Wednesday, August 3, 2022

FINALLY: U.S. injunction sought against Apple's App Tracking Transparency (ATT) scheme to harm others' ad business, and against app tax: antitrust complaint by large French publishers

This here is a FOSS Patents exclusive because no one else appears to have noticed the following:

Well-hidden in a new 90-page U.S. antitrust complaint against Apple (even 251 pages with the exhibits (PDF)), filed on Monday in the Northern District of California, is a challenge to one of the most devious and ruthless schemes Cupertino has ever devised: App Tracking Transparency (ATT).

This is precisely what Meta (Facebook) would love to do, but it hasn't gone to court (at least not yet) and is, instead, contenting itself with drawing public attention to the issue.

Under the pretext of "privacy," App Tracking scares iPhone and iPad users away from granting even the most innocuous apps permission to share with advertising networks non-sensitive information that has nothing to do with spying on users, but is simply necessary in order to avoid that the same user will see irrelevant ads--ad even the same irrelevant ads over and over again. As a result, ATT

The issue of Search Ads being an extension of Apple's app tax came up, but didn't take center stage, in last year's Epic Games v. Apple trial. Judge Yvonne Gonzalez Rogers, to whom the new complaint by those French publishers is likely to be assigned, made terrible mistakes. Yesterday I published a 33-page PDF that details 271 (yes, two-hundred seventy-one!) typos, punctuation errors, inconsistencies, and similar mistakes, which is embarrassing for the (otherwise world-class!) United States District Court for the Northern District of California. And I've previously shown that in the single most critical part of the decision (market definition), Judge YGR was wrong on the law, wrong on the economics, and wrong on the technology. But she did get some things right (as I also clarified in my previous post), and this includes the finding that Search Ads aren't necessarily a blessing for app developers:

Footnote 498:

"[...] Developers must pay for these search ads and competitors may use them to artificially drive traffic, which decreases overall app discoverability. [...] Thus, the search ads are, at best, a mixed blessing for poor overall matchmaking."

At first sight, Société du Figaro et al. v. Apple is just an extension of other U.S. class actions that app developers have previously brought against Apple in the Northern District of California over the 30% app tax. One might be led to think that the only difference is that previous cases--which merely led to a sham settlement the only major beneficiaries of which were Apple and both sides' lawyers--pursued claims on behalf of U.S.-based app developers, and the Figaro case is now seeking redress on behalf of French legal entities under U.S. federal and California state law because the App Store is a global operation.

The headline of the press release with which the Hagens Berman firm announced the new complaint mentions only "Apple's App Store Fees." The firm's name partner Steve Berman then says:

"Our firm is happy to see iOS developers from other countries seeking the same justice we were able to achieve for U.S. developers. We believe they too have been wrongfully subjected to the stifling policies of Apple’s App Store, and we intend to hold Apple to the law." (emphasis added)

The first-named plaintiff's famous newspaper Le Figaro published an article yesterday that says the damages and interests sought from Apple could exceed US$1 billion. And this group of plaintiffs is not going to be as easily persuaded to agree to a sham settlement: they aren't little guys, but powerful and deep-pocketed publishers.

The emphasis remains on the infamous app tax where Hagens Berman's press release describes the issues raised in the complaint: "France-based iOS developers [...] were subjected to Apple’s high commissions, fees and other policies." The term I just emphasized--"other policies"--does, however, include ATT. The prayers for relief include a request for "injunctive relief requiring that Apple cease the abusive, unlawful, and anticompetitive practices described [t]herein." And Apple's ATT program is addressed by paragraphs 187 et seq.:

b. Apple’s ATT program

187. Another situation that Apple has devised and then exploited for yet more profits is that involving recent implementation of its App Tracking Transparency (ATT) program. Ostensibly, this program is good for end-user consumers because it gives them more choice as to third-party tracking of personal data.

188. However, large and small iOS developers claim that it is implemented in such a way that they are unfairly robbed of their ability to monetize their work by fair use of consumer data for targeted advertising. These developers, which include plaintiffs Individual Developers, as well as associational plaintiff le GESTE, allege that Apple’s ATT program will mean less free-to-get apps; developers will forgo creating them, or will begin to charge fees for heretofore free-to-get apps, because they will be unable to make a living by means of advertising.

