Has European Commissioner Thierry Breton already announced that Apple will have to allow alternative app stores? A matter of interpretation.

One of the first LinkedIn posts I read this morning was from the Coalition for App Fairness, which was founded last year by Epic Games, Spotify, Match Group and others. When the CAF started, I firstly wanted to wait and see, but at the start of this year I already predicted on this blog that it would keep growing. My own app development company may at some point apply for membership, but even in that case I'd obviously retain my independent opinion. It was high time someone founded the CAF, given that a couple of other organizations claim to represent app developers while in reality being paid and remote-controlled by Apple in one case, Google in the other. It's laughable when an entity claims to represent app developers but doesn't support Epic against Apple, for example.

So the CAF pointed to an article published by EU Internal Market Commissioner Thierry Breton on LinkedIn, entitled DSA/DMA Myths -- What is the EU digital regulation really about?

According to CAF's interpretation of the article, Mr. Breton is "stressing the importance that all gatekeepers allow other app stores on their platforms. This would mean that for the first time, there will be real competition for the App Store." (emphasis added)

It's obvious that I would want this to happen. Competition works wonders. This isn't just about the commission on in-app payments. When they reject your app and won't let you publish it at all or force you to give up on your original concept, your focus is not on 15%, 30% or any percentage for that matters. As Epic will argue in the May trial, alternative app stores can do a better job at curation (app reviews). I don't know whether the Epic Games Store, if it already existed on iOS, would have accepted my app (we'd have to build a Windows version and submit it to them to find out), but considering that similarly-themed games are available on Steam (a pretty meaningful point of reference), the Samsung Galaxy Store, the Microsoft Store etc., I'd be reasonably optimistic. At a minimum I would know that whoever (Apple, Epic, or any third party) rejected it would have to assume that some other app store might carry it. That would discipline all of them, and rejections would become more reasonable. Some people blame the reviewers, such as the Coronavirus Reporter complaint against Apple; I prefer to focus on structural and systemic issues, but regardless of how structural or not a problem is, competitive constraints can only help.

The European Union's envisioned Digital Markets Act could become the most important piece of legislation in the technology space ever, way above such laws as the U.S. Digital Millennium Copyright Act (the substance of which I don't mean to criticize; I vocally supported its enforcement in a case involving Blizzard Entertainment).

But the question is: is Mr. Breton actually saying in that LinkedIn article that there will be alternative app stores on iOS (and Android)?

Here's the only passage in his statement that mentions apps:

"Gatekeepers will keep digital opportunities; providers of operating systems will always be able to offer all sorts of software and apps as they wish. In addition, the DMA empowers the users who do not like the preinstalled apps to switch to a different service or use a different app offered by another provider." (emphasis in original)

The narrowest interpretation would be that users must be provided with alternatives to any preinstalled apps, either by selecting different services within an app (such as by selecting a different search engine in a search app) or installing "a different app" made by another developer. In that case, one would interpret "provider" as "service provider" in the same sense that users could switch to a different service within an app.

But one doesn't even have to interpret "by another provider" as "by a different app store" in order to arrive at the CAF's desired outcome. The Apple App Store is an app itself (as is the Google Play Store). And it's a preinstalled one. So, arguably, Apple would have to offer an alternative by another service provider (such as the Epic Games Store) to the App Store. At a minimum, the CAF's interpretation is defensible, even though I'm not going to take a definitive position on whether it's the only proper interpretation (absent additional evidence).

What Mr. Breton primarily sought to accomplish with his LinkedIn article is to debunk the "myth" that Apple couldn't offer, say, a music streaming service. Instead, the DMA would impose obligations requiring "that business users and end users are not unfairly deprived of their free choice, a fundamental postulate of [the EU's] single market." An alternative app store would be as consistent with that vision as it gets. Many roads lead to a multi-app-store ecosystem, and the DMA is one of them, at least potentially.

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Central issue in upcoming Epic Games v. Apple trial: Apple's refusal to allow Epic Games Store and other alternative app stores on iOS

On Friday, Epic Games and Apple submitted tentative witness lists for their antitrust trial that will start on May 3 in Oakland. But Epic attached something far more informative: summaries of the opinions offered by its expert witnesses. In the previous post I discussed how two professors are going to debunk Apple's security pretext for its App Store monopoly. This here is the third and final part of the trilogy on Friday's filings.

When Epic Games filed its complaints against Apple and Google in August, many people thought this was just about bringing down Apple's 30% App Store commission and requiring Apple to allow Fortnite to return to the App Store despite its alternative in-app payment system. In response to Epic's activation of the latter, Apple not only removed Fortnite from the App Store but even announced the termination of another Epic developer account: the one used for the development of Unreal Engine. A temporary restraining order (TRO), which Judge Yvonne Gonzalez Rogers later converted into a preliminary injunction (PI), barred Apple from terminating the Unreal Engine account.

