Monday, October 31, 2022

Observations on Juve Patent's patent litigation firm rankings: why in-house counsel shouldn't base any decision on them

I've seen some LinkedIn posts by German patent litigators and patent attorneys in response to Juve Patent's recently published 2022 rankings of German patent litigators and patent attorneys. Even some who I'm sure didn't fully agree with the results were quick to express their gratitude. Given that those who are ranked have their reasons not to speak out, I just thought I'd share my observations.

Juve Patent is complementary to FOSS Patents, which is why I link to their articles from time to time. Their main topic is the legal services industry; and that's where most of their sources as well as their advertisers hail from. By contrast, while I hear things from industry sources, I primarily obtain my information from the courts, and from court documents.

The point I want to make here is that in-house counsel would be well advised to ignore those rankings in their decision-making (and I know some top-notch in-house litigators who indeed wouldn't base any decision on them).

Juve Patent's rankings of litigators (attorneys-at-law) and litigation-specialized patent attorneys are not broken up by industry, though the patent attorney firms listed in the "patent filing" category can be filtered by industry (automotive and transport; chemistry; digital communication and computer technology; energy and environmental technology; electronics; mechanics, process, and mechanical engineering; medical technology; pharma and biotechnology). That inconsistency makes no sense at all. Why would you seek out a firm with a specialization in, say, digital communications for your filing, but then--in litigation--choose firm based on its work on chemical patent infringement cases?

Even for the lawyers, an industry focus makes sense. Instead of recognizing those facts, Juve Patent's commentary on certain firms reads like their perfect firm would cover all industries. That turns a strength (focus) into a weakness. The best firm is not the one that tries to be all things to all people, but the one that does the best job for you as a client on a given case.

It's also imperative to distinguish between defensive and offensive skills. Many German patent litigators handle both defensive and offensive cases, but some specialize in only one of the two disciplines.

More broadly, Juve Patent often doesn't appear to make the distinction between "big" and "great." And they make it sound as if the future Unified Patent Court required firms to have a Europe-wide presence, though one could well argue the opposite: pre-UPC you might have had to run a multijurisdictional enforcement campaign, but if you're going to litigate in the UPC, all that matters is to find the right UPC Local Division (unless the case goes to a Central Division anyway) and the right firm that will win this particular case for you. You can then still decide what do do on appeal, but the appeal certainly won't be heard by a different Local Division.

Also, what's the point in choosing a Patent Law Firm of the Year as well as an IP Law Firm of the Year? Patent litigation is the most important part of IP litigation, and in my twelve years of in-depth coverage of major disputes, I've seen very few cases in which other IPRs were being asserted alongside patents: Apple v. Samsung and Oracle v. Google. The latter was U.S.-only case, and in the former, the diversity of asserted IPRs was far greater in California than in Germany, where it came down to utility patents and design patents. Also, in Germany the courts break up cases by patent, with design patents not being called patents but "taste patterns" and often being put before different judges anyway.

One important quality in patent litigation firms is extremely difficult to research: whether firms give their clients sound advice to settle where it is warranted, or raise false hopes. What is slightly less hard to find out about from industry sources is whether firms play a constructive role in settlement negotiations or just try to drag out litigation. I sometimes get information on that, but wouldn't write about it because the sources would be too easy to figure out.

Juve Patent makes its analysis of the work of different firms read a little bit like Chambers and similar reports. But Chambers is a lot more independent from any given firm than a website that needs those firms as sources of information and, as far as I can see, generates all of its revenues from them, too.

It's interesting that Juve Patent limits its criticism of firms to purely quantitative aspects: partner-to-associate ratios, headcount, number of offices. But various of the firms you find in that ranking have suffered terrible defeats in court or lost major clients lately, including two of the five in Juve Patent's first tier. Do they talk about that? No, obviously not. Those are their advertisers, and their sources.

Such glaring deficiencies and some obvious implausibilities, along with the lack of differentation in the two litigation-related categories, reduce to absurdity their explanations of their methodology such as JUVE Patent rankings explained, JUVE Patent Research Criteria, or videos taken in front of courthouses (I've only very rarely seen Juve Patent reporters at hearings or trials).

What I see is that firms are sometimes ranked below, or even far below, some they clearly outperformed and defeated, or from whom they have enticed away some important clients.

One important change from last year's rankings: Wildanger got promoted from tier 2 to tier 1 (though both are five-star tiers anyway). That was overdue because their results in recent years have been spectacular, so this was overdue.

I can see why Bird & Bird and Hoyng ROKH Monegier are still in the first tier.

Hogan Lovells is not only listed in the first tier but was even named the IP Firm of the Year. It is undoubtedly a large firm and they have some very good lawyers, but a couple of facts are important to consider and not taken into consideration by Juve Patent:

  • Apple is a choosy and demanding client, but Hogan Lovells is not Apple's first choice: Freshfields is. But Freshfields has represented Ericsson (such as when Ericsson intervened in an Unwired Planet v. Huawei case in Dusseldorf), and was therefore conflicted. It is a mystery for many reasons why Freshfields is listed only in tier 2.

  • Hogan is on the losing track against Ericsson (represented by Kather Augenstein) in two Munich cases (1, 2). Kather Augenstein is Ericsson's first choice (they represented them against Samsung as well as now Apple), which is an extremely sophisticated client, and the work I've seen from them on Ericsson v. Apple so far is really impressive--far too good to be listed only in tier 3. While OPPO is now giving Nokia a harder time, I would be very hesitant to name Hogan the IP firm of the year when one of its key clients, OPPO, had to exit the German market after four injunctions in a row (though in practice OPPO phones are still everywhere in Germany, even in retail stores).

Why is Quinn Emanuel still listed in tier 1? What Juve Patent writes about the firm doesn't really support that decision. They even acknowledge that QE hasn't recently had too many high-profile cases in Germany. As Juve Patent notes, Google is a major client, though its Niantic joint venture with Nintendo (known for Pokémon GO) lost an important case in Munich and, as Judge Zigann explained at the end of the trial, will be enjoined if the plaintiff so requests. Juve Patent doesn't specify any example of an important recent achievement by QE Germany. I think QE could deliver better results if they departed from their policy of not bringing patent attorneys to hearings and trials.

When Arnold Ruess--representing Nokia--squared off with QE--representing Daimler--it's not just that they won a couple of injunctions (Daimler--with QE--also lost one case each to Sharp and Conversant) and were likely to win a few more if the litigation hadn't been settled. It's also that Arnold Ruess shaped FRAND case law, and in connection with the Daimler dispute "invented" the first German anti-antisuit injunction (at minimum, the first in a SEP case). I can't see how anyone could rank Arnold Ruess, with its growing client base in the mobile communications space but also beyond, below QE at this point.

I could give more examples, but I just wanted to highlight enough shortcomings that in-house litigators know why it's best to rely on other forms of research and on their own judgment as they work with litigators and patent attorneys on a daily basis. Don't attach any importance to those Juve Patent rankings and awards, or those firm profiles that remain silent about certain major losses and failures.

Saturday, October 29, 2022

Banks amend Apple Pay antitrust complaint with elaborate single-brand market definition and French publishers should consider amending their U.S. complaint over App Tracking Transparency

This post discusses two different App Store antitrust class actions pending in the Northern District of California (before different judges) and Apple's related motions to dismiss. I'll start with the Affinity v. Apple case over Apple Pay and access to the NFC chip, but if you wish to skip right to the French publishers' U.S. antitrust action, just click here.