189. Moreover, they claim that Apple is advantaging itself by the way in which it presents consumers with the option to opt-out of certain third-party tracking, versus other means that would more fairly present the choice.179 They also claim that Apple advantages itself by offering a Personalized Ads architecture for its own apps that is not parallel to the way it presents the ATT opt-out choice; instead, as the U.K.’s CMA has written, it “employs a different choice architecture compared to the ATT prompt.”180 Thus, Apple, which already holds stores of first-party data, and whose advertising services can “use the Apple Ads Attribution API while third parties must use SKAdNetwork [which may be more limited and immature],” is and will be further advantaged vis-à-vis other entities that participate in digital marketing or product development. And so will other large gatekeepers such as Google, which itself holds enormous stores of first-party data gathered by way of its many properties.

190. By monopolizing the relevant market, Apple affords iOS developers who do not wish to participate in ATT, especially as implemented, nowhere to go. Again, Apple presents ATT as a take-it-or-leave-it proposition, if iOS developers wish to sell their iOS apps and in-app products. If there were competition, iOS developers such as Individual Plaintiffs could choose other distribution avenues, or they could more effectively press Apple to change some of its policies and practices around ATT. As to the latter—changing policies and practices—Apple might be persuaded to change the ways in which it presents the opt-out screen to consumers. Or it might be persuaded to allow developers to tell end-users in a fair manner, when the ATT opt-out screen is presented, that if they opt-in, they will receive remuneration or free or discounted digital products, for example. But instead, affected iOS developers are offered no real choices. On the other hand, in typical Apple fashion, it benefits from ATT monetarily. Apple’s App Store Search Ads, which iOS developers that can afford them buy in order to help to alleviate the discoverability issue, are reportedly up in volume sold and more expensive following the introduction of ATT. Because they are auction-based, the more developers that bid on them, the higher the prices go. And in fact there are more bidders, as iOS developers shift more of their own app-related advertising dollars to Apple, given ATT’s negative effect on the quality of certain other places where they might have advertised previously. Once again, iOS developers are squeezed, as Apple’s App Store-related profits increase yet again. Apple harms iOS developers—consumers of its iOS app-distribution and IAP services—by way of supracompetitive pricing and retail pricing mandates.

Given that the app developers here are actually publishers, ATT and its impact on advertising revenues as well as user acquisition costs is going to play a major role in this litigation. And so are subscriptions as opposed to an exclusive focus on one-off in-app purchasing (IAP) transactions.

There are three original plaintiff entities:

  • Société du Figaro, SAS (famous for the namesake newspaper),

  • L'Équipe 24/24 SAS, publisher of the namesake sports paper and related streaming app, and

  • le GESTE, an industry association of French publishers whose membership includes 140 online publishers, two of which are the previously named plaiintiffs. Le GESTE brings the class action on behalf of all of its members. But the class is open to opt-in by other French entities.

The issues in the case are obviously not limited to French publishers. There's no reason why, say, British or German publishers couldn't pursue the same types of claims. And with respect to in-app subscriptions and App Tracking, a victory by those French plaintiffs would immediately lead to additional cases being brought by U.S. plaintiffs. This is a scalable business for Hagens Berman and other firms active in that space, but that's OK as long as their next cases--unlike the case involving small U.S. app developers--truly bring about change.

Consumer class actions against Apple are pending in the United States, Australia, the United Kingdom, the Netherlands (where one of the two class actions invites all EU-based consumers to join, not just Dutch ones), and--most recently--Portugal. In my post on the Portuguese action you can find a structured list of those consumer cases.

But there's also a growing diversity of corporate class actions. The same firm that is representing the French publishers brought a case against Apple--over Apple Pay and restrictions on the access to the iPhone's NFC functionality--on behalf of credit card issuers last month.

Hagens Berman (in the U.S.) and Hausfeld (in a variety of jurisdictions) are presently the two most active firms pursuing class actions against Apple (with parallel cases often targeting Google, but Apple's conduct raises far more issues).

It's worth noting that there also is an effort underway in France. The equivalent of a preliminary injunction against ATT was denied last year, but that case is still ongoing. In the French case, various publishers are being represented by Fayrouze Masmi-Dazi, who also cooperates with Hagens Berman on the case in the Northern District of California.