Monday, September 21, 2020

PanOptis/Unwired Planet patent troll group sues allegedly unwilling licensee Tesla over former Panasonic and Ericsson patents in Eastern District of Texas

There's further escalation in the standards-essential patent (SEP) conflict between the abusive Avanci gang and the 21st century's most innovative automotive company, Tesla:

After Conversant Wireless's patent infringement complaints against Tesla in the Western District of Texas and the Mannheim Regional Court, a request for a Japanese import ban by Sharp, and Sisvel doubled down on its litigation campaign against Tesla in the District of Delaware, the affiliated patent trolls named Optis Wireless, PanOptis, and Unwired Planet have just filed a patent infringement suit against Tesla in the Eastern District of Texas over four former Panasonic patents and one former Ericsson patents, all of them declared to be essential to cellular telecommunications standards (this post continues below the document):

20-09-20 Optis PanOptis Unw... by Florian Mueller

These are the four former Panasonic patents-in-suit:

In addition, the trolls are asserting a former Ericsson patent:

Legal entities from the same patent troll group received a $506 million verdict against Apple last month in the same venue: Marshall, Texas, where the exceeding troll-friendly Chief District Judge Rodney Gilstrap presides over numerous patent infringement cases every year.

The complaint contains a relatively detailed descriptions of efforts by the Avanci patent pool firm as well as the plaintiffs in this action to sell Tesla a license. The trolls' lawyers argue that Tesla behaved like an unwilling licensee, engaging in hold-out rather than good-faith negotiations, sometimes taking many months to respond to an offer in a way that the trolls didn't consider to be constructive. But let's not take that narrative at face value:

  • It remains to be seen how Tesla will seek to justify its negotiation style when it files it answer to the complaint, and when the case gets closer and ultiamtely goes to trial.

  • At the heart of the problem is something you can't blame Tesla for: instead of demanding SEP royalties from Tesla on the value of an entire car, the trolls and their Avanci pool firm should talk to the relevant suppliers about an exhaustive component-level license that would cover the downstream, including but not limited to Tesla.

The day after tomorrow, the Munich I Regional Court will hold a trial over one of various patent infringement cases brought by another privateer (a patent troll fed by a large company with patents for the purpose of extracting higher royalties than otherwise), Conversant Wireless, against Daimler. As I noted in the previous post, the patent-in-suit in that case is now also being asserted against Tesla in a differnet German court (Mannheim). The Munich decision in the Daimler case won't be formally binding on the Mannheim court in any way, but should Daimler lose in Munich, Tesla would have to convince the Mannheim judges that their Munich-based colleagues made a mistake.

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Sunday, September 20, 2020

Three decisions due on Friday (9/25): FTC v. Qualcomm (en banc petition?); EU "state aid" case against Apple/Ireland (further appeal?); Nokia v. Daimler

By sheer coincidence, three decisions will become known on Friday (September 25) in cases that this blog has previously discussed but which are otherwise unrelated. In two of those cases, competition authorities have to decie whether to turn things around after losing the first appellate decision. In one case, there would definitely be a way, but might not be the political win to keep fighting; in the other case, there would undoubtedly be a will, but there may not be a promising way. Furthermore, a German court will announce a decision on an automotive patent infringement complaint with major antitrust implications.

  1. The United States Federal Trade Commission (FTC) is now approaching the 45-day deadline for a potential petition for a rehearing en banc of a three-judge panel's appellate ruling in Qualcomm's favor.

    Given the high profile of the case, many Ninth Circuit judges might be interested in taking a closer look at the case. But the Republican majority of commissioners (3 vs. 2) has in the past supported Qualcomm, as has the Republican federal government. FTC chairman Joseph Simons recused himself from the case earlier on, but is no longer recused, enabling him to cast the decisive vote (assuming it's still a 2-2 tie between the other commissioners). Car makers and various other technology companies wrote an open letter to the FTC, urging the agency to bring that petition. While the more likely outcome is still that the Republican majority wants to let Qualcomm off the hook, institutional considerations would weigh in favor of a petition for a rehearing, given that the Ninth Circuit panel that decided the case has the potential to complicate antitrust enforcement way beyond the Qualcomm case.

  2. With respect to whether there's a will and a way, it's precisely the opposite outlook in Europe, where Ireland and Apple defeated the European Commission's competition chief Margrethe Vestager in the EU's General Court (formerly known as Court of First Instance).

    The Commission's 13-billion euro decision was deficient, self-contradictory, and hard to reconcile with the Commission's acceptance of special tax rules in other parts of Europe that do look like state aid at first sight.