Affinity Credit Union v. Apple: amended complaint contains detailed single-brand market pleadings; Apple withdraws motion to dismiss for now

In mid-July, the class action law firm of Hagens Berman filed a complaint against Apple on behalf of credit card issuers. In October, Apple moved for dismissal, arguing that Apple Pay competes with plenty of other payment methods. A near-simultaneous request by Apple to stay discovery was initially opposed by the class action lawyers, and that opposition brief gave us an idea as to how they would seek to defend their complaint. However, shortly thereafter they announced their intent to amend the complaint, which was possible until yesterday (Friday). And indeed they filed the amended complaint on that day:

Affinity Credit Union, GreenState Credit Union, and Consumers Co-Op Credit Union v. Apple: Amended Class Action Complaint for Violation of the Sherman Act and Clayton Act

The key difference is that the amended complaint pleads facts and contains legal argument related to the banks' single-brand market definition of Tap-and-Pay iOS Mobile Wallets. Market definition is also the part of Epic Games v. Apple that I'm most interested in. It contains of a foremarket and a dissociated aftermarket (Kodak/Newcal precedent). Epic clearly has better arguments than Apple on both.

The original Affinity complaint did not mention the word "foremarket" at all, and "aftermarket" only once (and only in parentheses). The amended one mentions "foremarket" (though they often use the plural--"foremarkets"--which I struggle with) and "aftermarket" several dozen times.

Shortly after the amended complaint was filed, Apple withdrew its motion to dismiss for the time being. I expect them to file a renewed one, but the amended complaint is definitely more defensible.

The Apple Pay case, which is very much about Apple restricting other payment app's access to the iPhone's NFC chip, has a lot of merit. Some of the legal hurdles are higher, however, than the ones Epic is facing (and last year's district court judgment in Epic's case shows it's the opposite of a cakewalk).

Société du Figaro, SAS et al. v. Apple: Apple moves for dismissal

On August 1, the same class action law firm (Hagens Berman)--in cooperation with French antitrust lawyer Fayrouze Masmi-Dazi--filed a complaint against Apple on behalf of major French publishers such as the company that publishes Le Figaro, probably the most famous French newspaper. What I found particularly interesting about it is now also a key target of Apple's motion to dismiss: the complaint seeks an injunction against, inter alia, Apple's App Tracking Transparency (ATT) rules. The fallout from ATT even raises macroeconomic concerns.

Here's Apple's motion to dismiss:

Defendant Apple Inc.'s Motion to Dismiss

It's a motion of the "throw in the kitchen sink" or "leave no stone unturned" kind. Parts of it are unpersuasive. For instance, Apple argues that there is no case over communications restrictions because Apple allows developers (under a recent class action settlement involving the same lawyers) to "send communications outside of the app to their user base about purchasing methods other than in-app purchase." But there still are restrictions for what developers can tell users within an app.

Apple tries to portray this case as--without using that originally French word--encore of the developer class action that the same firm settled with Apple. I do believe that the cases are distinguishable, however, and in particular, ATT was not at issue in that earlier case.

The part that argues the case should be dismissed under the Foreign Trade Antitrust Improvements Act (FTAIA) was expected. It is, at first sight, a bit counterintuitive that French publishers would sue in California. The complaint already anticipated that challenge and addresses any FTAIA questions.

The part that I am most interested in is, as I mentioned before, ATT. Apple argues that the plaintiffs don't have standing, and that is a hurdle I believe the class action lawyers can overcome, but some other points made by Apple are at least somewhat valid. The complaint could state the alleged harm more clearly, and Apple is right that there should be "the definition and analysis of [ATT's] alleged effects in an advertising market, but [the plaintiffs] allege no relevant advertising market."

The ATT part is really important, and it would be wonderful if the class action lawyers could amend their complaint accordingly (as they did in the Apple Pay/NFC case I discussed further above).

Epic Games, Match Group reinforce request to challenge Google's 'Project Hug' agreements with game makers like Activision Blizzard King as per se antitrust violations

Three weeks ago, Epic Games and Match Group (the operator of Tinder and other dating services) put forward amended complaints that allege a per se antitrust violation consisting in Google's agreements under which it paid hundreds of millions of dollars to game makers like Activision Blizzard King in order to ensure their loyalty to the Google Play Store. In that case, the legal analysis would be streamlined: Google couldn't proffer procompetitive justifications, and the court wouldn't have to engage in a rule-of-reason balancing.

A week later, Google opposed the motion to amend Epic's and Match's complaints. A few hours ago, Epic and Match responded to Google's opposition:

Epic Games, Inc.'s and Match Group, LLC et al.'s Reply in Support of Motion to Amend Complaints

The dispute over the motion to amend the complaints has three parts:

  1. Google claims to be prejudiced because it didn't know during discovery that it would later have to defend against an allegation of a per se violation. "Project Hug" was already addressed in Epic's first amended complaint last year, but not as a per se violation. Now, Epic and Match argue that there cannot be prejudice given that "the per se claims are even simpler, requiring less factual development than a rule of reason claim."

    I can see two potential issues. First, Google may argue that the questions on which a per se claim turns are not a true subset of those of a rule-of-reason claim. Second, even if they were, Google had time limits during those depositions and might have set different priorities.

    While I think Epic and Match should be allowed to amend their complaints, I've said before that maybe some limited additional discovery should be granted to Google.

  2. As for the delay that Google alleged, Epic and Match want to refocus the discussion: their proposed amended complaints "were filed over eight months before trial, leaving ample time and opportunity for Google to defend against them." Also, "Match just entered the case in May and did not gain access to Google’s materials until almost two months later." Google may still have an argument that Epic could have brought the amendment sooner, but normally such amendments are allowed and "[d]elay alone is not a sufficient basis to deny" such a motion. It just takes a showing of "good cause"--which is a bit of a hurdle, but not a sky-high one.

  3. Epic and Match reject Google's assertion that the per se claims are futile. They say that there are factual issues involved that need to go to trial, and given that a motion to dismiss would be premature, an opposition to a motion to amend the complaints can't succeed either.

Unless Judge James Donato reschedules the hearing or decides to just take the matter under submission (i.e., if he rules without a hearing), there will be a motion hearing in San Francisco on November 17.

While it's not likely to be outcome-determinative, I agree with footnote 7, which explains why it's "off the point" to compare "Project Hug" to Epic's exclusivity agreements for certain game titles to be offered (for certain periods) only by the Epic Games Store. The Epic Games Store runs on platforms where there are no limits on game distribution. The question on those platforms (such as Windows) is not whether game developers set up their own store or promote "sideloading" (direct downloads).

Finally, Epic and Match respond to Apple's "vertical" argument (that game makers provide an input to the Google Play Store as opposed to being horizontal competitors) with what I expected. In my commentary on Google's opposition brief I noted that it doesn't matter whether a (potential) horizontal competitor also has a vertical relationship with the defendant. Epic and Match give the following example: "[I]t would be just as unlawful for Intel to agree with a competing chip supplier like AMD not to compete in the supply of a certain type of chip as it would be for Intel to agree with a customer like Dell or Acer not to compete in the supply of that chip."

Telegram removes paid posts on iOS and raises the important issue of Apple's app tax stifling the creator economy--though other major platforms such as TikTok may be affected to an even greater extent

In a little over a fortnight--on November 14--the Fortnite antitrust case, Epic Games v. Apple, will be heard by the United States Court of Appeals for the Ninth Circuit. Apple would like people to look at it as a dispute over whether Epic or Apple makes an extra hundred million dollars. Not only is Apple itself making it sound like that, but Apple's astroturfers--falsely claiming to represent the interests of small developers while actually just being their master's voice-- attacked Epic Games CEO Tim Sweeney on Twitter as a greedy billionaire who just wants to make more money.

