Thursday, December 29, 2022

Microsoft's acquisition of Activision Blizzard unconditionally cleared by Chile's competition authority FNE: no substantial lessening of competition, no consumer harm

The Federal Trade Commission (FTC) of the United States is--at this point--opposing Microsoft's $68.7 billion purchase of Activision Blizzard King, thereby supporting Sony, which actually isn't even afraid of Microsoft's GamePass subscription service (though it pretends otherwise). I have seen reports according to which the European Commission's Directorate-General for Competition is widely expected to issue a Statement of Objections (SO) next month, though it would be out of character for DG COMP not to work out the equivalent of a U.S. consent decree. And in the UK, the Competition & Markets Authority (CMA) is also conducting an in-depth probe, with consumer responses overwhelmingly favoring the transaction. But things have gone pretty smoothly in a few other jurisdictions:

And today a fourth unconditional clearance decision became known: the Fiscalía Nacional Económica (FNE; "National Economic Prosecutor") of Chile announced (in Spanish) that it has approved the deal at the end of a Phase 1 investigation.

Here's my translation of the FNE announcement, as I haven't been able to find an official English translation:

FNE has approved in Phase 1 the concentration consisting in the acquisition of a controlling interest in Activision Blizzard, Inc. (ABK [i.e., Activision Blizzard King] by Microsoft Corporation (Microsoft) after ruling out that the transaction would be capable of substantially reducing competition.

These companies are active in the same market segments: the development, publishing and distribution of video games; and this is the case at different levels, with Microsoft making the Xbox console and other video game platforms, such as GamePass, which is why the companies' activities overlap horizontally as well as vertically.

The FNE has concluded that the transaction is not capable of a substantial lessening of competition in consideration of--among other types of evidence--buyers and consumer preferences for video games in Chile.

In its analysis of horizontal effects, the investigation ruled out risks, given that in the markets in which the parties' activities overlap (development and publishing of video games, distribution of video games for computers and the sale of merchandising items and digital graphical advertisements) the tresholds for the concentration of market share established in the [agency's] 2022 Guidelines for the Analysis of Horizontal Concentrations are not reached and that a large number of relevant competitors as well as a dynamic market have been identified.

In the evaluation of vertical risks, a potential input foreclosure--a scenario of Microsoft ceasing to provide, after the consummation of the transaction, games like Call of Duty to its competitors, was ruled out. Among other arguments, it was taken into consideration that ABK faces competitive constraints from market actors such as Electronic Arts, Take Two, Ubisofot, Epic Games, Sony, and Nintendo, and that the relevance of Call of Duty was deemed relatively smaller in Latin America than in other parts of the world.

It was also part of the consideration that the number of consumers who would elect to switch consoles in response to a foreclosure strategy would also be smaller, which was established by means of a survey of Chilean consumers, and that the substantial revenues that the PlayStation generates for ABK would serve as a disincentive for the adoption of a foreclosure strategy.

In its analysis, the FNE also ruled out the risks of a tipping point in the commercialization of next-generation consoles and subscription services (such as GamePass), as ABK's video games, while important, are not the most relevant ones for Latin American consumers and because the actors in this market offer highly differentiated services.

A tipping occurs when, after a determined scale of a transaction, markets tend to gravitate toward concentration and to eventually close under a single market actor or a single dominant one.

With respect to a hypothetical risk of a foreclosure of customers, the FNE concluded that Microsoft's demand for video games published by third parties would not come to an end, as the market for the distribution of computer games has proven to be very dynamic with the entry of new relevant actors. In that regard it bears highlighting the enduring leadership position of Steam.

Finally, in the market for the distribution of video games for consoles one can observe substantial competitive constraints from Sony and Nintendo, which would discipline the combined entity and serve as substitute demand for competing publishers, which include a diversity of market actors, some of which are particularly relevant.

[skipping the part that describes the two parties to the transaction at a high level]

The report and the respective order will be available on the web in the coming days as soon as any potential requests for confidential treatment that the notifying parties may present have been addressed.

Sunday, December 25, 2022

Sony leak has potential to blast major hole into FTC's 'case' against Microsoft's purchase of Activision Blizzard: Xbox Game Pass not viewed as competition

I really didn't expect to do a follow-up during the Holiday Season to my previous post, Microsoft's response to FTC lawsuit feels like Candy Crush, Activision Blizzard King's filing more like Call of Duty as deal parties challenge Federal Trade Commission's merger complaint on law, facts, constitutionality. But the following warrants a change of plans.

Yesterday, Insider Gaming reported something that could play quite a role in the various regulatory reviews of Microsoft's acquisition of Activision Blizzard King. According to unnamed Sony-internal sources, PlayStation chief Jim Ryan said at an employee Q&A Microsoft's Xbox Game Pass offering doesn't worry him in the slightest:

"When we consider Game Pass, we’ve sold more [PlayStation 5]s in two years than they have gathered subscribers and they’ve been doing that for 6-7 years. We’re just shy of 50 million subscribers and they are in the low 20s, but there’s more work to do to grow that number."

It's been known for two weeks now that Microsoft's ten-year licensing offer to Sony comes with the option to make Call of Duty available on Sony's subscription service. That one is named PlayStation Plus and may not be Sony's preferred way to monetize premium titles. There are signs of Sony still having a strong preference for the traditional title-by-title distribution model (especially with periodic price increases).

If Mr. Ryan indeed made that statement, participants in the Q&A session will have to testify under oath--if not in the FTC's peculiar adjudicative proceeding, then at least in district court (where a de facto class action is pending and where the FTC would have to seek a preliminary injunction). The truth will come out.

The FTC and other competition authorities should have known all along that Sony--the entrenched market leader in video game consoles--is a pretty bad complainant over this deal. With what Insider Gaming has reported now, regulators may find it even riskier to enter into any kind of public-private partnership with the PlayStation company.

Friday, December 23, 2022

Microsoft's response to FTC lawsuit feels like Candy Crush, Activision Blizzard King's filing more like Call of Duty as deal parties challenge Federal Trade Commission's merger complaint on law, facts, constitutionality

Late on Thursday, both Microsoft and Activision Blizzard King filed their responses to the administrative complaint the Federal Trade Commission (FTC) brought against the $69B merger two weeks ago. On December 8, the U.S. federal government agency decided to sue for the sake of suing, meaning that neither was there a need (given the acquirer's willingness to address any potential concerns) nor a case (investors certainly weren't impressed). Instead of filing a complaint with a federal district court, the FTC opted for an "adjudicative proceeding" before its own in-house judge. The response deadline is two weeks from formal service, which may have occurred the day the FTC made its decision.

Way past East Coast office hours, the parties' responsive pleadings were not yet available on the FTC's website, but showed up on the Internet (particularly CNBC). For convenience, let me show the two documents first and then compare them:

In the Matter of Microsoft Corp., a corporation, and Activision Blizzard, Inc., a corporation: Answer and Defenses of Respondent Microsoft Corp.

In the Matter of Microsoft Corp., a corporation, and Activision Blizzard, Inc., a corporation: Answer and Defenses of Respondent Activision Blizzard, Inc.

Each complaint has three parts: introduction, item-by-item denials and admissions, and (partly affirmative) defenses. The introductory parts are where the two answers to the complaint differ the most. If one wanted to use the old "good cop, bad cop" analogy, Microsoft would be the former and Activision Blizzard the latter. That categorization would be justifiable, but it's more instructive--and more fitting in this context--to draw analogies to famous games:

  • Microsoft's filing is sweet and strategic like Candy Crush:

  • Activision Blizzard King's filing is frontal assault like Call of Duty:

    • The introductory part of ABK's answer to the complaint (lead counsel: Skadden's Steven Sunshine) is replete with take-no-prisoners mince-no-words rhetoric like "ideologically-fueled", "facially absurd", "made up", "entirely nonsensical", "wildest supposition", "contrived", "turning antitrust on its head", "[b]linded by ideological skepticism of high-value technology deals", "lost sight of the realities". I was pleased to see that ABK called the FTC's proffered market definitions "gerrymandered" just like I did in my analysis of the agency's complaint two weeks ago. It shows that this is a natural conclusion.