    Mrs. Vestager's concerns are understandable, but if all of you have is a hammer, everything looks like a nail, and her hammer was competition law (in this case, state aid law). There is a problem, but it has to do with the fundamentally flawed architecture of the EU's Single Market. It would have to be solved politically, but realistically won't be. None of those structural issues makes a made-up "state aid" case any more meritorious, though.

    There's no doubt Mrs. Vestager and many others in the European Commission would want to appeal the EU General Court's decision to the Court of Justice of the EU (CJEU). But here's the problem: they'd have to raise a question of law, not fact, and the EU General Court found that the Commission simply lacked the facts to back up its ruling.

  3. Also on Friday, the 21st Civil Chamber of the Munich I Regional Court plans to hand down a decision (which may or may not be a final--though it would be appealable--judgment) in a Nokia v. Daimler case (case no. 21 O 3891/19) over German patent DE60240446C5 on a "hybrid automatic repeat request (HARQ) scheme with in-sequence deliver of packets"). At the late-July trial, the court did not indicate any particular inclination. Daimler disputes the essentiality of the patent-in-suit, its validity, and raised a FRAND defense--all in all, three major hurdles for Nokia to overcome or it will fail to obtain the injunction it's seeking. But Munich is a hotbed for patent--and increasingly also for SEP--litigation. Another panel of judges of the same court just granted Sharp an injunction against Daimler.

    The same panel that will announce the aforementioned decision on Friday will hear another SEp case against Daimler on Wednesday. In practical terms, it's another Nokia v. Daimler case, though the plaintiff is Conversant Wireless, a patent troll asserting former Nokia patents against the Mercedes maker. The patent-in-suit to be discussed on Wednesday is EP2934050 on an "apparatus and method for providing a connection."

    Come November, the Dusseldorf Regional Court will presumably refer to the top EU court a set of legal questions regarding the licensing of SEPs to component makers. The regional appeals courts in other parts of the country may also be hesitant to enjoin Daimler while its suppliers are more than willing to take exhaustive component-level licenses on FRAND terms, at least at a time when the CJEU will be looking into this. But in the meantime, Nokia and its trolls are still trying hard to obtain injunctions against Daimler. Also, Wednesday's patent-in-suit is being asserted by Conversant against Tesla in Mannheim.

    In light of those circumstances making the case more relevant than I'd have thought back when it was filed, I may attend and report on the Wednesday trial. I hope the 21st Civil Chamber will take the necessary measures to prevent coronavirus preventions. On Sunday, a regional government agency said that COVID-19 infections are on the rise again in Munich, with 55.6 infections reported per 100,000 inhabitants over the course of the past seven days (approximately 2.5 times the statewide average). The minister of health of the state of Bavaria rebuked the local soccer club's leadership for sitting next to each other in an otherwise empty stadium last Friday--and that was an open-air event, unlike a patent trial.

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Softbank's two major competition cases: Apple-Intel antitrust suit against Fortress, and merger review of Nvidia's envisioned acquisition of ARM

Softbank--though huge--was mentioned on this blog for the first time when Intel and Apple brought an antitrust action against its Fortress Investment subsidiary over the industrialized abuse of patents. That case is still pending, and another major competition case involving Softbank is around the corner: its contemplated sale of chip company ARM to Nvidia for $40 bilion is likely to draw regulatory scrutiny in multiple jurisdictions.

While my focus will definitely remain on App Store antitrust cases (as an app developer and antitrust commentator, I'm doubly interested) and component-level licensing of standard-essential patents, the Apple and Intel v. Fortress litigation and the upcoming Softbank-ARM merger reviews are also worth keeping an eye on. In this post I'd like to share a few observations on both matters.

1. Fortress Investment's motion to dismiss amended Apple-Intel complaint

In the Fortress case, Apple and Intel are trying to enforce antitrust law against an extremely aggressive patent troll group. Their first joint complaint was dismissed by Judge Edward Chen of the United States District Court for the Northern District of California, but without prejudice, and the plaintiffs brought an amended complaint. Fortress is now seeking the definitive (= with prejudice) dismissal of the amended complaint (this post continues below the document):

20-09-15 Fortress Motion to... by Florian Mueller

Judge Chen had given Apple and Intel some guidance in his order on the motion to dismiss as to what they'd have to improve in order for an amended complaint to (potentially) survive. But Fortress's new motion to dismiss, which was filed on Tuesday (September 15, 2020) argues that the new complaint still falls far short of a well-pleaded antitrust complaint, allegedly having essentially the same deficiencies as the original complaint.

Market definition--a topic with respect to which this foreign-owned patent troll group was supported by the Antitrust Division of the United States Department of Justice--is still Fortress's first attack vector. Fortress argues in its new motion to dismiss that Apple and Intel don't define the relevant patent markets narrowly enough, and that they fail to plead facts relating to cross-elasticity of demand.