That's the wrong angle. It's weak (and un-American) to appeal to envy.

Even I may not have agreed with every single one of Epic's positions throughout these more than two years of litigation, but that changes nothing about the fact that Epic's case is fundamentally in the interest of small app developers and--by extension--individual content creators.

Another billionaire (see Wikipedia's article on Telegram fonder Pavel Durov) already spoke out against the app tax a couple of weeks before the Fortnite hotfix that gave rise to Epic's lawsuit in the summer of 2020. Yesterday, Mr. Durov had to make an unfortunate announcement: Apple used its monopoly power to force Telegram "to disable [previously available] paid posts on iOS devices." The way it worked was that some content creators "us[ed] third-party payment bots to sell access to individual posts in their Telegram channels. This way, content creators could receive close to 100% of whatever their subscribers paid, which was great." By "close to 100%" Mr. Durov obviously means that the only cost they incurred was that of a payment service like stripe (roughly 3%).

Telegram's CEO then calls on "regulators in the EU, India and elsewhere [to] start taking action before Apple destroys more dreams and crushes more entrepreneurs with a tax that is higher than any government-levied VAT." I agree with the part about Apple destroying dreams and crushing entrepreneurs. In the EU, our best shot again would be a complaint that Epic Games brought last year. In India, Apple's market share is ridiculously small, but the Competition Commission of India has--in the aggregate of two decisions in short succession--imposed a comprehensive set of remedies on Google.

Will regulators take note of Telegram's cry for help? On the controversiality scale, Telegram is nowhere near Donald Trump's Truth Social or Parler, and right now politicians and advertisers are watching with anxiety what will happen on and to Twitter after Elon Musk acquired it. The role that Telegram plays in the Ukraine context has actually helped its reputation among Western governments.

In any event, it's important to focus on the merits of the message rather than the messenger. We can all be grateful to Mr. Durov for raising this important issue that others should have raised before.

Telegram's paid posts are only a thin slice of the wider creator economy. Every dollar that Apple siphons off of platforms also reduces the payout to developers, even disproportionately so--and results in higher prices that reduce demand.

For content creators, platforms like TikTok, Snapchat, Facebook, and YouTube are arguably much more important. Apple's terms and policies harm creators in two ways:

Facebook is a company that has repeatedly criticized Apple, most recently in connection with Apple applying the app tax to "boosts" of social media posts.

Snapchat sucked up to Apple toward the end of the Epic v. Apple trial last year by defending the app tax, but ATT has really hurt it in the meantime.

TikTok is clearly a service that could pay out much more to creators if not for Apple's monopoly abuse. But at this point TikTok has a bigger problem to solve: for geopolitical reasons, some politicians would like to force it out of the U.S. market (which already happened in India two years ago), and now some are even arguing that American companies like Meta lose ground in their domestic market because of a "Chinese" competitor while China doesn't allow certain American social networks in its own country. At this stage, Bytedance (the company operating TikTok) has an even more fundamental problem in the U.S. than the app tax and ATT, but even if they don't say a word, anyone can easily see that countless content creators would do better if measures were taken against the excessive app tax and against the abusive aspects of ATT.

Having said that, the way to read Telegram's statement is to think of all those content creators not only on that particular messaging service but also on platforms like TikTok, YouTube, Facebook, or Snapchat.

This increasingly includes Epic. It acquired music platform Bandcamp--which wrought (temporary) concessions from Google--and its vision for the Metaverse very much involves payouts to content creators.

Friday, October 28, 2022

UK appeals court: Apple's conduct "could well be argued to constitute a form of hold[-]out" in Optis Wireless standard-essential patent licensing dispute

Yesterday the Court of Appeal in London rendered a judgment in an Optis v. Apple case. Apple was appealing the lower court's determination that Optis will be entitled to an injunction if Optis prevails on the merits of at least one patent (such as this one) and Apple still refuses to take a license "on such terms as are subsequently determined by the court to be FRAND."

The appellate opinion was authored by Lord Justice Richard Arnold, and Apple would be hard-pressed to find a more balanced (or more experienced) patent judge in the UK. And indeed, Lord Justice Arnold held that "[e]ach side has adopted its position in an attempt to game the system in its favour" and generally criticizes what he considers "the dysfunctional state of the current system for determining SEP/FRAND disputes."

But the part about Optis is irrelevant at this point: Optis wanted an unconditiional injunction based on the argument that Apple had been a clearly unwilling licensee, and it's not going to get it, but that doesn't impair Optis's ability to enforce its patents--it was just a failed attempt to take a shortcut.

In the end, Lord Justice Arnold--with the support of the other two panel members, Lady Justice Sarah Asplin and Lady Justice Elisabeth Laing--dismissed Apple's appeal, and this one sentence hurts Apple in more than one way:

"Apple's behaviour in declining to commit to take a Court-Determined Licence once they had been found to infringe EP744, and their pursuit of their appeal, could well be argued to constitute a form of hold out (whether Apple have in fact been guilty of hold out is an issue for Trial E)."

The FRAND trial in the High Court (for the purposes of this dispute, it's the court below) has already taken place. I heard that this blog was referenced by both sides on various occasions, but don't know the details. A judgment is in the works, and yesterday's appellate decision has paved the way for the conditional injunction that Optis is seeking.

As I wrote on the occasion of the lower court's FRAND trial, Apple is unlikely to benefit from exhausting all appeals in this dispute. I have no reason at this point to change mind on that.

While each dispute has its own fact pattern, the fact that the appeals court is--at minimum--unconvinced of Apple's willingness to take a license on FRAND terms is not really the news that the iPhone maker wants when it has multiple FRAND trials coming up between now and the end of the year:

  • November 8: the first Ericsson v. Apple SEP infringement trial (which will--if Ericsson prevails on the technical merits--entail an adjudication of Apple's FRAND defense) in Mannheim (Presiding Judge: Dr. Holger Kircher);

  • December 5: the Ericsson v. Apple FRAND contract trial (no patent infringement questions in that case) in the Eastern District of Texas (that case is now at the summary judgment stage) (Presiding Judge: the Chief Judge of the United States District Court for the Eastern District of Texas, Rodney Gilstrap); and

  • on December 21, an Ericsson v. Apple FRAND hearing before the Munich I Regional Court's 21st Civil Chamber (Presiding Judge: Dr. Georg Werner); a first infringement hearing in a related case took place last month, and the court subsequently denied a motion to dismiss that Apple had brought

Apple's license deal with InterDigital avoided another dispute, but as a relatively small publicly-traded licensing firm that has no product revenues, it would have been a tough choice for InterDigital to litigate against Apple, potentially not receiving for some time Apple's royalty payments, which account for about a quarter of InterDigital's revenues. Optis is privately held, which gives it some flexibility, and Ericsson is not dependent on Apple's license fees as it has an infrastructure product business.

InterDigital is embroiled in litigation with Lenovo, and the InterDigital v. Lenovo trial (involving some of the same UK lawyers) took place even a few months before the Optis v. Apple FRAND trial, but a decision has yet to come down. I wonder whether the judge will at least try to get that one done before the end of the year.

It's a "bad press" kind of week for Apple. It had to stop showing gambling ads on children's app pages and in situations where people were searching for therapy of their gambling addiction, and now it's been deemed an arguably unwilling licensee of standard-essential patents...