    • Make no mistake: it's not just noise. They take aim at the different targets, as precisely as a sniper, and strike down one after the other.

There are good reasons for which the two companies strike a different tone. All that Activision Blizzard King wants to do is close the deal. Then ABK will cease to exist as an independent entity, and Microsoft will be in charge, which is why it's up to Microsoft to negotiate a potential settlement based on commitments it would make. Yesterday the New York Times published an interesting article on Microsoft's approach, Microsoft Gambles on ‘Nice Guy’ Strategy to Close Activision Megadeal. The NYT notes that Microsoft can't just let the FTC block any of its deals as it may want to make more acquisitions, but strives to be constructive. When I read that headline, I can think of another headline I'd like to--but at least in the foreseeable future probably won't--see: "Apple Gambles on 'Nice Guy' Strategy to Open its App Store" There is a stark contrast now between Apple--which uses fake app developers as well as fake labor unions--and Microsoft--which is reasonably aligned with the Communications Workers of America (CWA) labor union as well as the AFL-CIO umbrella organization (which totally supports the deal).

Back to the Microsoft-Activision comparison:

To the extent that the middle sections of the answers to the complaint differ, it's mostly because the parties have different knowledge. Microsoft can comment more specifically on its Xbox gaming division and plans, while ABK is in the best position to talk about what it would do in a "but-for" scenario where it would stay independent, such as that there simply wouldn't be any of its games on any subscription services anytime soon (while Microsoft's cross-platform Xbox strategy is to make more games available to more gamers as they call it).

The defenses are identical, and while large parts of them were to be expected, they must have been coordinated between the parties' lawyers. We may see a motion to dismiss fairly soon as the parties have identified legal deficiencies, including but not limited to market definition. But looking beyond an adjudicative proceeding (should the FTC see it through instead of working things out along the way), the parties clearly also reserve their constitutional rights, particularly under Article II (separation of powers, unaccountability of FTC), Article III (access to an independent federal judge), and the Fifth Amendment (due process). The FTC is taking some risks here. Its in-house adjudicative proceedings are somewhat controversial, and the Supreme Court is now working on its Axon Enterprise, Inc. v. Federal Trade Commission opinion. In that case, the key issue is whether constitutional challenges to the FTC's structure, procedures, and very existence--all of which are referenced in Microsoft's and Activision Blizzard King's responsive pleadings--can be brought in district court.

At some point the FTC would have to sue in district court anyway: whenever they feel the time has come to seek a preliminary injunction. Otherwise the parties could just close the deal. I have serious doubts as to the FTC's ability to satisfy the requirements for a PI, above all the likelihood of success on the merits. And a federal district court--the United States District Court for the Northern District of California (barring a hypothetical venue transfer)--will soon have to decide on a PI motion concerning the deal, but one that was brought by class-action lawyers whose pursuit of fees is a sideshow that could, however, further weaken the FTC.

As some commentators have noted, the FTC may also become more receptive to an amicable resolution should there be consent decrees in other jurisdictions--particularly in Europe, where antitrust laws tend to be stricter than in the U.S., and where regulators have repeatedly been accused by U.S. officials and companies of protecting competitors rather than competition, which is precisely what the FTC now appears to be doing. I was unhappy when a European Commission official gave the impression of doing one of the things Microsoft and Activision say the FTC has done ("prejudged the case"), but still believe that the EC's Directorate-General for Competition (DG COMP) is likely to arrive at a realistic assessment of the transaction. And in the UK I found it interesting that public comments on the merger were overwhelmingly positive (in that post I explain why that evaluation of submissions by members of the public should neither be overrated nor underestimated, much less ignored).

The answers to the complaint are unlikely to have surprised the FTC, but the FTC's decision makers should still think about whether it is a good idea--even if there could be indirect benefits such as another argument for new antitrust legislation--to complicate a U.S.-U.S. deal when, as Activision Blizzard's answer to the complaint says, "China-based gaming companies have been aggressively expanding in the U.S. by investing in U.S. gaming companies (e.g., Tencent's 40% stake in Epic Games, developer of Fortnite) and funding start-up gaming studios, all while enjoying protected access to the largest revenue opportunity in gaming at home in China." That passage calls into question that the FTC is doing the right thing even from a purely political point of view. The following two sentences from Microsoft's filing should also give the FTC pause:

"[A]fter nearly a full year investigating this transaction, receiving millions of Microsoft and Activision documents, and speaking to over a dozen witnesses, there is no evidence that Xbox intends to take Call of Duty away from PlayStation—or any platform at all. No emails, no text messages, no testimony."

Huawei-Nokia patent cross-license agreement extended--no details known

Just yesterday I was saying--in a post on a court order to stay a Nokia v. OPPO patent lawsuit--that "[m]aybe some other implementers [than OPPO] will still seize the opportunity to make Nokia a "Christmas present". I was thinking of, for an example, an extension of the Nokia-Samsung patent license agreement. Well, the following announcement involving a major implementer and patent holder just came in by email:

Press Release

Nokia and Huawei extend patent license agreement

23 December 2022

Espoo, Finland – Nokia and Huawei today announced the extension of their patent license agreement. The terms of the agreement remain confidential between the parties.


That's interesting. But it's also terse. Huawei's press release is consistent with Nokia's.

Five years ago, the parties announced the previous agreement, and while most of the terms remained confidential, they said a little bit more than today.

What has changed since 2017 is geopolitics. Huawei remains a major implementer, but its ability to do business in the Western hemisphere has been impacted by trade restrictions. Patent royalties in Huawei's major markets at this point are presumably lower. I wouldn't describe it as a Christmas gift, but it definitely is good news for both parties that they've been able to avoid litigation.

At the time of the last Nokia-Huawei deal, Huawei was enforcing patents against Samsung. Now, there are various cases against (according to the patent holder) unwilling licensees pending, such as against Amazon in Germany and China.

Two weeks ago, Huawei announced a patent cross-license agreement with OPPO. While Nokia and OPPO haven't settled an earth-spanning dispute that started a year and half ago, Huawei has cross-license agreements in place with both Nokia and OPPO--which shows that Huawei is very successful at the negotiating table and has to resort to patent enforcement only under certain circumstances beyond its control.

Nokia, too, signs license agreements all the time, most of which are not announced.

This month has seen two interesting renewals: Nokia-Huawei as well as Ericsson-Apple. But some other renewals are outstanding, such as a renewal of InterDigital's 2014 license agreement with Samsung and potentially also Nokia's deal with the Korean consumer electronics giant.

Unless parties engage in a "race to the courthouse" with FRAND actions (including, but not limited to, anti-antisuit injunctions) prior to expiration of a license agreement, failures to renew typically become known only when they file infringement lawsuits. With many license agreements having terms based on calendar years (sometimes with minor variations, such as the last Ericsson-Apple deal expiring two weeks after New Year's Day), January is the busiest month of the year in that regard.