It's a common misbelief that Epic just wants to get Apple to reduce the 30% commission. Epic's original complaint raised some more fundamental issues, and Epic wants to open up iOS more generally for developers and consumers. The most important part here is that Epic--and others--could provide alternative app stores and thereby act as a competitive constraint on Apple in the iOS app distribution market. In its August 2020 complaint, Epic already said the following:

"Epic approached Apple to request that Apple allow Epic to offer its Epic Games Store to Apple' iOS users through the App Store and direct installation. Apple's response was an unequivocal 'no'."

"The Epic Games Store provides access to more than 250 games from more than 200 developers, and those numbers are growing rapidly. The Epic Games Store offers personalized features such as friends list management and game matchmaking services. Absent Apple’s anti-competitive conduct, Epic would also create an app store for iOS."

In Friday's summaries of what Epic's economic experts say, the possibility of the Epic Games Store (and similar app distribution channels) competing with Apple's monopolistic App Store plays a key role. Stanford professor Susan Athey discusses the importance of "middleware" with en mphasis on "an independent Multi-Platform App Store" (this post continues below the document):

376-2 Susan Athey Opening O... by Florian Mueller

Professor Athey describes today's "market for mobile smartphone operating system platforms [as] a duopoly, with market leaders Apple and Android together accounting for almost 100% of mobile smartphone revenue share outside of China." Practically, either platform is a monopoly in its own right, as "[}a user who considers leaving one platform and joining another faces app-related switching costs, including the costs of migrating and synchronizing her apps, purchases [download fees as well as in-app purchaes] and app data (and, in many cases, the costs of re-purchasing apps on the new platform)."

While multi-platform app stores, multi-platform in app-payment systems, or cross-platform streaming platforms could help, "Apple imposes a set of technical and contractual restrictions that block critical categories of middleware, interfering with the competitive process and maintaining the market power of the iOS Platform."

Another Epic expert witness, Michael Cragg, a summary of whose opinions I've uploaded to Scribd (PDF), says Apple's experts focus "on the wrong product and not Epic's role as a would-be direct competitor to the App Store." Apple would like the court to consider the entire game distribution market (across all platforms) as the relevant antitrust market, but Epic's expert says those Apple experts "do not focus on the right market definition question."

Both Michael Cragg and another Epic expert, Nancy Mathiowetz (summary of opinions (PDF)), emphasize in this context that the mere access to, or even the regular use of, alternative devices by iOS users doesn't really mean much for the purposes of this case. As Michael Cragg notes, "by [Apple's experts'] logic, refrigerators and TVs (let alone stereos and TVs) are in the same market because users 'have access' to or 'regularly use' both." But in order for the distribution of games on other platforms to be part of the same relevant antitrust market, there would have to be evidence that "a small but meaningful change in the price or quality of app distribution on either device" would make "users switch from using one distribution channel to another" to an extent that it would be a competitive constraint on Apple's own decisions.

Here's another important point:

"When it comes to distribution, iOS games do not have unique characteristics that make them separable from other iOS apps. All iOS apps (including iOS games), however, do have unique characteristics that make them separable from non-iOS apps, including non-iOS games."

Due to restrictions imposed by Apple, there is no way to access a multi-platform app store on iOS; as a result, switching costs are too high for switching to take place to a meaningful degree, which is why "iOS app distribution remains a market unto itself."

Finally, the opening and rebuttal opinions by Epic's primary expert on platform economics, David Evans, also place great emphasis on "the competitive effects of Apple's foreclosure of alternative channels of iOS app distribution":

376-8 David Evans Opening O... by Florian Mueller

376-9 David Evans Rebuttal ... by Florian Mueller

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Apple may already have lost the strategic battle over antitrust market definition in multiple European jurisdictions: App Store monopoly

Never before has there been so much hope that the mobile app store tyranny may come to an end. It's a marathon, not a sprint. There'll be appeals, and the freedom fighters of the Digital Era may experience setbacks. But the first week of March  2021 may very well be judged by history as the end of the beginning.

I've previously commented on the app store bill adopted by the Arizona House of Representatives. This is just the first legislative hurdle of three, and there may be court challenges even if the state senate voted in favor and the governor signed. But it shows that the app store liberation movement is able to build political majorities and overcome Apple and Google's counterlobbying. Initiatives are underway in multiple states, and it varies by state whether Democrats or (as in Arizona) Republicans take the lead.

On the other side of the Big Pond, Apple's purely pretextual defenses of its app store monopoly are falling apart. There were not one, not two, but three news cycles this week, two of which are bad news for Apple and the third is more likely than not to portend another decision against Apple:

• The Day of Reckoning is coming for Apple in Brussels, with the European Commission's Directorate-General for Competition (DG COMP) preparing a Statement of Objections (SO). Apparently the EU antitrust authority plans to issue the SO--further to a complaint by Spotify (there was also a similar one by a Rakuten subsidiary)--before the summer vacation season.

  An SO is not a final decision. Subsequently to the SO, a company under investigation gets to make its case again--and then there's a hearing and, finally, a ruling, which in turn is appealable. I repeat myself in the same post: It's a marathon, not a sprint.