Huawei enforcing WiFi (partly WiFi 6) patents against Netgear and its German competitor AVM in Dusseldorf and Munich

A few days after a media report revealed patent infringement litigation by Huawei against Amazon (presumptively over Amazon's WiFi devices Kindle and Echo), I haven't been able to find out more about that dispute, but as a side effect of my research efforts, two German courts have officially confirmed the pendency of patent infringement actions brought by Huawei against other parties: WiFi router makers Netgear and AVM. The latter is more of a local player, but according to Wikipedia, AVM's FRITZ!Box has a 68% market share in Germany.

This is the information I've obtained from the courts:

  • Dusseldorf Regional Court:

    There are Huawei v. Netgear cases with case numbers 4c O 8/22 and 4c O 9/22, both of which will go to trial on March 21, 2023 (Presiding Judge: Sabine Klepsch). The patents-in-suit are EP3337077 on a "wireless local area network information transmission method and apparatus" and EP3143741 on a "method and transmitter for orthogonal frequency division multiple access (ofdma) resource allocation." At least one of them appears to read specifically on WiFi 6.

  • Munich I Regional Court:

I'm surprised that companies like Amazon, AVM, and Netgear--all of which have been making WiFi products for a long time--aren't licensed to what according to certain statistics is the largest and most valuable WiFi 6 patent portfolio. Huawei is a large-scale WiFi implementer at the same time, which makes it hard to imagine that its license fees would be excessive.

In the German patent infringement cases, the recent update to WiFi standard-setting organization IEEE's FRAND policy is not going to play a role. The applicable caselaw there is Sisvel v. Haier, which means Netgear and AVM are doomed to lose. Netgear and AVM realistically have no prayer with their FRAND defense and will almost certainly be deemed unwilling licensees. German courts attach no importance to the specific content of a FRAND declaration as it's all about a defendant's entitlement to a compulsory license under antitrust law. In any event, Huawei is one of the numerous major WiFi 6 contributors I listed earlier this year as companies that declined to provide Letters of Assurance under the IEEE's previous, exceedingly implementer-friendly patent policy.

Thursday, October 27, 2022

Google confirms EU and UK antitrust investigations of Google Play Store business practices in Alphabet shareholder report and will appeal recent Google Android ruling by EU General Court

Foo Yun Chee, Reuters' Brussels-based EU antitrust expert,

  1. just reported that a Google spokesperson told her about the company's firm intent to appeal to the European Court of Justice (ECJ) the recent judgment by the EU General Court (EUGC; the lower division of the Court of Justice of the EU (CJEU)), which for the largest part affirmed the European Commission's Google Android decision, and

  2. in the same article quoted from a shareholder report by Google parent Alphabet that contains an official confirmation of formal EU and UK antitrust investigations into the company's Google Play Store practices.

As for the first part, the deadline is December 1, 2022. The pleas will be published by the CJEU in due course. At this point, Google can raise only questions of law. To the extent that the EUGC affirmed the Commission's factual determinations, they are now final for the purposes of that case. The most important finding from my perspective as an app developer was that the Google Play Store and Apple's App Store don't really compete because users rarely switch.

The second part--an ongoing Google Play Store antitrust investigation by the EC's Directorate-General for Competition (DG COMP)--is not entirely surprising because Politico already reported in early August on questionnaires that the Commission had sent out to stakeholders. I commented on that revelation at the time. What we know now is that this is not just a preliminary investigation but a full-blown one--and that something similar is going on in the UK. On page 28 of the quarterly report Alphabet filed two days ago, one can find the following information:

"In May 2022, the EC and the [Competition & Markets Authority (CMA) of the United Kingdom] each opened a formal investigation into Google Play’s business practices."

The next sentence suggests to me that a Korea Communications Commission investigation into Google Play Billing, which became known in August, also started in May:

"Korean regulators are investigating Google Play's billing practices, most recently opening a formal review in May 2022 of Google's compliance with the new app store billing regulations."

The shareholder report states Google's position that "these complaints are without merit." While vowing to "defend [themselves] vigorously," they say they "continue to cooperate with federal and state regulators in the U.S., the EC, and other regulators around the world." They could obviously be--and other defendants to antitrust investigations have indeed been--more cooperative, but Google may be willing to go just a little bit further than Apple when it comes to addressing regulatory concerns.

For example, The Protocol's Janko Roettgers today reported that Amazon announced the release of two TV sets running Amazon's Fire TV software in Europe this fall, and attributes this, potentially, to regulatory pressure as a ruling by the Competition Commission of India (CCI) discussed how Google prevented Amazon's Fire OS (operating system) from succeeding in the marketplace, particularly by precluding device makers from making fully Android-licensed devices and products running "forks" (Android derivatives) at the same time. This week the CCI followed up with a second ruling that focused on app developers' rights on the Google Play Store, and once again included some interesting quotes from Amazon's answers to the CCI's questions.

The first Indian antitrust decision (which came down about a week ago) already ordered remedies designed to protect OEMs (device makers), end users, and app developers; the second one, which followed this week, is specifically about app developer concerns. Similarly, but with more time in between, there are now two Android cases in the EU as well, with the first one focusing on the terms Google imposes on OEMs and the new investigation apparently (given that it's about the Google Play Store) addressing the issues facing app developers who are dependent on Google's Android app store.

In retrospect it is now even clearer why Google announced some new European in-app payment rules in August. The official reason was a plan to comply with the Digital Markets Act (DMA), but that one won't really require Google to change much until early 2024. In actuality, it was about that ongoing DG COMP investigation, but as I explained in the post I just linked to, that announcement by Google doesn't really solve any problem.

The Google Play Store is at issue in various jurisdictions. In the United States, 36 U.S. states, Epic Games, Match Group, and some consumer plaintiffs are suing Google over its Google Play terms and practices. Google is currently opposing an amendment to Epic Games' and Match Group's complaints that would add an allegation of a per se antitrust violation (in EU terminology that would be called "restriction of competition by object").

Clarification: Apple's ads on app pages are only a sword, never a shield (unlike Google Ads) -- which doesn't mitigate the impact on app developers

The following tweet of mine has been quoted in media reports (after MacRumors picked up the key information (the start date of Apple's ads on app pages), dozens of other media did):

The only thing I wish to clarify for accuracy's sake is that app developers can't even buy ads on their own app pages for defensive purposes the way many brands do on Google. That doesn't make it any better, but it is something I wanted to explain.

The following screenshot shows how it works on Google (click on the image to enlarge); in the example, I just searched for "salesforce":

In that screenshot you can see two blue links to the same landing page ( the one at the top is labeled as an ad, and the one further below is an organic search result. If one clicks on the one at the top, Google charges Salesforce for the click, but not if one clicks on the organic search result further below. The positions in the screenshot are correct; I just deleted some of the advertising part to have space for my red arrows and labels. If Salesforce didn't purchase ads when people enter that keyword, any one of its competitors (Gartner lists companies like Microsoft, Oracle, SAP, SguarCRM, zoho, Sage, Zendesk, and Hubspot) might place an ad there instead, and steer customers who are actually looking for Salesforce away from that product.

In the particular case of Salesforce, it's not impossible--though rather unlikely--that someone enters that search term based on its ordinary meaning (a team of salespersons). For brands that have no plain meaning, it's impossible. But the companies owning such brands often feel they have to pay Google. Trademark infringement lawsuits against Google selling ads for trademarked search terms went nowhere. There is some awareness among competition regulators, especially as Google made it harder over the course of many years to distinguish paid ads from organic search results and gradually increased the number of ads that appear above the first organic result. Presumably in response to those concerns, Google is now changing its "Ads" tage to "Sponsored."