Thursday, December 22, 2022

Setback for Sony in UK public consultation: 75% of 2,100 submissions by members of the public are in favor of Microsoft's purchase of Activision Blizzard

Yesterday the UK Competition & Market Authority published its summary (PDF) of "views from members of the public" on Microsoft's purchase of Activision Blizzard (NASDAQ:ATVI):

"Of the 2,100 emails that we reviewed [they received 2,600 emails, but reviewed 2,100 reasonable ones after excluding hundreds of emails deemed abusive or otherwise devoid of substance], around three quarters were broadly in favour of the Merger and around a quarter were broadly against the Merger. No clear view was expressed for or against the merger by a small number of respondents."

The document also summarizes the reasons for those positions, and there are no surprises there.

How relevant is this result? It's advisable neither to overrate nor to underestimate the significance of the overwhelming majority in support of the deal:

  • No one can treat this as a representative sample, though the number of respondents is more than large enough. And even if one assumed that a representative sample would have led to the same result, competition enforcement is not a democratic process (and shouldn't be because a majority could simply be wrong on the law and/or the facts).

  • That said, the result easily passes a plausibility test. First, Sony is the only vocal opponent, and Google is rumored to also be pursuing a certain agenda, but those are self-serving complainants--and there's actually a lot of support in the industry. Second, PlayStation gamers outnumber Xbox gamers, so the result is not simply a reflection of the "console wars" battlefield. Third, it's also interesting that an unnamed third party (presumably a major game maker) also made a submission to the CMA in support of the transaction (as I mentioned in a recent post).

For my commentary on Microsoft's and Sony's submissions, let me refer you to an earlier post. Also, in my post on the "three-letter acronym soup of UK tech antitrust enforcement" I mentioned Activision Blizzard King (ABK).

Finally, more and more people realize that a so-called "gamers' lawsuit" against the deal (filed with the United States District Court for the Northern District of California) is not in the slightest reflective of actual gamer sentiment. There are other motives behind it. Compared to that one, the submission the CMA received are highly reliable--and I discussed their limitations further above.

Nokia patent case against OPPO stayed as Dusseldorf court is unsure of patent-in-suit's validity--same patent is also being asserted in London

A spokeswoman for the Dusseldorf Regional Court has confirmed to me that a Nokia v. OPPO case over EP3716560 on "processing transmission signals in radio transmitter" was stayed on Tuesday as the court saw a rather high likelihood of the patent being deemed invalid in a parallel proceeding.

This is patent has not been declared essential to any standard as far as I can see.

In October 2021 I also listed a case over the same patent in the High Court of Justice (London).

You can furthermore find EP'560 in the Nokia v. OPPO/OPPO v. Nokia battlemap I published earlier this month. That post also summarized the key litigation events. Nokia has prevailed on several patents, but OPPO has fended off a number of cases in different jurisdictions. Several Nokia v. OPPO cases have been stayed in Dusseldorf, and one in Mannheim, but in some cases there have also been findings of non-infringement.

It is worth noting that Ericsson and Apple have recently settled a dispute that began after the Nokia-OPPO patent spat. The first FRAND-related filings in that dispute came a few months after Nokia's first wave of lawsuits against OPPO, and the first Ericsson v. Apple infringement complaints about 6.5 months after Nokia sued OPPO, showing what a long-running dispute the latter already is. And who knows much longer it will take. It's definitely taken a lot longer now than I thought in the beginning that it would--and by now I can hardly imagine that OPPO's IP team will give up. It looks like they'll keep defending themselves vigorously until the terms are palatable and a settlement makes sense. Maybe some other implementers will still seize the opportunity to make Nokia a "Christmas present".

Another Huawei v. Amazon patent infringement lawsuit discovered: WiFi patent case in Mannheim, Germany

This is a quick follow-up to a post from Monday, Huawei suing Amazon in Germany over WiFi patent infringement--Chinese lawsuit previously became known.

Meanwhile the Landgericht Mannheim (Mannheim Regional Court) has also confirmed a Huawei v. Amazon action: case no. 2 O 109/22 (Presiding Judge: Dr. Holger Kircher) over EP2589177 on "modulation of signal field in a wlan [= WiFi] frame header".

The Munich I Regional Court hasn't confirmed a Huawei v. Amazon case yet, but two factors make it a possibility that Amazon also has to defend itself there:

  • Munich is such a popular venue that it would be unusual (if not even unheard of in recent years) to see a Dusseldorf-Mannheim combination as opposed to the traditional Dusseldorf-Mannheim-Munich "Grand Slam".

  • Different German litigators--none of them likely to be involved with this dispute here--have mentioned to me recently that the Munich court has an administrative bottleneck that results in considerable delay of (especially international) service of process. When cases are filed in Dusseldorf, Mannheim, and Munich on the same day against the same defendants, it is normally expected that any Munich complaints will be served much later on a given foreign defendant than the ones brought in Dusseldorf and Mannheim.

For those two reasons, I'll ask the Munich court again in January.

In the previous post on this dispute, you can find some further context, such as cases pending in China and in another German court (Dusseldorf Regional Court).

Wednesday, December 21, 2022

'Consumer' lawsuit over Activision Blizzard acquisition more likely to complicate things for FTC than for Microsoft

It is, admittedly, counterintuitive that a lawsuit against a merger may ultimately be better news for the deal than for a party--here, the Federal Trade Commission (FTC)--that is already litigating against the same transaction. But only because something is counterintuitive does not mean it's necessarily wrong. The only thing that is definitely wrong is to believe that the existence of a lawsuit that only has the potential to benefit lawyers tells us anything about genuine consumer concerns, though some journalists either don't understand the legal services business well enough or aren't sufficiently confident of their analysis to tell their readers the plain truth. But I will do just that. It's party of my differentiation strategy from mainstream media.

So, on Tuesday, two San Francisco-based class action law firms--the Alioto Law Firm and the Joseph Saveri Law Firm--brought a complaint on behalf of ten private citizens against Microsoft over its $69B purchase of Activision Blizzard (NASDAQ:ATVI). For the avoidance of doubt, that case is not--at least not yet--a class action, but whether or not certification will be sought later (and whether it would ever be granted in that case), it's a class action by any other name:

Even if you brought together not just 10 gamers but even the 1,000 or 10,000 most avid gamers in the United States, and if you then--for the sake of the argument--took at face value the most absurd projections of how much more they'd end up spending on games as a result of the challenged transaction, their collective spend on video game hardware and software wouldn't make it even remotely cost-efficient to pursue an expensive federal antitrust lawsuit under the Clayton Act in an attempt to block that transaction.

However, if you're in the class-action business--again, let's not look at it in formal but in economic terms, and in that regard it is the equivalent of a class action--and you aren't already busy with stronger (and likely more lucrative) cases and/or you're interested in publicity, then the gamble may be worth it even if you realize your chances of success are slim. You just spend your time, and you can hope that even if your case is going nowhere, a megacorp defendant may at some point be willing to pay you off to go away, even if only because of the "nuisance value" (the cost of a proper defense) of your lawsuit.

Simply put, whether a class action law firm brings a complaint is a mix of risk-reward considerations such as

  • the size and financial strength of the defendant,

  • the hypothetical magnitude of the matter,

  • the amount of time it takes the class action lawyers to pursue the thing (piggybacking on a government lawsuit saves a lot of time),

  • the lawyers' opportunity costs,

  • the "business development" value of the case, and

  • the likelihood of success, which is often a very low-priority question. Some class actions have a lot of merit, while others are total crapshoots.

In June, Elon Musk tweeted something that I've quoted before:

That tweet isn't entirely wrong, but I would like to distance myself from it in at least three ways:

  1. Not all class-action plaintiffs are "puppets." Generally speaking, however, "consumers" and small companies that lack the wherewithal for high-stakes litigation, can't realistically expect a bottom-line positive outcome from a case, and typically aren't in a position to form their own opinion on the chances of a case, are going to adopt pretty much any advice they get from the class-action lawyers. And the class-action lawyers are then the ones who really invest in it, and who stand to gain something: they're the economic center of gravity as opposed to a service provider.