Fortress also says that the amended complaint still fails to plead antitrust injury (such as supracompetitive royalties having been extracted).

As far as the part of the complaint in which Apple alleges standard-essential patent (SEP) abuse is concerned, Fortress seeks to get a lot of mileage out of a Ninth Circuit panel decision in Qualcomm's favor (against the FTC).

The motion hearing will take place on December 17, 2020.

2. Nvidia's proposed $40B acquisition of ARM

Nvidia's interest in acquiring ARM has been known for some time. The announcement was finally made one week ago, emphasizing Artifical Intelligence. The deal is done as far as buyer and seller are concerned, but whether Softbank will actually be able to sell ARM to Nvidia is now subject to regulatory approval. When the parties to such a deal expect that it will take 18 months until the transaction can ultimately be consummated, they expect strong headwinds on the merger review front.

The Conversation published an interesting discussion of what the combination of Nvidia and ARM would mean for the tech industry at large. UK-based ARM's strength has so far been its neutrality, enabling it to business with anybody while avoiding conflicts of interest. ARM's acquisition by Nvidia would profoundly impact some of ARM's existing business relationships.

An IAM (Intellectual Asset Management) Magazine article takes a closer look at the potential concentration of chipset patents. In fields of technology in which semiconductor companies have traditionally filed patents, IAM believes the two portfolios are largely complementary. In recent years, both have been very active in filing for patents on AI and machine learning technologies. The IAM article expresses doubts as to whether the deal will actually materialize (as it might suffer the fate of Qualcomm-NXP), but in case it does, "it will be acritical moment in Nvidia's patent history," the authors (S. Rajan Kumar and Sumair Riyaz, both of Dolcera) conclude.

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One thing Apple's and Epic's lawyers agree on: Supreme Court's Pepper v. Apple opinion and 5-4 vote are unrelated to Epic's App Store case

There are no signs of a détente between Fortnite maker Epic Games and Apple. While Apple apparently keeps the door open to whatever version of Fortnite that would bring the battle royale game back into compliance with the App Store terms, Epic is not only being very vocal in public and running an anti-Apple tournament but also pursuing a litigation strategy that appears to be all about escalation, trying to take the merits of a huge antitrust case to the United States Court of Appeals for the Ninth Circuit in the coming months.

Notwithstanding the extremely acrimonious nature of this litigation, there's one remark that Judge Yvonne Gonzalez Rogers made in last month's hearing on Epic's motion for a temporary restraining order (TRO) that neither party is comfortable with. When counsel for Epic insisted on their likelihood to prevail on the merits (while the court placed the emphasis at the TRO stage on irreparable harm), Judge Gonzalez Rogers said this case was not going to be a "slam dunk" for either Epic or Apple, and reminded everyone that the Supreme Court's Pepper v. Apple vote--which ultimately allowed a consumer class action (seeking damages for allegedly having overpaid for app downloads and in-app purhcases) to go forward before her court--was very close: 5-4.

Representing Epic, Cravath's Gary Bornstein distinguished Pepper from Epic a few minutes later. He noted that Epic is an app developer bringing antitrust claims against Apple over its App Store terms, while the Pepper class action complaint is about harm to consumers from what Apple withholds from app developers, and the Supreme Court ruled on whether or not that consumer class could sue for damages (with Epic not even seeking damages for now).

After the reply brief Epic filed on Friday, it's beyond doubt that Epic's lawyers are not going to accept the notion that the outcome of their case would be hard to predict. If the district court doesn't agree, they'll try the same before the Ninth Circuit. Even though the Pepper decision on standing went against Apple, the closeness of the Pepper v. Apple vote appeared to dissuade Judge Gonzalez Rogers from considering Epic v. Apple a case over a clear antitrust violation.

Interestingly, Apple's lawyers made pretty much the same points in footnote 15 of their opposition (filed on Tuesday) to Epic's motion for a preliminary injunction, undoubtedly in light of Judge Gonzalez Roger's mentioning of that decision in the late-August TRO hearing:

"The 5-4 decision in Apple Inc. v. Pepper [...] addressed the 'sole question presented at th[at] early stage of the case,' namely, whether iPhone users who purchased apps from the App Store were 'direct' purchasers with standing to sue. The Court expressly did 'not assess the merits of the plaintiffs' antitrust claims against Apple' or 'consider any other defenses Apple might have.'"