A similar problem (if not worse) plagues Amazon search results. Even if you search for a very specific product, it's possible that you can't find it easily because Amazon will display all sorts of "sponsored" results first that are not what you really want--or maybe they are what you want, and then the advertiser has to pay only because you click on something you were specifically searching for at any rate.

While search results pages on the App Store work very much like Google or Amazon, ads on product (i.e., app) pages are a different story. In that case, you already are on the landing page; if an ad was displayed that takes you there, you'd be going in circles.

Theoretically, Apple could sell you a "neutralizer" option to keep your product page ad-free, but they're not doing that. If they did it, it would make it even clearer that ads on app pages are just a de facto increase of the effective app tax rate--which is precisely what I wrote in the tweet I'm referring to.

In the anti-steering context (the injunction Epic Games won against Apple last year was an anti-anti-steering injunction), Apple always suggests that if app developers could point users to alternative payment options, it would be as unacceptable as if competing resellers could promote their stores in an official Apple Store and steer customers away. But that is just what Apple's ads on app pages are all about, except that Apple makes money that way. Those app pages should be controlled by app makers--not that they could do anything they want on that page, but at least that no one else can do anything there--without their consent--that harms them.

There's a lot of outrage over those ads (as well as Apple's new NFT rules), and Apple has "paused" gambling ads, which means to me that those either won't come back ever again or (more likely) if they do, they'll be shown only within the gambling category. Whether gambling apps or loot box games get promoted, ads on product pages are a bad thing, given that developers have no alternative iOS app stores to choose from.

App discovery is a key cost factor. Making user acquisition (UA) more expensive for developers is effectively an incremental app tax.

Imagine a scenario in which you've already paid for an advertisement--say, on Google--to direct users to your app page. Ad networks will typically charge you when users click through and visit your page, and conversion is then your problem. The ad networks will try to help you measure the success of your campaign, which Apple also complicates in various ways. So when you get that click (and have typically paid for it), you're just one step away from what you really want users to do: to actually install your app and to keep using it. Now Apple will generate incremental revenues by letting your competitors "steal" those customers. Epic Games CEO Tim Sweeney described the problem of how this relates to the app tax, which was already effectively increased by Apple Search Ads:

What can you as an app developer do if a competitor promotes its competing apps on your page?

As I explained, there is no way to shield you from this--not even if you were willing to pay.

Those ads on product pages are just a sword, not a shield. All you can do to "retaliate" is to also place ads in your category, some of which will appear on that particular competitor's app page.

The primary beneficiary from that type of escalation is, of course, Apple. Also, deep-pocketed app makers can raise smaller rivals' costs--and slow their growth.

The only solution is for antitrust enforcement and legislative measures to bring Apple's ever more abusive conduct to an end. Alternative app stores would help more than anything else, provided that they get traction, for which they have to overcome the Power of Default.

I'm not criticizing anyone for saying that app developers pay "up to 30%" to Apple, but it hasn't been a precise number in a long time. The ads that Apple sells to developers are another tax. If you pay federal taxes, state taxes, and local taxes, you also have to add up all taxes to arrive at your effective tax load. While we're on the subject of taxes, Apple also plays some games to app developers' detriment in that regard: by letting app developers pay certain taxes that they wouldn't be subjected to if they could transact directly with end users. As I showed last year, the effective App Store commission was raised in certain markets to up to 35.25% in September 2020; and in Korea, there is an antitrust investigation underway because Korean app developers argue they effectively pay Apple 33%, not 30% (or 16.5% instead of 15% if they are eligible for the small business program).

With App Tracking Transparency, Apple wreaked havoc on other advertising networks on iOS. Even YouTube appears to be impacted as Mobile Dev Memo (Eric Seufert) plausibly argues. Now Apple offers a "solution" to the problem it created in the first place, and it comes down to an incremental app tax. App developers are always the ones to get squeezed--until we can reach iOS users without being dependent on Apple's App Store.

Apple has recognized one error: gambling ads on app pages have been paused--but they didn't do this for app developers, which is key to consider under the Supreme Court's Kodak caselaw

MacRumors has updated its Tuesday article on all the outrage over ads appearing on app pages with the following final paragraph:

In a statement, Apple said it has "paused ads related to gambling and a few other categories on App Store product pages."

That is only one aspect--of only one part--of various policy changes that sparked massive outrage this week. Shockingly, gambling ads even appeared on children's app pages--and what's possibly even worse, gambling ads were shown when people were searching for therapy on the same subject:

Epic Games CEO Tim Sweeney criticized not only Apple's promotion of gambling apps but also of "pay-to-win games with loot boxes":

For those who are not familiar with the topic of loot boxes, they are virtual treasure chests in games, and there's a right way and a wrong way to do them. There's nothing wrong with people finding--or winning, such as by defeating another player in a duel--digital gifts in games that they don't have to pay for. And even paying for them is OK if you at least know what to expect. What is highly controversial and has also drawn regulatory attention in various jurisdictions, however, is when those loot boxes become like an in-game lottery: gamers don't know what's in those boxes and are asked to pay to open them. Games raise hopes that super valuable items are to be found, but often you just get a consolation prize. What's a related problem is when games have rigged wheels of fortune where it looks like each item has an equal chance of being drawn, but one just has to play the game for some time to realize that the most valuable items are hard to come by. Some games charge for using such a wheel of fortune, and may even charge an exponentially increasing amount for each turn.

While Apple says the gambling (casino app) problem has been addressed, I assume the in-game equivalent of a casino called loot boxes, and related issues such as rigged wheels of fortune, are issues that persist. That's because you can't ban those based on categories: the category is games (or a game genre). Apple's app review theoretically could identify such issues, but then they'd have to play certain games for hundreds of hours, and they only have a few minutes of manual review time per app submission--with the focus being on the enforcement of their rules, above all: the app tax.

The solution would be competition among app stores, but before I get there, let me show you a really humorous tweet that shows some iOS 17 (the version after the one Apple just released) mock screens that promote other products under the You Might Also Like headline (below which Apple is now showing ads on individual app pages):

Unfortunately, Apple's recognition of its error with respect to gambling ads (and some other--unspecified--categories) cannot be described as a victory for app developers.

That relates to the single most important question--market definition--in Epic Games v. Apple, the App Store antitrust case that the United States Court of Appeals for the Ninth Circuit will hear in 2 1/2 weeks.

I discussed Epic v. Apple market definition in detail in previous posts, most recently this one on the parties' aftermarket arguments. A short explanation of the relevant legal concept is this: normally a market is characterized by two or more companies competing, such as "smartphones" (Apple, Samsung, Google Pixel, and so forth). But under exceptional circumstances (the key precedent is the Supreme Court's Eastman Kodak decision), the relevant antitrust market may be a single-brand market. In order for that to be the case, there has to be a competitive foremarket (here: smartphone operating systems--iOS competing with Android) and a derivative aftermarket (here: iOS app distribution) that is dissociated from the foremarket in the sense that a company can do in the aftermarket what only a monopolist can do without losing market share in the foremarket.

This does not mean that they can do anything. Even a monopolist can't do "just anything." But a monopolist can do a whole lot of things without giving a damn that a company in a competitive market wouldn't even dare to think of.

It was remarkable how Judge Yvonne Gonzalez Rogers--which is separate from whatever she got wrong in her subsequent decision--quizzed Tim Cook on the last day of testimony at the Epic v. Apple trial. She got him to concede that Apple's reduced 15% (instead of 30%) app tax rate was not the result of competitive constraints. Mr. Cook even admitted that antitrust considerations played a role, and he then added that they wanted to help small companies. The latter is even less credible now that we can see some of the devastating effects of App Tracking Transparency (ATT) on not only the Metas and Snapchats of the world but also on the little guys. In any event, the key thing is that litigation/regulation is not a substitute for competition, which Judge YGR also noted (she said that if that was the solution, it would invite ever more litigation).