  2. Mr. Musk's tweet could be understood--and I'm not saying he was insinuating anything, but the brevity of a tweet easily gives rise to misunderstandings--as a conspiracy theory. The problem is, however, what I wrote further above: some journalists just don't figure it out, and some others actually do have an idea but they lack the courage to just spell it out. It is, of course, disappointing that even highly reputable news agencies with reasonably specialized reporters fail to give their readers the necessary context, so I can easily see Mr. Musk's frustration that led to that kind of media bashing. The press could indeed do a far better job in its coverage of class actions.

  3. Sometimes class actions do have very positive effects even from a public-interest perspective, such as Pepper v. Apple, an App Store antitrust case that made it all the way up to the Supreme Court.

In the wake of the FTC's complaint (which is now before its in-house Administrative Law Judge) against the transaction (see my previous commentary: 1, 2, 3), the class-action law firms I mentioned further above brought their complaint--and a motion for a preliminary injunction--in the Northern District of California. Here are the two documents (followed by further commentary):

Dante deMartini et al. v. Microsoft Corporation Complaint to Prohibit the Acquisition of Activision Blizzard by Microsoft corporation in Violation of Section 7 of the Clayton Antitrust Act, 15 U.S.C. § 18 (Northern District of California, case no. 3:22-cv-08991)

DeMartini et al. v. Microsoft (N.D. Cal., case no. 3:22-cv-08991): Motion for Preliminary Injunction

At first sight I don't see that complaint having any more substance than the FTC complaint, and to the extent the class-action lawyers deem Microsoft's 10-year Call of Duty offer insufficient, there's no reason to believe they actually know all of the terms of that offer.

What's more interesting than the substance of the case--or, actually, lack thereof--is the procedural impact.

Let's start with the forum choice. The most obvious venue to sue Microsoft would be the Western District of Washington. Activision Blizzard is mostly in the Central--not Northern--District of California. It's just that those class-action lawyers are based in San Fran, and the Northern District is generally popular among antitrust plaintiffs, though what happened in Epic Games v. Apple certainly didn't validate that thinking.

If the FTC had decided to sue in federal court, there's no way that it would have done so in the Northern District of California. But the FTC didn't want to go to federal court at all, and instead brought a case before its in-house court, where defendants prevail maybe once every 25 years, though such statistics don't mean much when a complaint is as weak as in this particular case. Also, the in-house decision isn't the last word: there can always be an appeal.

Now, the FTC's in-house case doesn't prevent the parties from simply closing the deal. If the FTC wants to block the deal, it needs a preliminary injunction from an Article III court. Sources (presumably from inside the FTC) apparently told some reporters that they were concerned about seeking a PI at a stage where the consummation of the transaction wasn't imminent due to critical approvals outstanding in other jurisdictions such as the EU and the UK. That fact may indeed be held against the class-action lawyers' PI motion now, though I would much prefer the district court to deny the PI for a likelihood of success on the merits in the first place. With prejudice in that case. But it's also a possibility that the FTC simply knows how weak its case is in legal terms--they're trying to protect a market leader against a scenario for which Microsoft proposed a structural solution in the form of a long-term license agreement--and is actually afraid of putting its case before an independent judge.

The FTC now faces the choice of how to respond to the fact that some class-action lawyers brought a PI motion. It may just elect to sit on the sidelines and watch what happens. It may also feel that it shouldn't let some federal court--even if a denial of a PI motion in the Northern District of California wouldn't be binding on other district courts--state an opinion on the merits (or, more appropriately, lack thereof) before the FTC even gets started. Also, the FTC knows that whatever happens in federal court, on a very different schedule, has the potential to impact is in-house adjudicative proceeding.

The FTC knew from the beginning that some class-action lawyers would bring a case in federal court (and that those class-action lawyers, unlike the FTC, can't put the case before their in-house judge). The FTC also knew that some class-action lawyers could file a PI motion. Therefore, the FTC is unlikely to do more now than, at most, file an amicus curiae brief in California at some point.

Even though private class-action lawsuits (and I repeat myself again by pointing out that this is not formally--but practically and economically speaking--a class action) are virtually always filed by some lawyers trying to jump on a government plaintiff's bandwagon, I don't think it's a good thing from the FTC's perspective that it has happened here. In other words, it was expected, but it's still bad news for the FTC, especially because of the PI motion that means some things may happen pretty quickly in California.

What the FTC and those class-action lawyers have in common is that they're gamblers betting on a case that has less merit than your average long shot. The commissioners and the FTC staff are way too smart to believe that they have a case. They're suing for the sake of suing. as I've said in a couple of previous posts, and their calculus may be that a defeat would be useful. It would be seen as embarrassing, but nothing is really embarrassing if you just don't care. The "useful" element here would be that the FTC may just want to use a courtroom defeat as an argument for some legislative measure giving it more power. And the class-action lawyers may believe that there's still a pretty good chance of making some money on this even if their case goes nowhere.

For Microsoft, this is an opportunity to get the class-action lawyers' PI motion denied in a way that will expose the weaknesses of the FTC's complaint. The case will be assigned to a district judge shortly, and some judges in that district are really, really good. While most district judges keep their denials of PI motions short, this is a high-profile case, so there is a possibility of an order denying the motion for a preliminary injunction making the strongest case against the case against Microsoft-ActivisionBlizzard.

We may now also see some other class-action lawyers scrambling to bring their own Microsoft-ActivisionBlizzard cases as soon as possible in order to potentially earn some fees as well. Should there be cases in two or more federal districts, there might be venue transfer motions and they could all get consolidated in one place.

But before anything important--other than the assignment of the case to a district judge--happens in the Northern District of California or any other federal district court, we'll see Microsoft's response to the FTC's complaint. The deadline is two weeks from service of process. What I don't know is whether Microsoft was formally served on the day the lawsuit was announced. In that case, the deadline would be tomorrow; otherwise, it won't take long. At the latest, it would have to be next week as Microsoft's counsel--whose most famous courtroom victory got the "Oklahoma Bomber" sentenced to death--entered her appearance on last week's Wednesday.

The Open App Markets Act is dead, long live the Open App Markets Act

The United States Congress has practically concluded its 117th term without passing the Open App Markets Act (OAMA) into law. But one of the key sponsors of the bill--Senator Richard Blumenthal (D-Conn.)--has vowed to reintroduce it during the next term and that he and his sponsors would "redouble" their efforts:

The other key sponsors in the Senate are Sen. Amy Klobuchar (D-Minn.) and Sen. Marsha Blackburn (R-Tenn.), but they haven't tweeted about the failure of the OAMA and the American Innovation and Choice Online Act (AICOA) yet. Another tweet that I would like to show is from CNN's Jake Tapper:

There's some in-depth analysis out there of the nine-figure lobbying spend (mostly by Apple and Google) that got the OAMA blocked at this stage. Let me refer you to Techmeme for that. It is also a fact that astroturfing played a role. The Cash & Carry Industry Association--which calls itself Computer & Communications Industry Association, falsely claims to advocate open markets (in reality, they're just about protecting monopolies and enabling monopoly abuse), and has been officially accused of astroturfing by EU politicians--was particularly active: it is backed by Apple, Google, and Meta (which is in favor of open app markets, but not of the AICOA).