At the preliminary injunction stage, the closeness of that vote wouldn't be a problem for Apple, which has a strong argument that the removal of Fortnite from the App Store is simply Epic's self-inflicted harm, that there's just one Epic corporate group and not two independent Epics, and that Apple isn't engaging in retaliation against Epic but simply acting consistently with what it did in thousands of other cases. Ppresumably, Apple's concern is that in light of what Judge Gonzalez Rogers said in the TRO hearing, she might be influenced in her thinking by the notion that the Supreme Court decided, albeit with a 5-4 vote, against Apple.

What Apple and Epic agree upon here is simply correct. Pepper has no bearing on Epic, not by any stretch of the imagination. If the Supreme Court's Pepper decision had addressed at least one of the key questions concerning the underlying merits, then the closeness of the vote might be an indication. But the Pepper standing question was about the nature of the business relationship betweeen iPhone users and Apple when they pay for downloads from the App Store or for in-app purchases.

Only at a stratospheric level of abstraction could one see a parallel here: the standing issue in Pepper was a question of first impression, attributable to the fact that app stores are a rather young phenomenon, and--though counsel for Epic as well as for Apple would almost certainly disagree for reasons that couldn't be more disparate--there may be close questions of first impression in Epic v. Apple, too.

By the way, the late Justice Ruth Bader Ginsburg was among the 5-judge majority that ruled in favor of the Pepper consumer class.

Epic v. Apple, too, has the potential to go all the way up to the Supreme Court, but not over the question of standing.

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Saturday, September 19, 2020

Epic Games denies Apple's claim of Fortnite losing popularity, says usage "actually increased by more than 39%" during chosen period: court filing

If you're more interested in what Epic Games CEO Tim Sweeney said in a sworn declaration about the popularity of Fortnite, please click here to skip the part that addresses the legally more relevant questions surrounding Epic's push for a preliminary injunction against Apple.

Shortly before midnight Pacific Time on Friday, Epic Games filed its reply brief in support of its motion for a preliminary injunction (PI) against Apple over Fortnite and other Epic games as well as Epic's Unreal Engine (this post continues below the document):

20-09-18 Epic Reply ISO Mot... by Florian Mueller

Short of a hypothetical sur-reply (for which Apple would firstly have to seek permission from the court), this concludes the PI briefing process, giving the court a week and a half to form an opinion ahead of the September 28 PI hearing. This blog published and commented on the previous filings:

Epic is seeking a PI over the same two questions--whether Apple rightfully removed Fortnite from the App Store after Epic introduced an alternative payment system, and whether Apple may now terminate all of Epic's developer accounts including the one used for the further development and maintenance of Unreal Engine--that it raised in its motion for a temporary restraining order (TRO). TROs are preliminary to PIs: they're in force for a short period, after which a PI is needed as a replacement or the defendant isn't enjoined until the final judgment. The court granted Epic a TRO over Unreal Engine, expressing concern over what the court at that stage thought might have been retaliatory overreach by Apple, but not over Fortnite, with respect to which Apple prevailed on its argument that Epic was complaining of "self-inflicted harm."

It's interesting to observe the priorities Epic's lawyers set in their reply briefs. The one that reinforced the TRO request practically gave up on Fortnite by prioritizing Unreal Engine. Apparently Epic realized that the "self-inflicted harm" argument was pretty much insurmountable. After all, Epic could have simply continued to comply with Apple's App Store terms while nonetheless challenging them vigorously in court. But this time around, Epic's reply brief lumps the Fortnite and Unreal Engine issues together.

As a seasoned smartphone litigation watcher, I can't help but conclude that just like Apple's "self-inflicted harm" argument was too powerful last time (which led Epic to focus on Unreal Engine instead), Apple has apparently succeeded in making its case that

  • the existence of two Epics, one in the U.S. and one in Switzerland, is irrelevant to the question of contract termination because the decisions and the payments are made by the very same people, and

  • that Apple routinely and consistently does terminate accounts under such circumstances ("Apple has terminated over 75,000 unique accounts for introducing new features without going through App Review; over 2,000 accounts for introducing a non-IAP payment method; and over 60,000 accounts for introducing hidden features or obfuscating code {...]."

    The latter is very important because Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California said in her TRO order that Apple's reliance on its 'historical practice' of removing all 'affiliated' developer accounts in similar situations or on broad language in the operative contract at issue here can be better evaluated with full briefing."

    In the reply brief, Epic is not even arguing anymore that the Unreal Engine business is run by a separate company. Instead, the emphasis is placed on antitrust theories.

Epic is now going for broke.