The most interesting part of that examination was, however, that Mr. Cook said he never received reports on developer satisfaction with the App Store. That proves the aftermarket (iOS app distribution) is dissociated from the foremarket: developers are just serfs without property rights as someone wrote on Twitter a few days ago. A feudalistic ruler doesn't have to worry about serfs' satisfaction unless so many of the serfs stop working that the system collapses. There is, however, too much money to be made on iOS for that to happen: one billion of the world's richest people.

What has likely led Apple to backtrack on gambling ads?

It's a really safe assumption that Apple didn't care about developers' criticism per se. It's just that developers raised an issue that also concerned end users--and Apple has to compete for them in the foremarket or they'll buy Android phones. (Google obviously has a lot more experience with advertising and wouldn't make a beginner's mistake like letting gambling app makers place their ads in other categories.)

Some of what Apple does hurts developers and users, but the latter won't find out, especially since the former aren't allowed to tell them in the app (such as the impact of the app tax on prices, or restrictions such as that NFT apps can't offer transactions at arbitrary prices as Apple imposes its "price tiers"). Those ads, however, were also visible to end users.

In the end, it was all about the impact of bad press on the foremarket. No developer credibly threatened to stop making iOS apps.

Presumably, Apple was also thinking of implications in politics and in litigation. Showing gambling ads on children's app pages is bad idea when you're taking paternalistic positions in the political debate, arguing that only Apple can protect users from the evils of this world.

On Twitter I wrote that "Apple should think about the evidence with which its execs will be confronted in future App Store trials." It's a credibility problem, and while Epic v. Apple is all about injunctive relief, there are damages claims pending from others (particularly consumer class actions) and there will be more, meaning that some cases will be put before juries where psychological considerations are even more important than in bench trials (where a professional judge decides alone).

We need alternative app stores so that there are competitive constraints on Apple. In a competitive environment, it's still possible that some app stores would run ads. Developers might choose to distribute their products through an app store that displays ads--even on individual app pages--but charges a lower commission than an ad-free alternative. But at least there would be choice--for developers and for consumers, and when I say "consumers" I also mean that they have a choice after being locked into a particular smartphone operating system, not just before.

In India, Apple's market share is tiny (about 3%), so the focus of regulators and app developers there is on Android. Given that the issues are very similar, the approach of the Competition Commission of India (CCI) to Android should serve as a beacon for policy makers, regulators, and courts in other jurisdictions. In a first ruling (which came down last week), the CCI found that app developers are "super dependent" on Google and ensured that third-party app stores and "sideloading" would be able to compete effectively. This week the CCI handed down a second decision that requires Google to tolerate alternative in-app billing systems and prohibits Google from imposing non-FRAND terms on developers.

Google will try to get those decisions overturned, and even if they are upheld, they will have to be enforced against a creative and resilient player. There will be debates over what is FRAND (though Apple has a track record of saying FRAND means ultralow royalty rates). There could be issues where a platform operator makes certain APIs available only to apps that are distributed through the default app store. But those are narrower issues and could be addressed much more easily and cost-effectively than starting an antitrust case like Epic did, where you have to prove everything in the first place and Apple can put up all sorts of smokescreens such as claiming that iOS doesn't compete with Android (a question on which Apple later contradicted itself in its principal brief on appeal).

Wednesday, October 26, 2022

Huawei suing Amazon over patent infringement: first hearing to take place in China on December 8

At a corporate presentation in June, Huawei emphasized that it would always seek to strike a reasonable balance between product business and patent licensing interests. It's like a law of nature in patent licensing, however, that patent holders have to enforce at times. Most license agreements happen without any litigation--but it doesn't always work that way.

The TechGoing website now reports that Huawei is suing Amazon over an alleged patent infringement and that the Suzhou Intermediate People's Court in the Chinese Province of Jiangsu will hold a hearing on December 8.

The report doesn't state the patent(s)-in-suit. It would be totally out of character for Huawei to sue Amazon over some third party's products that it's reselling. That's why it must be about Amazon's own products. There is only one obvious overlap between Huawei's patent portfolio and Amazon's devices: WiFi (IEEE 802.11), which is implemented by Amazon's Kindle e-readers and Echo smart speakers. Amazon tried to succeed in smartphones, but couldn't succeed with its Android fork (as it told the Competition Commission of India), so I doubt that cellular standard-essential patents are being asserted against Amazon.

I'm surprised that Huawei felt forced to go to court against Amazon, and I'll try to find out more about this new dispute between two technology industry giants.

Competition Commission of India doubles down on Android antitrust enforcement, further protects app developers in IAP context and prohibits Google Pay self-preferencing

Last week the Competition Commission of India (CCI) already rendered an almost 300-page Google antitrust ruling that I regarded as unusually comprehensive by international standards. Some of the remedies are beneficial to Android device makers, some others give end users certain rights (such as uninstalling preinstalled apps), and a couple of items are meant to enable app developers to distribute apps through sideloading (without the complications Google is currently causing) and alternative app stores, whose storefront apps Google must make available for download from its Google Play Store.

This week the CCI followed up with a second Android antitrust decision (199 pages) that puts app makers in an even stronger position vis-à-vis the monopolist. In this post I won't repeat what I already explained on the occasion of the previous decision, such as country-specific factors (for instance, Android devices account for about 97% of the market in India). Instead, I'll keep it much shorter and focus on what's really new.

There was a confidential complainant referred to as XYZ, Match Group (Tinder), and the Alliance of Digital India Foundation (ADIF). ADIF has multiple Indian app makers as members, and they are all listed on the homepage and pay membership dues. In other words, ADIF is a legitimate representative of actual app developers (like me, though I'm obviously not a member), not another Apple Association or Google front such as the so-called Application Developers Alliance. Let's be realistic: no app developer truly likes Apple's and Google's terms and practices. The only famous one ever to have spoken out in favor of one of them was Snap, supporting Apple with an obsequious public statement toward the end of the Epic Games trial, and shortly thereafter Snap's stock tanked "thanks" to Apple's ATT...

The CCI then decided to address all three complaints in one decision. The net result is that the complainants have won with only one exception: the preinstallation of the Google Pay-related APIs (application programming interfaces) on Android devices was not held to be anticompetitive.

Last week I didn't even mention a fine of roughly $150 million. It was actually the limit (10% of the annual average of three years of relevant revenues in India). This time around it's (another) 7%, not 10%. Anyway, the monetary amount looks small compared to EU Commission decisions or U.S. damages verdicts, but what really matters is in which ways Google will have to behave differently once the decision gets enforced. India is the largest Android market in terms of unit volume.

Here's my short version of the behavioral remedies:

  1. App developers get the choice of using third-party billing and payment processing services for in-app purchases (IAP) as well as for paid downloads. Google is prohibited from discriminating or taking any other measures against apps that make use of that option.

  2. Anti-anti-steering (like the injunction Epic won against Apple under California state law, but broader).

  3. Google shall not restricct end users' access to, and usage of, features and services offered by app developers.

  4. Google must be clear and transparent about data it collects on its platform and how it shares such data with (not only, but particularly) app developers.

  5. Google must not use transaction data from Google Play Billing when it competes with app developers (in Apple land, such competition between the platform maker and app developers is called Sherlocking). It must also be transparent about what data it possesses that may be relevant in this regard.