While I am in favor of the OAMA, I can see why some high-ranking politicians blocked a bill that actually came out of committee with overwhelming support (20-2). I don't want to engage in "(Majority Leader) Schumer-bashing" here. In the patent policy context I've seen how unprincipled he is: he wrote a letter trying to the influence the ITC in favor of a Kodak patent enforcement action (at a time when Kodak was simply a non-practicing entity) while pushing for legislation to protect other New York companies--i.e., banks--from NPE litigation. But politicians at that level usually can't be principled: they have to make tactical choices.

The decision to table the bill (for the British English speakers among my readers, I mean the term the way it is used in America, which is the opposite of how you define it) is somewhat understandable:

  • The EU's Digital Markets Act (DMA) won't actually impact the market until 2024 at the earliest (with a potential for litigation having a dilatory effect). If the OAMA had been voted on this month, it would likely have open up mobile app stores in the U.S. even before anything would really change in Europe. (Apple's App Store business is relatively small in Europe compared to the U.S., due to market share, purchasing power, and other factors.)

  • The Ninth Circuit is working on its Epic Games v. Apple appellate opinion, and while I know that many other observers believe Epic's appeal will be rejected due to a failure of proof, I got the impression that the appeals court is aware of the district court not having gotten the market definition right. In any event, that case won't be over after the Ninth Circuit panel opinion. We'll likely see a petition for an en banc rehearing and ultimately a cert petition.

  • The DOJ supports Epic, but may also bring its own case against Apple. The DOJ could bring that case anytime now, even before the Ninth Circuit panel has spoken, but it may also await the panel opinion in order to optimize its complaint accordingly.

As an app developer who is much more concerned about the app review tyranny than the app tax (though the latter is also unacceptable), I'm obviously disappointed about the OAMA not having come to fruition yet. But many roads lead to Rome, and 2023 is another year.

Sen. Blumenthal says he and his allies in Congress will "redouble" their work. That also applies to the companies pushing for the OAMA, and their organizations, above all the Coalition for App Fairness (CAF). On Twitter and LinkedIn, I often like and share the CAF's posts, though--to be honest--I sometimes find them repetitive. The CAF must get bigger and better. The problem with getting other companies involved in the fight is, of course, that too many are afraid of the two tyrants, especially of Apple. But possibly there are some companies that are truly suffering under the app story tyranny and thought they could stay on the best possible terms with the dictatorship, politically free-riding on other companies' efforts and courage to fight the good fight. Maybe some of the free-riders and cowards will now determine that they should play a more active role next time, or change won't happen.

I'm also disappointed that it often feels like there are only two people calling out those astroturfers: Epic Games CEO Sweeney, and yours truly. (To be fair, before I first called out ACT, NY-based attorney David Cohen had already done so on his KidonIP blog, but with a focus on patent policy as opposed to app store issues; and Bloomberg's Emily Birnbaum exposed ACT more than any of us did, but she's a neutral reporter and we need more anti-astroturfing activism.)

The Verge's Alex Heath interviewed Mr. Sweeney earlier this month. Strongly recommended. He's definitely not going to give up. I don't agree with Epic 100% of the time, but easily 80%, if not 90%. With more Epics, Apple and Google would lose this. And I do view Spotify's efforts more favorably now. It was reported in some media that Spotify founder Daniel Ek met with EU antitrust chief Margrethe Vestager a few months ago. A DG COMP ruling against Apple--provided that it's not too narrowly focused on the music streaming market--would be a huge milestone. But while Mr. Sweeney's criticism of the mobile app store mess is comprehensive and multi-faceted, I'd like to see such companies as Spotify and Match Group (Tinder)--the other key CAF founders--to tackle the problem from more angles as well.

I also believe that those advocating open app markets could do a better job explaining to journalists--and it shouldn't be hard when you look at the impact of App Tracking Transparency (ATT)--why we're effectively also fighting for their interests.

Some argue that a Republican House majority would make it hard or even impossible to bring back the OAMA. I don't think so. There are various ways in which it could still work, but those in favor of open app markets must get smarter and better. There's no denying that it's harder to build consensus between a Democratic majority in the Senate and a GOP majority in the House of Representatives.

Just learn your lessons from what didn't work out during this Congressional term and why, and then the OAMA may come back with a vengeance, either in 2023 or after the EU's DMA and the UK's DMU have made an actual impact and delivered proof that neither the security sky nor the privacy sky will fall if you allow third-party app stores and direct installs (aka "sideloading").

Tuesday, December 20, 2022

Paris Commercial Court declined to find fault in Apple's 30% app tax, referred to EU Commission enforcement of antitrust law and DMA: French government should appeal certain parts

Yesterday it was reported by Reuters and subsequently by other media that the Tribunal de Commerce de Paris (Paris Commercial Court) imposed a fine of approximately 1 million euros (to be precise: €1,090,909) on Apple over some of its App Store terms.

Most of the reporting focused on the fact that some terms--such as Apple's absolute right to reject apps submitted by developers--were deemed unfair ("déséquilibre", i.e., an "imbalance" in trading conditions resulting from one party's superior bargaining power). As an app developer who brought his own complaints over Apple's app review tyranny, I welcome any decision that declares Apple's arbitrary censorship unlawful. However, that's just part of the story. Apple defended itself against multiple claims; otherwise the fine would have been roughly twice as high.

I have meanwhile obtained and perused a copy of the entire 30-part judgment by the Paris Commercial Court's 13th Chamber (trade judges Alain Wormser (presiding judge), Gérard Palti, and Beatriz Rego Fernandez). There are other counts on which Apple prevailed, and which have not received enough attention. As a commentator on these cases, I can't just ignore the unfavorable parts of a decision.

Apple may appeal the million-euro fine, but the French Minister of Economic Affairs and Finance, Bruno Le Maire, may equally--and hopefully will--appeal any unfavorable parts of the ruling to the Cour d'appel de Paris (Paris Court of Appeal).

My overall impression of the decision is that the three-judge panel was simply not interested in tackling some of the more difficult questions, such as the fairness of Apple's requirement that all in-app purchases use Apple's IAP system and the app tax of 30% or more for developers of a certain size (and 15% or more for small ones). With respect to those claims, the court

  • finds that the percentage and the collection method were not facially outrageous, claiming without any particular explanation that smaller developers didn't care anyway and larger ones had other ways of reaching customers,

  • mindlessly lists Apple's spurious arguments such as that Progressive Web Apps are an alternative to native apps (though it's simply a market reality that they are not), many apps are free and Apple does not tax the sale of physical goods,

  • points to the European Commission's responsibility to enforce EU antitrust law against mobile app stores (which is ridiculous given actions that are pending in EU member states such as Germany and the Netherlands), and

  • refers to the EU's Digital Markets Act (DMA), which will require Apple to allow third-party app stores.

There are unmistakable signs that the court wanted to sidestep certain questions. The overall analysis in the judgment (most of which is just a summary of the procedural history and the parties' arguments) is skin-deep at best. Referring to the European Commission's enforcement of EU antitrust rules and to the future effects of the DMA (which won't really change anything in the marketplace until 2024 at the earliest) is tantamount to a dereliction of duty.

I wish to underscore that the ruling does not "bless" the 30% app tax. It merely finds that "le déséquilibre significatif n'est pas suffisamment démontré par le Ministre" ("the Minister has not sufficiently shown the allegedly significative imbalance"). And the court specifically declined to analyze Apple's challenged conduct under antitrust law.

The rule changes that the Paris Commercial Court expects Apple to make relate to app review and to appeals of app rejections, but also to Apple's unilateral right to change the terms of the Developer Program License Agreement (DPLA) anytime. The Paris Commercial Court took into account that there are more than 10 million iPhones in use in France and that developers need a way to reach those users. Apparently Google has already been required to make some changes in that regard.