Epic's lawyers--who are among the very best antitrust attorneys in the United States--have embarked on what is a "Mission Impossible" with respect to the district court by making the fate of the entire motion (its Fortnite and Unreal Engine parts) dependent on whether the court will conclude at this early stage of proceeding that Apple's App Store Terms, with respect to in-app payments, are illegal and unenforceable. Judge Gonzalez Rogers had made it clear in the late-August TRO hearing that she didn't consider this case to be a "slam dunk" for either Epic or Apple, and said that the case wasn't going to be won or lost at this stage. Epic's legal strategy, however, is to persuade her to say now, with hardly a record (apart from a few declarations and their attachments) having been built, that Epic is likely to prevail on the merits of the case.

Seriously, Epic must be desperate, trying a Hail Mary to overcome the combination of Apple's self-inflicted-harm, practically-just-one-Epic, and consistency-in-account-termination arguments. Obviously, Judge Gonzalez Rogers could say that Epic is going to win this handily. But she's very unlikely to do so, given that she told the parties this was a complex case. I didn't interpret her TRO order as encouraging Epic to sell her on the merits of the complaint--instead, the TRO order showed Apple a way to get rid of what was Epic's consolation prize: the Unreal Engine-related part of the decision, where even Epic can't argue anymore that its Swiss legal entity is not an independent business by any standard.

Even though Epic lumps the two issues together, the court could still find that the account used for Unreal Engine warrants different treatment from the one used for Fortnite. But that wouldn't be easy to do, given what Judge Gonzalez Rogers wrote in her TRO order. So Epic is now facing a significant risk of its motion being denied in its entirety.

Epic can appeal any partial or complete denial to the United States Court of Appeals for the Ninth Circuit. Contrary to what I wrote in August, when I expected Epic to comply with Apple's terms again after a denial of a PI, it now looks like Epic is going to continue for a few more months to decline to walk through the door Apple opened. Instead of putting back a complaint version of the iOS version of Fortnite (one that doesn't bypass Apple's in-app payment system), Epic now appears more likely prepared to take this matter to the Ninth Circuit, and won't moot the issue by complying until the West Coast appeals court has spoken. Epic may hope that whatever Ninth Circuit panel would hear the motion would actually side with Epic on antitrust questions that are extremely hard to resolve on the fast track.

Fortnite still gaining popularity: Epic Games CEO Tim Sweeney

In its opposition brief (filed a few days back), Apple voiced the suspicion that Epic's very publicity-oriented approach to this litigation was driven by a marketing communications desire to reignite interest in Fortnite. That is one of various factual questions--which also include the accusation of Epic having bullied Sony into modifying its PlayStation terms--Epic CEO Tim Sweeney seeks to counter in his second declaration in this briefing process (this post continues below the document):

20-09-18 Tim Sweeney Declar... by Florian Mueller

Before I talk about some of what Mr. Sweeney said in this declaration, I'd like to mention something that is surprisingly missing: an update to his earlier declaration (in support of the PI motion). On the same day, September 18, Mr. Sweeney retweeted a tweet to which one of Epic's own tweets is attached, and which complains about Apple preventing Epic from distributing Mac games (this post continues below the tweet):

In Mr. Sweeney's earlier declaration, the claim was made--and it's still mentioned in Epic's reply brief--that Windows and the Mac are examples of platforms where anybody can publish anything. Apparently, Mr. Sweeney's tweets and his corporate website ("Apple ending Fortnite Save The World updates for Mac") are more up-to-date than his company's court filings.

In connection with Fortnite's popularity, Mr. Sweeney's declaration--after noting that Google Trends is just about search, not game usage--says "Apple cherry-picked an unusual single-week peak in October 2019 with the average number of searches in July 2020," and explains that the October 2019 peak was due to a special event called "The End" (where the world of Fortnite was sallowed by a black hole).

Mr. Sweeney says "the number of daily active users on Fortnite actually increased by more than 39%" during that same period (October 2019-July 2020).

While Mr. Sweeney has a point here about some selectivity by Apple, I don't think his declaration paints a complete picture either:

  • He does not dispute another source than Google Trends that Apple cited: the Bloomberg article "Fortnite's Slowdown Has Epic Games Battling to Spark New Growth" (which relies on different data than Google Trends).

  • Mr. Sweeney's declaration misses the most important part of the Google Trends chart Apple referenced (this post continues below the chart), which is that Fortnite once overtook Minecraft and Pokemon, but then fell behind them again toward the end of the period selected by Apple:

  • If you move your mouse pointer to any particular location on the above chart, you get a popup that displays some numbers, of which 100 is the absolute peak that Fortnite had. You can see that the week of January 21-27, 2018 was the first one when Fortnite leapt ahead of Minecraft and Pokemon for the fist time, and stayed at the top of the chart until the week of May 26-June 1, 2019, when Pokemon reclaimed the top spot. By the end of the entire period (week of July 26-August 1, 2020, which was not an arbitrary choice by Apple considering the timeline of this dispute), Pokemon left Fortnite behind by more than a third, and Minecraft did so by more than 40%.