  6. "Google shall not impose any condition (including price related condition) on app developers, which is unfair, unreasonable, discriminatory or disproportionate to the services provided to the app developers." That is extremely important because whenever and wherever Apple and Google are required to allow alternative IAP billing, they then charge practically the same commission (reduced only by roughly the cost of a payment processor such as a credit card company). If Google tries to play that game in India, it's going to immediately trigger a FRAND (fair, reasonable, and non-discriminatory) discussion. This item is closely related to the second part of the first item that prohibits Google from taking any measures against apps that use their own billing systems.

  7. Google must be transparent about fees, payment policy and related rules when it charges app developers for services.

  8. Google must not self-preference Google Pay over other apps using India's UPI national instant payment system. With Apple's App Store terms, policies, and practices being particularly outrageous (see my previous post), Apple Pay has previously drawn regulatory scrutiny, such as in the EU, where a Statement of Objections came down a few months ago. In the Northern District of California, class action lawyers representing credit card issuers against Apple actually portrayed the situation on Android as far better for alternative payment services than on iOS. But that case is about the U.S., where Apple is the market leader, and in India, where Google has a monopoly, there are issues involving Google Pay that the CCI decision elaborates on.

    The issue appears to be that only Google Pay uses Android's "intent flow"--a means by which one app can request other apps to perform a certain service--while Google Pay's disadvantaged competitors must rely on what is called a "collect flow" and involves more steps as well as moving different apps to the foreground.

    Instant mobile payments are another field in which it appears that Amazon's input to the CCI criticized Google's terms and policies rather strongly and convincingly.

The above is a very good set of remedies: effective and foresightful. It's a safe assumption that the CCI has had the benefit of seeing what happened in other jurisdictions, and the FRAND requirement will enable it to address any bad-faith compliance by Google.

Just a couple more observations:

  • There are obviously some overlaps between this decision and last week's ruling concerning market definition and abusive conduct. But the Android app store part is more elaborate in the second decision. For example, the CCI explains that web apps are not an alternative to native apps that users install on their devices, and makes a very good point: if developers could save the 30% commission by offering web apps that offer (as Google suggests) a comparable user experience, it would have been done by many of them, which is evidently not the case, however.

  • Google complained about the CCI taking note of foreign decisions. The ruling clarifies that what may have been decided abroad is "not determinative but [as] persuasive value." Tellingly, Google itself cited foreign decision in its submission, and the CCI specifically names last year's Epic Games v. Apple judgment by Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California. I believe that one will be overturned soon, but in any event, the district judge based her market definition decision to some extent on her position that Epic was only a games company and to the extent it distributed non-game apps in its Epic Games Store, she deemed it to amount only to litigation tactics.

  • The decision mentions Microsoft as an example of companies who operate app stores on other platforms but have not announced an Android app store. At first sight, one might consider that reference erroneous, given that last week it became known--owing to a public redacted version of a Microsoft filing with the UK's Competition & Markets Authority--that Microsoft wants to operate a cross-platform mobile app store. However, I still think the CCI's reference to Microsoft as (for the time being) a non-entrant into the Android app distribution market is defensible. Microsoft explained to the CMA that it needs Activision Blizzard King's mobile games to attract enough users to its future cross-platform app store. And it's obvious that in addition to that, Microsoft would also need access to those platforms (on iOS there is no way to operate an alternative app store, and on Android it's only a practical option for device makers, but even they have rather limited success with it so far). If one interprets the CCI's mentioning of Microsoft narrowly, it's true that Microsoft has not announced a mobile app store to the market (a regulatory filing is a rather different context), and some prerequisite elements (such as clearance of the Activision Blizzard acquisition, but also legislation and regulatory intervention that will open up mobile app markets) have yet to be met.

In the aggregate of the two Indian Android antitrust decisions, the CCI has addressed what would easily require a handful of antitrust investigations in some other jurisdictions--and the CCI has definitely maintained its very high quality standard.

Outrage over Apple's App Store reaches unprecedented heights: Meta, Spotify as well as Marco Arment and other indie app developers are publicly complaining

The slightly postponed Epic Games v. Apple appellate hearing (United States Court of Appeals for the Ninth Circuit) is less than three weeks away, and outrage from app makers of all sizes--from "indies" to Spotify to Meta--over Apple's App Store monopoly abuse has reached a new level.

It was just about 24 hours ago that I quoted at the start of a post a variety of unflattering tweets, one of which says Apple is now a "bad-faith operator." In that post I discussed three aspects of Apple's new app review rules: a totally subjective current events guideline, the expansion of Apple's app tax to boosted social media posts, and the reduction of NFT sales to an in-app purchasing (IAP) loophole (a web3 entrepreneur agrees with my take).

But since then the debate has become even more intense. Let's start with what Meta (Facebook) is saying.

The Verge obtained the following statement from Meta:

"Apple continues to evolve its policies to grow their own business while undercutting others in the digital economy. Apple previously said it didn’t take a share of developer advertising revenue, and now apparently changed its mind. We remain committed to offering small businesses simple ways to run ads and grow their businesses on our apps."

As The Verge notes, Apple didn't merely say that it didn't take a share of ad revenue, but even testified so under oath during last year's Epic v. Apple trial.

Meta is the largest company to be affected by Apple's about-face, followed by TikTok, but arguably the company for which this comes at the worst of times is Twitter. Elon Musk wants to turn its acquisition into a commercial success, and before he even takes control, Apple is already complicating matters. While his primary company, Tesla, is not affected by the new rules, it is the last man standing among major automakers against Apple CarPlay and Android Auto, and should actually fight for interoperability on fair, reasonable, and non-discriminatory terms. There are key decisions to be made in the EU now following the entry into force of the Digital Markets Act, and car makers are oblivious to their best chance to fend off the "digital carjacking" threat.

Apple's immoral earnings (from gambling) besmirch app developers' reputation

In yesterday's post on the new app rules, I compared Apple's app tax approach to that of a Roman emperor who defended a tax on public urinals by saying that money doesn't stink. Let's face it: Apple (like Google) shamelessly distributes anti-scientific material that promotes bogus medications and treatments, some of which have adverse effects and which, at minimum, dissuade the credulous from relying on evidence-based medicine, as I showed last year.

But now Apple is really going off the deep end by placing ads for gambling apps on the App Store pages of totally legit apps, as MacRumors has reported. I really have nothing to add to that great MacRumors article, which shows several developers' tweets, notably including Marco Arment, a legendary iOS indie who says "[t]he App sotre has corrupted such a great company so deeply."

I encourage you to open that MacRumors article and read all the tweets and the analysis.

Spotify sees updates rejected and says Apple's behavior hurts audiobook listeners, publishers, and authors

On the last business day before the Epic v. Apple trial kicked off in Oakland last year, the European Commission handed down a Statement of Objections (SO)--a preliminary antitrust ruling--against Apple in the Spotify case. Arguably, Spotify was in the pole position among formally complaining app makers at that point. After an SO, the EC's Directorate-General for Competition (DG COMP) gives the respondent the opportunity to defend itself again in writing, then typically holds a hearing (unless the issues are satisfactorily addressed), and after that one issues a decision, which can then be appealed to the EU General Court.

But it's been silent around that antitrust investigation ever since.

Yesterday, Spotify issued a press release in which its founder and CEO, Daniel Ek, vents frustration over the lack of progress:

"Almost four years. That’s how long it’s been since Spotify filed a complaint against Apple with the European Commission, and we are still waiting on a decision. And while we wait, Apple continues to dictate what online innovation looks like, doing serious harm to the internet economy, choking competition and the imagination of app developers."