It's remarkable that the case is actually about five years old, and it took the court so long to hand down a rather thin ruling that decided only some easy parts against Apple. The judgment reflects that Apple engaged in stalling. For example, the French government called Apple's motion for a preliminary reference to the European Court of Justice (ECJ) "abusive and dilatory" as it spans 34 pages, raises 16 partly duplicative questions for review, is highly repetitive, and that the motion's sole purpose was to waste the Court's and the French government's time ("APPLE a, de manière abusive et dilatoire, consacré à ces seize questions préjudicielles pas moins de 34 pages de ses écritures, qui comportent moult doublons et répétitions, dans le seul objectif de faire perdre leur temps au tribunal et au Ministre"). Apple's motion for a preliminary reference was denied, but may indeed have delayed the proceedings.

The court also rejected a procedural motion by which the France Digitale industry association sought to support the French government. France Digitale was not allowed to intervene. While that is unfortunate, the court may have had good reasons. Based on what I found out, the representative of France Digitale lacked the necessary power of attorney to engage in litigation, and the petition to intervene was brought at a relatively late stage of proceeding.

Before the Paris Court of Appeal, not only France Digitale could try to file a timely petition to intervene, but so could other parties. It would be great if there could be broadbased support for the French government, possibly also by organizations like the Coalition for App Fairness (which was founded only in 2020, too late for the case before the lower court).

Regrettably, the Paris Commercial Court did grant ACT | The App(le) Association's petition to intervene. ACT receives most of its funding from Apple, and is effectively controlled by Apple, as Bloomberg reported in September. But that masterpiece of investigative journalism was too late for the proceedings in the lower court. The appeals court might take note of those revelations, however.

The French government told the Paris Commercial Court that ACT's intervention was "opaque" ("imprégnée d'opacité") and that ACT and Apple are linked ("ACT et APPLE sont liées"). According to the French ministry, ACT's intervention was "purely opportunistic, dilatory, and completely useless" ("l'intervention volontaire de l'association de droit belge ACT est purement opportuniste, dilatoire et parfaitemente inutile"). Maybe those argumnents will convince the appeals court, especially with ACT itself having admitted to Bloomberg that the majority of its funding comes from Apple.

This litigation by the French government against Apple has been described as part of a trade war that was started by then-President Trump. However, it appears that the case (and especially the investigation that resulted in it) predated the imposition of punitive tariffs on steel and aluminum imports by the Trump Administration. The judgment notes that the investigation started in 2015, which was during the Obama presidency ("La DGCCRF a ouvert en 2015 une enquête relative aux relations commerciales entre APPLE et les développeurs d'application sur la plateforme App Store").

Some French app makers are suing Apple in the Northern District of California. They have meanwhile amended their complaint, and I'll talk about the differences between the amended complaint and the original one on another occasion. The U.S. class action by French publishers is the result of a cooperation between French antitrust attorney Fayrouze Masmi-Dazi and U.S. class action firm Hagens Berman.

Monday, December 19, 2022

Huawei suing Amazon in Germany over WiFi patent infringement--Chinese lawsuit previously became known

A Huawei v. Amazon patent enforcement action in China already became known in October. I have since been trying to find out about similar cases in Germany, and the Dusseldorf Regional Court has confirmed the pendency of case no. 4b 65/22 (Presiding Judge: Dr. Daniel Voss ("Voß" in German)) over EP2491662 on a "number of streams indication for WLAN" (WLAN is another term for WiFi).

The same German court has already granted Huawei a default judgment against Netgear.

I have also asked the Munich I Regional Court and the Mannheim Regional Court whether they can confirm any Huawei v. Amazon cases. However, Munich replied that they cannot (which doesn't necessarily mean that there's nothing there, but German courts can only confirm cases when all defendants have been served, and the administration of the Munich court tends to be a bit slow with service of process), and Mannheim hasn't responded (it has recently been more difficult than at any point during the past ten years to obtain information from the Mannheim court).

Other cases brought by Huawei in Munich and Mannheim have, however, become known, such as cellular standard-essential patent (SEP) actions against the Stellantis automotive group (Fiat Chrysler, Peugeot, Opel etc.) in both Mannheim and Munich, and two cases in Munich against German Netgear competitor AVM. The Munich court's Seventh Civil Chamber held a Huawei v. AVM FRAND hearing on Thursday, largely behind closed doors. The former Presiding Judge, famous patent judge Dr. Matthias Zigann, was promoted to the appeals court (and is serving on the Unified Patent Court). At this point, a permanent successor has not been appointed to preside over the Munich I Regional Court's Seventh Civil Chamber. Judge Dr. Zigann's former deputy, Judge Benjamin Kuttenkeuler, is the chamber's Acting Presiding Judge and, in that role, presided over last week's Huawei v. AVM FRAND hearing. It's too early to tell, but I have yet to meet someone who would describe AVM as a perfectly willing licensee.

Huawei says patent infringement lawsuits are only a last resort when infringers are otherwise not prepared to engage in good-faith negotiations. That point was made again at last week's IAM webinar. Actions speak louder than words, and Huawei's patent cross-license agreement with OPPO, which was announced ten days ago, lends further credibility to Huawei's preference for the amicable resolution of licensing issues.

I expect all of the currently pending Huawei patent cases to be settled during the course of next year, and possibly even before the middle of the year.

Saturday, December 17, 2022

ASTROTURFING: "Gross, Apple" says CWA labor union as iPhone maker creates fake labor union in Ohio, controlled by Apple management just like its fake app developer association

Another bad apple has been exposed, raising the question of how bad Apple is. Has Apple become the least ethical Big Tech company in history? It is shocking to see in what extremely dishonest behavior Apple engages against the stakeholders it is exploiting: certain categories of employees, and app developers. Apple treats all of them as serfs, and there is an astounding parallel: Apple doesn't want those serfs' voices to be heard and interests to be represented. Just like they believe that only Apple (and not users) should decide what apps to download (and from what monopolistic App Store with its abusive terms) to download, Apple employees shouldn't speak for themselves but instead join a fake union that is just a sock puppet for Apple's management.

There have been other complaints with the National Labor Relations Board (NLRB) over Apple's "union-busting" efforts, some of which are mentioned in CNET's latest article on a Communications Workers of America (CWA) complaint that Bloomberg (paywalled) was first to report:

The complaint form (just a one-pager) is has been published by The Register (PDF) (here's the Register article itself). The "Basis of the Charge" has three parts, and the final one says:

"Creating and soliciting employees to join an employer-created / employer-dominated labor organization as a means of stifling Union activities."

The CWA--which by the way supports Microsoft's acquisition of Activision Blizzard because it will faciliate unionization of Activision employees--announced that complaint on Twitter, and retweeted the announcement with a comment: "Gross, Apple."

Gross it is indeed, but it's a pattern that seems familiar. In September, Bloomberg reported that ACT | The App Association--a fake app developers association--receives the vast majority of its funding from Apple and, according to former employees, is simply run by Apple. I only ever attended one ACT event (in Berlin in 2019), and I was the only app developer there. Also, I can't think of any app developer who would benefit from the positions that ACT takes on whatever issue, but on many key questions involving Apple's App Store monopoly abuse, ACT | The App(le) Association works against us.

App developers are to Apple what drivers are to Uber and other "gig economomy" companies. We're not going to be able to unionize, and there are reasons for that, but at least Apple should not let some Washington D.C. lobbyists on its payroll claim to represent us while actually working against us.

The ACT-Apple link is well-known and even the UK Intellectual Property Office has recently acknowledged it in a reply to FOSS Patents. A European Parliament vice president who was arrested this month over corruption charges served on the boards of astroturfing operations that collaborated with ACT and another Apple-funded group, CCIA.