  • Mr. Sweeney's declaration shows an alternative chart just for Fortnite, and limited to the period from August 4, 2019 to August 1, 2020. But that's similarly selective as Apple's focus on the October-2019-to-August-2020 decline: the full chart (which you can see further above) shows that Fortnite had multiple peaks at 86% of the level of the October 2019 peak, such as for the week of March 11-17, 2018, and September 23-29, 2018. In fact, the red line for Fortnite oscillates around the 75 level for most of 2018.

Therefore, the 39% increase is clearly also the result of selectivity on Epic's part. They're not claiming there wasn't any decline during the entire period Apple's chart covered, which was from Fortnite's launch until this dispute broke out (July 2017-July 2020). Fortnite is clearly not at the all-time peak of its popularity as we speak.

That said, Mr. Sweeney's declaration is an interesting contribution to the public debate, though it changes nothing about the fact that Epic is now undertaking the long shot of preliminarily winning a huge antitrust case on the fast track.

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Wednesday, September 16, 2020

Apple attempts to debunk tale of two Epic companies in order to avoid preliminary injunction concerning Unreal Engine

This is already my third post on Apple's opposition to Epic Games' motion for a preliminary injunction. In the previous ones I discussed certain factual representations and commented on some of the rhetoric:

As I explained before, it's hard to imagine that the court would not continue to consider Fortnite's removal from the App Store to be self-inflicted harm. Apple reinforces that point nevertheless, describing Epic as "a saboteur, not a martyr," and noting that "Epic started a fire, and poured gasoline on it, and now asks this Court for emergency assistance in putting it out, even though Epic can do so itself in an instant by simply adhering to the contractual terms that have profitably governed its relationship with Apple for years." But the interesting question in the September 28 hearing is not going to be Fortnite--it's Unreal Engine. Apple wouldn't ban the engine and all apps that incorporate it, but Epic would lose access to the developer tools, which sooner or later would hurt its customers (according to Apple's filing, Epic holds Fortnite gamers as well as Unreal Engine licensees hostage).

What applies to both Fortnite and Unreal Engine is that Epic could just continue to do business with Apple, and on iOS, the way it used to do, by complying with the App Store terms while still being able to challenge them in court. The question for the court to decide is whether the fact that Epic holds the key to the kingdom in its hands applies only to Fortnite--the corpus delicti in a contractual sense--or also to Unreal Engine. The reason Epic obtained a temporary restraining order (TRO) was just that the judge was concerned about what might be overreaching retaliation: the termination of a developer account held and used by a separate legal entity for the purpose of developing Unreal Engine.

When the court granted the TRO, the court also made it clear what Apple would have to improve on at the next stage (the decision on whether or not to convert the TRO into a preliminary injunction). For example, the TRO order stated that "Apple's reliance on its 'historical practice' of removing all 'affiliated' developer accounts in similar situations or on broad language in the operative contract at issue here can be better evaluated with full briefing." In this context, "full briefing" referred to the preliminary injunction stage.

The numbers that Apple's opposition brief provides speak a clear language:

"Apple has taken this approach thousands of times with other developers and their affiliates."

[...]

"Apple has terminated over 75,000 unique accounts for introducing new features without going through App Review; over 2,000 accounts for introducing a non-IAP payment method; and over 60,000 accounts for introducing hidden features or obfuscating code (for example, by installing executable code)."

[...]

"Apple does not wait to be fooled a second time before terminating an affiliate for the bad deeds of its principals."

So it's not just that the language of Apple's contracts allow such termination; it's routinely done. As to whether it's necessary, Apple explains that this is needed to protect customers (as well as other developers, who would otherwise end up paying for the likes of Epic). In this context, Apple stresses security and provides a detailed declaration by Mark Graff, the former head of Lawrence Livermore National Laboratory (where the nuclear secrets of the United States must be protected) and former Chief Information Security Officer of the NASDAQ stock exchange (this post continues below the document):

20-09-15 Mark Graff Declara... by Florian Mueller

Apple particularly relies on Mr. Graff's declaration when explaining to the court that what Epic calls a "hotfix" was just as bad as any other "cheating": what matters is that Fortnite came with code that Apple's App Store team didn't get to review. What ultimately triggered the execution of that code is pretty much irrelevant according to Mr. Graff. In this case, Epic's servers told the app to do so. But the code was there at any rate.

Those of you with a particular interest in cybersecurity will find many interesting statements in Mr. Graff's declaration, such as his views on what a huge task it is for Apple to keep the App Store secure.