On its Time to Play Fair campaign website, Spotify now has a section dedicated to audiobooks, which is the topic of the latest controversy. Spotify submitted a new version of its app that was designed to point customers to where they can buy audiobooks without Spotify being subjected to Apple's app tax. But Apple rejected that one as well as a slightly modified one, and only approved the update after Spotify complied with Apple's interpretation of its unilaterally-imposed rules.

According to Matthew Ball,Spotify would lose 70% of its revenue if kicked off iOS. As we all know, it competes with Apple Music, and as Epic Games' CEO Tim Sweeney explained:

"Apple's working to undermine Spotify's good reputation with their anti-Spotify PR campaign, touting that Apple Music (whose popularity is tilted towards high-income developed economies with higher subscription fees) pays artists more per song than Spotify."

Not only is Apple able to pay out more to artists on a per-song basis because of its affluent clientele, but Spotify would also be in a position to share more revenue with artists if it wasn't subjected to the infamous app tax. Furthermore, Spotify has only one business--music--and can't use a luxury goods business and certain monopoly rents to cross-subsidize.

While I really hope the Spotify case will lead to something that will help not only Spotify, I can't help but note that Spotify came out with this criticism of Apple's conduct right before publishing its Q3 shareholder report (PDF). After hours, its stock (SPOT) lost almost 7%. It looks like they want investors to know that their business could do a lot better if not for Apple's App Store monopoly abuse. But that takes us to the second question, which is whether Spotify is on the right track with its efforts to solve that problem.

It's been almost a year since the mastermind of Spotify's antitrust complaint left to become the top lawyer at Disney: the one and only Horacio Gutierrez.

I can see why Spotify's CEO would like the process in Brussels to yield results faster. Four years is a long time. But it's not easy for the Commission to take on Apple, a company that has the resources to pay for armies of lawyers outnumbering DC COMP officials--and which, directly as well as through law firms close to it, hires DG COMP officials away from time to time.

As Concurrences explained, interim measures are generally difficult to obtain from antitrust watchdogs, and over the last 20 years have become pretty irrelevant in the EU ("the Commission had let its interim measures power ‘fade into oblivion’ since 2001," with a recent merger case being a rare exception).

Spotify, like Epic and Match Group (Tinder), is a founding member of the Coalition for App Fairness. Given that the CAF is only about two years old, it has made a huge impact through lobbying. But it could do more, and it appears too focused on the 30% cut while everyone can see these days that other aspects of Apple's terms and policies draw even more attention. For instance, the CAF should analyze the new version of Apple's SKAdNetwork (version 4) and whether it has the potential to make Apple the only ad network operator on iOS that can deliver tangible and measurable value to advertisers.

Spotify relied on the European Commission while Epic took its chances in court. Epic was unfazed by last year's district court judgment. I remember a Tim Sweeney tweet according to which he read the decision that day, but also spent time coding and even found time for a hike. By now it's clear that the district judge got some key parts (including some important legal precedent) wrong. Epic can--and I believe will-- turn that case around.

The News & Observer quotes Vanderbilt antitrust professor Rebecca Allensworth, who thinks Epic has almost a 50% chance of reversal, and she would "almost never give such high odds for a reversal."

Technically, subscriptions are not at issue in Epic v. Apple (just item-by-item IAP). But if Apple can't defend its app tax on IAP, it won't be too hard for subscription businesses like Spotify to bypass the app tax, too.

The decision Spotify will have to make now is whether to continue to wait for the EU Commission or start some private litigation in one or more jurisdictions. I've said it on other occasions: those CAF companies might already have won spectacular decisions in Munich if they sued there. That forum could become one of the most important App Store venues in the world. Spotify would give the Commission an "excuse" for not staying on top of the Apple cases, however, if it sued (especially if it sued in the EU). Without non-public information on where the EU Spotify-Apple case stands, I don't know how much Spotify really has to lose at this point. And, frankly, I think Epic Games' EU complaint over Apple is the more important one as it would help the entire app economy and could solve a number of problems.

Tuesday, October 25, 2022

U.S. tech policy think tank disagrees with Sony's Call of Duty foreclosure theory concerning Microsoft's acquisition of Activision Blizzard King

Yesterday the unconditional clearance of Microsoft's purchase of Activision Blizzard King by Brazil's competition authority became final, but that was not the only positive development relating to MSFT-ATVI (those are the two companies' stock ticker symbols):

The Information Technology & Innovation Foundation (ITIF), a major nonpartisan U.S. technology policy think tank, published an analysis of the foreclosure concerns raised by Sony with various antitrust enforcers around the world, particularly with the United Kingdom's Competition & Markets Authority (CMA). The TL;DR version is that

  • making titles exclusive to Microsoft's Xbox gaming console would make sense only with respect to "less valuable game titles" than Call of Duty,

  • as the opportunity cost by making a blockbuster hit like Call of Duty unavailable or unattractive on the PlayStation would far exceed whatever Microsoft could gain on the console side of the business, and

  • if the past is any indication, it's not in Microsoft's DNA to do that: Minecraft serves as an example, and it actually needed much less time to reach a given level of monthly active users than CoD.

I recommend reading the ITIF article I just linked to. While Microsoft is one of numerous supporters, so is at least one company that is not in favor of Microsoft-ActivisionBlizzard: Google parent Alphabet. ITIF has a very broad-based membership, and its Honorary Co-Chairs are two Democratic and two Republican politicians (Senator Chris Coons (D-Del.), Senator Todd Young (R-Ind.), Congresswoman Suzan DelBene (D-Wash.), Congressman Darrell Issa (R-Cal.)). ITIF is not a radical libertarian "antitrust be damned" group, nor is it even remotely comparable to CCIA, the "Cash & Carry" Industry Association: unlike CCIA, ITIF is about building a technology policy consensus on issues that are of interest to the industry at large, as opposed to helping some Big Tech companies against others.

While there are exceptions like Toyota and Infineon, ITIF is overwhelmingly an American organization. Post-Brexit, the unique relationship between the UK and the United States is more important than ever, especially in times of crisis and turmoil. But the most important part is that ITIF explains very well why Sony's CoD-related argument is not a reason to block the transaction.

The CMA's Phase 1 decision was not only about the possibility of vertical foreclosure affecting the PlayStation, of course. As far as game streaming is concerned, it's a dynamic market that Netflix appears to be preparing to enter. As Microsoft told the CMA, players still normally want to install their games locally.

The problems that app makers large and small face because of Apple's and Google's walled gardens are getting worse. Earlier today I wrote about several restrictive and taxative changes Apple has made to its app review guidelines, all of which would best be addressed by enabling the existence of competing app stores that can overcome the Poower of Default. Opening up mobile app distribution is what competition enforcers should be primarily concerned about, and Microsoft needs mobile games like Candy Crush to make its contribution to competition in that space. Apart from the fact that Sony will remain the gaming console market leader anyway, we're talking about a single-purpose niche product, unlike smartphones.

While Sony has reportedly postponed its next major Showcase (or State of Play) event only because it knows that its awe-inspiring array of exclusive content would strengthen Microsoft's case for clearance of its Activision Blizzard King acquisition, Sony can't hide its content strategy. I just saw a Reuters article about Microsoft having to catch up in China because Sony controls a major Chinese game hit, and game maker Hideo Kojima tweeted a photo yesterday that shows him with Sony's PlayStation chief Jim Ryan:

So much for vertical foreclosure.