Apple even used ACT to commission a paper by Charles River Associates. And they met with members of EU antitrust and digital policy chief Margrethe Vestager's cabinet, opposing an initiative that can contribute to the fight against climate change.

Given that it looks like the Open App Markets Act (OAMA) may not be passed into law by U.S. Congress during the impending end of the current legislative term, the problem is that Apple's tactics tend to work. Apple stops at nothing to get its way. But the more of this type of conduct gets exposed, the more setbacks Apple will suffer in the legislative arena and in litigation.

Thursday, December 15, 2022

Advocate General Rantos issues opinion in Super League ECJ case, deems soccer bodies' rules compatible with EU competition law

The European Court of Justice has just issued a press release (PDF) on the Advocate General's opinion in the European Superleague Company case (case no. C-333/21). It is the highest-profile antitrust case pending before Europe's top court by some measure. For instance, more than 20 EU and European Economic Area member states intervened at the July hearing in support of the European Sports Model that UEFA (the European soccer federation) and FIFA (the world soccer body that is organizing the ongoing World Cup) are defending--more than in any other case in the Court's history.

The so-called European Super League is--or was--an attempt to form a European-level breakaway league. It fell apart within about 48 hours of its botched launch in April 2021 due to resistance by fans, but three clubs--Real Madrid (a client of mine more than 15 years back), FC Barcelona, and Juventus FC--are still pursuing their vision. They obtained a preliminary injunction in Spain against sanctions that UEFA and/or FIFA might impose on clubs or players participating in their envisioned breakaway league, which was lifted a few months later. Within days of the complaint, and prior to counsel for any party other than the plaintiff side having entered an appearance, a Spanish trade judge referred the matter to the European Court of Justice in the form of a preliminary reference (i.e., asking the top EU court for guidance on how to interpret EU competition law in this context).

The European Commission supported the traditional European Sports Model against this legal attack through its written observations and various official statements, including a public statement after the renewal of a cooperation agremeent that an MEP close to one of the Super League clubs wrongly criticized.

At the July hearing, Advocate General Athanasios Rantos' first question to the breakaway side (represented by Clifford Chance and a sports-specialized lawyer) was why they claimed to be able to do a much better job at running a soccer competition but at the same time insisted on access to domestic leagues (such as Spain's La Liga) run by the existing pyramid of sports bodies. Clifford Chance made an essential facility type of argument, which came down to cherrypicking and failed to convince.

What is know now is that AG Rantos has answered every single one of the six referral questions in favor of UEFA and FIFA, finding no fault in their system of sanctions that are imposed unless a new competition is preauthorized by them. AG Rantos' opinion--which is not binding on the 15 judges of the Court's Grand Chamber, but has a high statistical likelihood of being more or less adopted--appears to give considerable weight to the specific nature ("specificity") of sport, which is recognized by Article 165 of the EU Treaty. I discussed the relevance of Art. 165 to the application of EU competition rules to the professional sports sector in a LinkedIn post shortly before the Luxembourg hearing.

According to AG Rantos, sports bodies are within their rights to require preauthorization of competitions, provided that certain criteria are met (objective, transparent and non-discriminatory rules). The "European Super League" has yet to formally request preauthorization. What AG Rantos recognizes in principle is that UEFA's and FIFA's rules that the "Super League" is challenging pursue legitimate objectives and are necessary, inherent, and proportionate to the pursuit of those objectives.

This is an across-the-board victory for UEFA and FIFA at this stage of proceeding. It is a bit of a procedural oddity that the latter declined to appear in the Spanish court, but very much did show up at the ECJ hearing. Be that as it may, UEFA has consistently defended its perspective, it has the support of a vast majority of EU Member States (and, therefore, the EU Council) and of the European Parliament, and is backed by the European Commission, especially by Vice President Schinas, who is in charge of Education and Culture, which includes sports policy.

While I want Clifford Chance to succeed with its EU antitrust complaints against Apple (where they represent Spotify and Epic Games) and Google, I find it odd that such a reputable firm would speak out publicly on this case--such as at a recent Madrid conference--while the AG was working on his opinion and with the judges not even having begun their deliberations yet. It's unorthodox at best and disrespectful at worst. There's a right way and a wrong way to excude confidence during the pendency of a case.

The leaders of the three hold-out clubs and the CEO of their marketing firm (A22 Sports Management) argued that the European Court of Justice could only find in their favor. They are now facing an uphill battle as the Advocate General assigned to this case fundamentally disagrees with them. The leaders of those clubs may have listened to the wrong advisers. And one of those clubs--Juventus FC from the Northern Italian city of Turin--is now in trouble over charges of false accounting, which resulted in the resignation of the entire board of directory of the publicly traded company that owns the team. It is rather rich for them to claim that they could do a better job at Financial Fair Play than the existing sports bodies.

I'm generally in favor of strong competition enforcement, but the rule of law is an equation that has two sides. The boundaries of competition law--and especially any carve-outs such as the specificity of sport that are the result of democratic rulemaking processes--must not be disregarded. The positions espoused by the "Super League" and Clifford Chance are ignorant. You can't treat a non-profit soccer body like the world's richest corporations with their gatekeeping power over digital markets when the unique nature of sport and its societal dimension are explicitly recognized by the EU's de facto constitution. Selective ignorance gets you nowhere in antitrust law.

In the U.S., there is no statutory equivalent to Art. 165 TFEU. That's why I absolutely agree with the key lesson from NCAA v. Alston, which is that only procompetitive justifications can be considered under a rule of reason. Just yesterday I shared observations on a certain divergence of U.S. and EU antitrust laws. Today--while not yet a final ruling--is another example. I applaud AG Rantos for having properly taken into consideration the European statutory framework, just like I believe the U.S. judges who ruled against the NCAA reached the appropriate conclusions under the Sherman Act.

It would now make a lot of sense for the "Super League" to negotiate a settlement enabling its founder clubs to rejoin the soccer family on an amicable basis. Given that Clifford Chance has plenty of other fee-earning opportunities, especially those way bigger tech competition cases they are working on, they shouldn't have a conflict of interest and just tell their clients that they are on the wrong track.

Wednesday, December 14, 2022

Microsoft's lead counsel in FTC case over Activision Blizzard acquisition successfully argued for execution of Oklahoma Bomber McVeigh

On Thursday, the Federal Trade Commission (FTC) filed its complaint over Microsoft's acquisition of Activision Blizzard King, though the alternative would have been a consent decree. Today, Microsoft's counsel gave notice of appearance (PDF): four lawyers from the DC head office of Wilkinson Stekloff.

Microsoft's lead counsel is the firm's founder, Beth Wilkinson, who has an impressive background in litigation, including high-stakes multi-billion dollar cases as well as criminal cases. As a trial lawyer at the Department of Justice, she represented the United States against Oklahoma bombers Timothy McVeigh and Terry Nichols.

In June 1997, the Los Angeles Times described how Mrs. Wilkinson convinced the jury in the government's closing argument that the death sentence was appropriate in that particular case:

Prosecutor Beth Wilkinson turned toward McVeigh and in a voice cracking but loud enough for the jury to hear said: "Look into the eyes of a coward and tell him you will have courage. . . . Tell him he is no patriot. He is a traitor and deserves to die."

The jury agreed, and a few years later, McVeigh was executed.

For her work on that domestic terrorism case, Mrs. Wilkinson was awarded the DOJ's Exceptional Service Award for a second time (no one before her had received it twice).

A profile on the website of her alma mater--Princeton-- points out, however, that Mrs. Wilkinson also "served as Co-Chair of the Committee to Reform the Death Penalty, 'a nonpartisan group that worked to initiate reforms to the death penalty around the country.'"