Even if the court believed that Apple consistently terminates all accounts held by an entity when a comparable breach occurs and agreed that there were legitimate reasons (such as in the interest of cybersecurity), Epic would still hope to prevail with respect to Unreal Engine just on the basis that a Swiss Epic subsidiary is the related account holder.

Some of what Apple's opposition brief says about the question of whether there really are two separate Epic entities involved was already stated in the TRO hearing. It's interesting nevertheless, especially since I believe Apple would appeal a PI over Unreal Engine to the Ninth Circuit. Such a potential appeal would be likely anyway, but is even more probable when one of the nation's top appellate attorneys, Orrick Herrington Sutcliffe's Joshua Rosenkranz, joined Apple's legal team. His appearance was filed a few days ago, and he's listed on thein the header section of Apple's latest set of filings, in addition to the Gibson Dunn team led by Theodore "Ted" Boutrous. Whether Epic would appeal is another question, given that they would probably give up with respect to Fortnite and then bring it back to the App Store in a compliant form--in which case the Unreal Engine issue would be moot.

Judge Gonzalez Rogers in the next step, and possibly the Ninth Circuit thereafter, will find various facts in the record that suggest there really aren't two Epics except in a purely formal sense:

"Epic administers the two accounts 'as if they are one.' [...] 'The accounts share a single tax ID number, a single individual as the registered account holder, and a single credit [card] number that is used to pay the annual program fee.' [...] 'The two accounts share the same test devices, and their [agreements] were renewed within a minute of each other on June 30, 2020.'"

Apple argues that "Unreal Engine posed a potential threat" because it could serve as "a second potential 'trojan horse' that would enable Epic to carry through on its threats to undermine the App Store and insert further unauthorized features."

Going back to the question of whether the two Epics must be treated as one, Apple provides some additional information that makes Epic's representation of the Unreal Engine business being all that separate ever less credible. A sworn declaration by Apple Fellow Phil Schiller mentions "[p]ublic reporting by Reuters" according to which "circumvented payments from U.S. users go to Epic Games, Inc., and those from users outside the U.S. go to Epic SARL [the Swiss entity whose account the court didn't let Apple terminate, for now, because of Unreal Engine]."

Unless Epic and/or its own lawyers got confused, it appears that Unreal Engine actually uses the same developer account as Fortnite with respect to the Sign in With Apple ("SIWA") feature. One of Apple's lawyers signed a declaration to which he attached a letter he had sent to Epic's counsel on September 10 (this post continues below the document):

20-09-15 Jay Srinivasan Dec... by Florian Mueller

In that letter, Gibson Dunn's Richard Doren explains that Apple, without any obligation under the current court order, gave Epic more time before terminating the SIWA feature. Without SIWA, Fortnite users who installed the game on their phones before it was removed from the App Store (and haven't deleted it since) wouldn't be able to sign in to the game with their Apple accounts. But in this context, counsel for Epic allegedly said that a termination of the SIWA authentication feature for the main Epic account would also affect users of the Unreal Engine. This is how Apple's lawyer comments on an apparent contradiction in Epic's representations:

"It should also be noted that we are surprised and puzzled by your assertion that terminating SIWA for the Epic Games, Inc. account will affect users of the Unreal Engine. Your client has repeatedly and consistently represented to the Court that the Unreal Engine is run by 'a different company. It’s in Switzerland. It’s a totally different set of circumstances.' (Aug. 19, 2020 Hearing [...]) Your client's briefs have assured the Court that the game production business of Epic Games, Inc. is distinct from 'the separate Unreal Engine business' [...], and that 'the developer tools' that are 'necessary to support . . . Unreal Engine . . . are covered by separate integrated agreements.' [...] (emphasis in original).) It is indeed true that the Developer Program account of Epic Games International, S.à.r.l. gives it the ability to use SIWA. If Epic has set up its Unreal Engine business to use this functionality through the Epic Games, Inc. account, that is Epic's own doing. Further, it would again reflect the spuriousness of your client's claim that Unreal Engine is a separate business from Epic Games, Inc. and an innocent, collateral victim of the crisis that Epic Games, Inc. has created."

Epic has until Friday to reply. Apple's opposition brief and the attached factual declarations (including two that are basically short versions of economic expert reports) suggest that the September 28 hearing will be extremely interesting with respect to Unreal Engine.

