCrunch also explains why Camo is "not completely dead" as some uses cases remain, partly because Apple with its typical lock-in strategy doesn't support the use of the iPhone as a webcam for other desktop or laptop computers than a Mac. In fact, cross-platform availability and compatibility can sometimes make the difference between a feature and a product. So what Apple has only partially Sherlocked Camo. If the primary benefit that led many users download Camo was just what Apple now provides through the Camera Continuity API, then Camo may lose steam on iOS, but Apple's decision to provide Camera Continuity appears irreproachable, and its decision to provide the functionality to all apps is exactly the way it should be (otherwise there'd be a self-preferencing issue).

My angle here is really that of competition policy and enforcement, and TechCrunch also raises that point. But they're not saying there's a potential antitrust issue in each and every one of the examples they provide, and they may want that article to be a tale of caution for app developers who create features that don't justify standalone products.

The first major software patent damages case I remember was Stac v. Microsoft in the mid-1990s. It was the first of many similar achievements for Irell & Manella's Morgan Chu--who nowadays often represents clients against Apple, but also many other companies.

Stac had a patent on a hard-disk compression invention that promised to roughly double the effective storage capacity. It made a lot of sense for Microsoft to provide that feature, but it ultimately had to settle with the patent holder. It's hard to imagine that Camo could hold a valid patent on the idea of using an existing smartphone camera on a continuous basis, even more so post-Alice.

Many app developers despise software patents. But if you come up with a Camo-like idea that is more of a feature than a product, you really do want to talk to a patent attorney before you make anything public (or submit any app to Apple for TestFlight approval!) because only a patent (ideally, even more than one) will put you in a position to negotiate one final payment from Apple if your app gets Sherlocked. If all else fails, you can then talk to litigation funders--and maybe even to Morgan Chu. (To be fair, I could also think of other U.S. IP litigators, such as David Hecht, who's been successfully adverse to Apple on various occasions and likes the little guys.)

While Camo doesn't have me concerned unless I missed something, and Apple isn't actually creating another revenue stream through Camera Continuity, the very next example on TechCrunch's list does look like a potentially serious issue: Apple Pay Later. Just last month, the European Commission sent Apple a Statement of Objections (SO; a preliminary antitrust ruling) over certain practices regarding Apple Pay. The issue there is whether Apple limited access to standard technology for contactless payments (Near-Field Communication, NFC) to its own apps, disadvantaging other mobile wallets on iOS. That scope may even be too narrow, but they have to start someplace.

Apple's expansion into mobile payments--and now also with a pay-later service--will presumably continue to be debated, and the aforementioned SO is almost certainly not the last word. Apple Pay Later is of concern to the likes of Klarna.

The third example of WWDC 2022 Sherlocking that TechCrunch discusses is the Visual Lookup feature that lets users "pick up" an object from a photo or video and share it as a separate image (by removing the background). An app named had that capability. Unless that app developer has a patent and Apple's implementation infringes it, it's just another case of a feature that is not a sustainable product.

Medication Tracking (logging and reminders) looks like it's sooner or later going to raise concerns. Apps like MyTherapy and Pillbox already provided such functionality. Apple may not have incorporated inventory tracking yet, but likely will. The problem I see is that Apple will use the Power of Default and the fact that it doesn't depend on a revenue stream specific to that app, but it will then collect even more data about its users (so much for its privacy pretext) and may exploit all sorts of commercial opportunities, potentially competing with online pharmacies and companies like GoodRx.

Was it really necessary for Apple to provide medication tracking itself? I have my doubts. Competition between third-party apps would probably have been better for consumers, and ultimately those apps would either have been cheap to download (even cheaper if Apple's 30% app tax got eliminated) or, if ad-financed, competition would have forced app makers to ensure that users wouldn't be annoyed by ads.

Sleep tracking by WatchOS is also an eHealth feature, and that functionality may spell doom for third-party apps like Oura and Whoop. At first sight, it seems fundamentally less problematic than medication tracking, and it appears more reasonable to make it a standard feature.

TechCrunch also mentions Freeform, a new Apple app for collaboration on a digital whiteboard. According to TechCrunch, Figma's FigJam is just one of many apps that provide such functionality, of which it mentions GoodNotes and Explain Everything. This is an issue on which I don't know where I'd come down if I analyzed it in detail. It's not as clear to me as the Continuity Camera case on one end of the spectrum and Medication Tracking on the other. The truth may be somewhere in the middle.

TechCrunch's list of Sherlocked apps is presumably not exhaustive, and if you wish to draw my attention to other such problems (including past cases), feel free to use this blog's contact form.

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