There are three more Wilkinson Stekloff partners appearing on Microsoft's behalf: Rakesh Kilaru, an experienced antitrust litigator; Kieran Gostin, a former DOJ trial counsel; and Grace L. Hill, who like Mrs. Wilkinson once practiced criminal law but has more recently handled civil litigation, such as "preparing a tech company’s C-suite executives to testify in an FTC investigation."

Microsoft's filings with the UK Competition & Market Authority (CMA) bear the logo of one of America's largest and most famous firms, Weil Gotshal & Manges.

The FTC's primary challenge, however, is not Microsoft's legal team, no matter how impressive its background may be. It's that the complaint fails to convince observers. Moreover, Microsoft is prepared to alleviate any concerns over vertical foreclosure, even with respect to multi-game subscription services. Sony is the undisputed market leader, and Microsoft President Brad Smith noted that "the Administrative Law Judge is going to have to decide whether going from 59 to 60 [Xbox-exclusive games] is such a danger to competition that he should stop this from moving forward," considering that there are 286 PlayStation-exclusive games--and that Microsoft is actually prepared to extend a 10-year license to Sony.

Huawei, Qualcomm, InterDigital agree that licensing level must not serve as pretext for driving down standard-essential patent royalties: IAM Connect 2022 panel

IAM just hosted the last one of its IAM Connect 2022 panels. It was chaired by Paul Lin, Xiaomi's long-time head of IP who founded Eagle Forest LLC, an IP-specialized consulting firm. The panelists were Huawei's Head of IP Alan Fan, Qualcomm's Senior VP and General Manager (for the licensing division named QTL) John Han, and InterDigital's chief licensing officer Eeva Hakoranta.

It was a great panel that easily met and arguably exceeded expectations, which were obviously high given the background of the panelists. I've seen webinars with several times more listeners that weren't even half as good.

The focus was on what were the key developments in IP licensing in the telecommunications sector this year, and what may be the key trends and issues in 2023. Huawei and Qualcomm agreed that renewing existing licenses in the smartphone market and upgrading them to 5G is less likely to require enforcement action than when some implementers took licenses for the first time.

To a greater extent than envisioned, the debate was about the licensing level, where the three companies agreed that

  • one can license chipset and module makers (Huawei explicitly said so; Qualcomm said so with respect to IoT modules; and InterDigital did not appear to disagree), but

  • an alleged obligation to extend component-level licenses (Qualcomm and InterDigital dispute that there is such a duty under the ETSI FRAND pledge, while Huawei doesn't rule it out) must not be a vehicle for bringing down standard-essential patent (SEP) royalties under a smallest salable patent-practicing unit (SSPPU) valuation approach.

Huawei's Chief IP Officer Alan Fan made an argument about consistent pricing across the supply chain that is not only in the interest of licensors but equally of licensees: the ND (non-discrimination) part of FRAND. It is true that a device maker A with a supplier X could be at a competitive disadvantage if its competitor B benefited from a lower royalty rate because of a deal between a given patent holder and its supplier Y.

It is a legitimate objective in its own right to oppose price erosion, but with the ND-part-of-FRAND argument, one simply stands on higher ground and takes a position that is in the public interest.

Qualcomm's John Han very much emphasized use-based pricing. Mr. Han rejected an SSPPU royalty base and stressed a key distinction:

Price differentiation isn't price discrimination.

More than three years ago I organized a Brussels conference on component-level licensing (I haven't organized a conference ever since and have no intentions of doing so, though that one was clearly a success as I'm sure any participant--including officials from four directorates-general of the European Commission--could confirm). At that conference, an economist with otherwise very implementer-friendly positions also acknowledged that use-based pricing is economically reasonable. There was, however, a little bit of a misunderstanding because he called "price discrimination" what Qualcomm's panelist today sought to distinguish from "price differentiation." Semantics matters here because one is a potential antitrust violation while the other is the very opposite: it is recognized, not only but especially in the EU, that applying the same price to different transactions may constitute discrimination.

The three companies from which today's panelists hailed have distinct business models. InterDigital is, as Mrs. Hakoranta acknowledges, a research firm that generates the entirety of its revenues from licensing; Qualcomm has a licensing arm (Mr. Han's division) as well as a chipset business; and when the moderator said that it would have been nice to hear the views of an implementer, Huawei's Mr. Fan was quick to point out in no uncertain terms that Huawei is a major implementer and large-scale licensee. Mr. Fan jokingly said that if Mr. Lin wanted him to talk about the topic from a licensee's perspective, he'd be happy to do so anytime.

Huawei's mix of licensor and licensee interests gives that company a very balanced perspective. They need licenses for their own products, but they also know what it feels like when a patent holder faces hold-out tactics by an unwilling licensee. Case in point, tomorrow morning the Munich I Regional Court's Seventh Civil Chamber--which until recently was chaired by Presiding Judge Dr. Matthias Zigann, who has since been promoted to the appeals court--will hold a Huawei v. AVM FRAND hearing. AVM is a German WiFi router maker and competes with Netgear, a U.S. company against which Huawei has already obtained a default judgment in Germany.

Shortly after Huawei's landmark patent cross-license agreement with OPPO was announced last week, it also became known that Huawei recently renewed its license agreement with Samsung, which is now a 5G license. A few years ago, Huawei and Samsung settled litigation and signed a 4G license agreement. This time around, no litigation proved necessary.

Interestingly, it has now been discovered that Samsung transferred certain U.S. patents to Huawei.

Mr. Fan's statements today were balanced and principled. InterDigital's positions are also very consistent, though their license deals are obviously one-way streets.

Qualcomm made a number of good points. However, one need not "buy" Qualcomm's distinction of smartphone patent licensing (where they license only at the end-product level) from other categories where Qualcomm is prepared to license module makers. What makes sense for Qualcomm to do--and I'm not taking a position here on whether it raises antitrust concerns--is unique to that company with its particular business model and competitive strategy. While Qualcomm does at this point prefer to license four major IoT module makers over dealing directly with myriad small device makers, Qualcomm stressed again today that licensing at the component level is a voluntary choice. What if Qualcomm decides to compete aggressively in the narrowband IoT chipset market? There is no guarantee that they will still license module makers.

For now, however, Qualcomm has those four IoT module makers under license, and Mr. Han specifically mentioned Quectel.

Mr. Fan explained from Huawei's perspective that apart from FRAND considerations, it is simply efficient for a patent holder to license a company that knocks at its doors requesting a license. At the same time he made it clear that a licensing offer that does not allow audits could not be considered FRAND because some control is needed to avoid double-dipping.

The overall growth of 5G (now more than half of all cellular gadgets) and component-level licensing were not the only topics of discussion. Another topic that the panelists touched on was whether there could be a smartphone patent pool. By coincidence, Sisvel had announced a 5G multimode pool for consumer electronics devices (smartphones etc.) earlier today. Qualcomm essentially argued that there are only a few major handset makers, and if a company already has a bilateral relationship with a handset maker (and given that they hold SEPs of their own and like to cross-license, plus they like to license implementation patents that I believe Mr. Han meant to imply aren't implemented at the chipset level anyway), it will now just negotiate a renewal that upgrades that license to 5G. In my opinion, that does not apply to those cellular SEP holders who do rely on pools in order to reduce transaction costs--such as the ones that have joined and may in the near future join Sisvel's 5G MM licensing program.

My takeaway is that in 2023 we're going to see a diversity of approaches to the licensing level (with Huawei being extremely flexible and Qualcomm making different choices depending on industry segment characteristics); and the kinds of companies who were represented on the panel will license bilaterally, while others will benefit from their participation in pools.