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Apple suspects Epic Games seeks "to reinvigorate [waning] interest in Fortnite" and notes Unity is far more popular than Unreal Engine

This is a follow-up to my post on Apple's opposition to Epic Games' motion for a preliminary injunction. Like the previous one, this is about Apple highlighting facts that don't make Epic look good. And Apple appears to have stepped up its rhetoric after weeks of Epic running an aggressive #FreeFortnite campaign and Epic CEO Tim Sweeney's Twitter presence increasingly looking like an "I hate Apple's App Store terms" type of campaign account. Interestingly, even though Epic is suing Google as well (for an update on that case, San Jose-based Judge Beth Freeman has declined Google's invitation to take over the Google Play Store antitrust cases), Mr. Sweeney almost exclusively lashes out at Apple in his tweets, and actually promotes Android over iOS at times. On Twitter I read that Epic is "giving away Android devices in #FreeFortnite tournament."

There will be opportunities in the build-up to, and after, the September 28 preliminary injunction hearing to talk a bit more about the parties' legal theories. However, Judge Yvonne Gonzalez Rogers said in the recent TRO (temporary restraining order) hearing that the case would not be decided at this early stage. For now, it's about Epic seeking relief before the court has had the chance to fully analyze the merits. At this point it's just about what the parties are allowed to do while the litigation is ongoing. Epic wants to be allowed to circumvent Apple's in-app payment system, and Apple argues (as I'll discuss later) that Epic's "cheating" (by not disclosing at the time of app review the existence of an alternative payment system) justifies a termination of all of Epic's developer accounts, including the one used for Epic's work on Unreal Engine.

As I reported before, Apple's opposition brief accuses Epic of bullying platform operators: "Epic's strategy of coercing platforms for its own gain, under the guise of being 'pro-gamer,' is something Epic continues to do." At the same time, Apple attributes Epic's behavior at least potentially to Fortnite's waning popularity:

"For reasons having nothing to do with Epic's claims against Apple, Fortnite's popularity is on the wane. By July 2020, interest in Fortnite had decreased by nearly 70% as compared to October 2019. This lawsuit (and the front-page headlines it has generated) appears to be part of a marketing campaign designed to reinvigorate interest in Fortnite."

That passage points to an August 2019 Bloomberg article ("Fortnite's Slowdown Has Epic Games Battling to Spark New Growth"), according to which "[r]evenue has been sliding for the battle-royale juggernaut," and a Google Trends analysis of how popular three game-related search terms were bbetween mid-July 2017 and late July 2020, shortly before Epic's litigation against Apple started. The Google Trends chart shows that Fortnite surpassed Minecraft and Pokemon a few months after its launch, and stayed on top until about the middle of last year, but as of this summer both Minecraft and Pokemon are more popular search terms on Google:

You can find Apple's brief in my previous post, and the links are in footnotes 11 and 12. There is a clerical error in the abbreviated URL ("tinyurl") contained in footnote 12. When I clicked on that one, I immediately saw that something had gone wrong because the yellowish curve for Pokemon was just on the base line of the chart. That's because the search term was "Pokemon." (right, with a period). I manually deleted that one from the URL text field of my browser and got the correct chart (which you can see above). Then the whole thing made more sense.

The following quote from Apple's filing also suggests that Epic is seeking to commercially benefit from its #FreeFortnite campaign:

"Finally, a word about Epic’s claimed reputational harm. Epic has engaged in a full-scale, pre-planned media blitz surrounding its decision to breach its agreement with Apple, creating ad campaigns around the effort that continue to this day. If Epic were truly concerned that it would suffer reputational injury from this dispute, it would not be engaging in these elaborate efforts to publicize it. From all appearances (including the #freefortnite campaign), Epic thinks its conduct here will engender goodwill, boost its reputation, and drive users to Fortnite, not the opposite. That is not harm."

Apple's filing furthermore explains that Unreal Engine is not the market leader--Unity is. While Unreal Engine is, according to Apple, "used by a minuscule fraction of iPhone apps," Unity (which my app development company uses as well) "characterizes itself as 'the world's leading platform for creating and operating interactive, real-time 3D content,' and is available for 'more than 20 platforms, including Windows, Mac, iOS, Android, PlayStation, Xbox, Nintendo Switch, and the leading augmented and virtual reality platforms, among others.'" Apple goes on to say that "Unity is used by the overwhelming majority of Apple developers that use a graphics engine."

As I already wrote earlier today, the #1 question in the preliminary injunction context is not going to be Fortnite (I can't see how Epic could dissuade the court from its assessment that Fortnite's removal from the App Store is simply self-inflicted harm) but whether Apple will or (as per the TRO) will not be allowed to terminate all of Epic's developer accounts, including the one Epic uses for its work on Unreal Engine. Microsoft has already twice (1, 2) supported Epic in this litigation through declarations that stress the importance of Unreal Engine to other companies, such as Microsoft. But that doesn't change the fact that Unity is the undisputed market leader. It does, however, look a bit like Mr. Sweeney, in the tweet I already linked to further above, reciprocated the favor by celebrating the launch of Microsoft xCloud...

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