  In Europe, Apple's market share is only about 30%. A dominant market position (the EU term for what is called a monopoly in the U.S.) can, therefore, be identified only by--which I consider absolutely correct in this case--defining a single-brand market. It's clear that Apple has failed to convince EU competition experts that the market should be defined more broadly, such as all mobile apps or all music distribution channels.

  The situation on the market definition front could be even worse for Apple: DG COMP may agree with Spotify's tying theory, which involves two markets: an iOS app distribution market and an iOS in-app payment services market. With a view to what may be the winning theory here in the EU, let me point you to the December 2020 version of what has already become a true app store antitrust classic: Professor Damien Geradin and Dimitrios Katsifis's The Antitrust Case Against the Apple App Store (Revisited).

  Apple's argument against tying is that the App Store and the payment system are just one product. Indivisible. Well, atoms were considered indivisible (thus the Greek name) until subatomic particles were discovered, and Epic Games achieved nuclear fission by an act of civil obedience, as its CEO called it in a CNN interview. Epic simply delivered proof that there is demand for alternative payment systems. Even if Epic had not done so, one would just have to download Amazon's shopping app or a parking or public transport app to come to the same realization.

  A Commission SO holding Apple responsible for tying might even give rise to a request for judicial notice in the period between the Epic Games v. Apple antitrust trial in the Northern District of California and Judge Yvonne Gonzalez Rogers's ruling.

  For a long time I was somewhat skeptical of whether Spotify's complaint was just going to lead to a "Lex Spotify" or help the developer community at large. Having researched the app store antitrust situation in greater detail since last summer, and considering that Epic--which doesn't specifically complain about direct competition from Apple, while Spotify is concerned about Apple Music--has joined the investigation, I'm definitely rooting for Spotify now. If Spotify prevails on market definition, Apple's App Store monopoly is finished in Europe.

  The closer I looked at the Spotify-Apple issue, the clearer it became to me that what Spotify is facing there is even worse than the problems experienced by major professional soccer clubs who are regulated by associations that are economic operators at the same time. To some degree, the associations' own soccer tournaments, especially some that involve national teams, also compete with club tournaments, and those sports bodies regulate them all. There are serious issues there, but Apple has an "octopus" growth strategy, seeking to grab market after market by leveraging its iOS app monopoly. Apple Arcade is another example.

• Another Reuters article reported on a letter sent out by the Authority for Consumers and Markets (ACM) of the Netherlands to developers and announcing that the investigation is complete and a ruling in the making. The Dutch antitrust agency didn't indicate what the decision would be. It's independent from DG COMP. But both are part of the European Competition Network and obviously in close contact. In light of DG COMP's upcoming SO, the odds are rather long against an acquittal unless there's something deficient about those specific complaints, which I doubt.

• The UK has left the EU, giving the UK Competition and Markets Authority (CMA) the opportunity to rule on high-profile cases that it previously had to leave to DG COMP. The primary author of the paper I mentioned further above, Professor Geradin, mentioned on Twitter that his firm, Geradin Partners, represents the companies whose UK complaints against Apple are now being investigated by the CMA.

  In the UK, the iPhone market share is approximately 50%, so the CMA might not even have to reach the question of a single-brand market: there's no plausible market definition in the UK that wouldn't make Apple's app distribution monopoly in that market subject to antitrust law.

A few years ago, Qualcomm appeared to be under similar antitrust pressure around the globe, but--unless a major surprise still happens somewhere--ultimately got off the hook. However, Qualcomm was able to do deals with key players such as Apple (which needed Qualcomm's 5G chips) and Samsung. It got a lot of support from the DOJ's antitrust chief at the time (a former Qualcomm lobbyist). There are reasons for which I believe Apple cannot extricate itself from this predicament the way Qualcomm did. But, again, this is going to be a rough ride and, to mention this word for the third and final time in this post, a marathon.

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Arizona House of Representatives adopts law untying in-app payment method from mobile app store monopolies: now on to the State Senate

Here's a follow-up to my very recent commentary on HB2005, a legislative proposal preventing Apple and Google from requiring developers to use only one payment system per mobile app store. Republican state lawmakers Dr. Regina Cobb and Leo Biasiucci sponsored the bill.

Today, the Arizona House of Representatives--one of the two chambers of the state legislature--PASSED the bill!

This screenshot is from the status webpage (click on the image to enlarge; the "PASSED" information may not be visible otherwise):

The result of the third reading vote was 31-29. There are 31 Republicans and 29 Democrats in the Arizona State House, and one member per party crossed the aisle, thereby canceling each other out.

A couple of proposed amendments failed, while a proposal by Dr. Cobb (enabling app developers to complain to Arizona's Attorney General about any failure by Apple or Google to comply) was adopted. (Technically, the App Store part of HB2005 was an amendment to a multi-purpose bill, which amendment then in turn got amended in the way just described.)

The Coalition for App Fairness is pleased, but notes that this is merely a first step toward a level playing field for all:

The Coalition for App Fairness is pleased to see the House passage of #HB2005, which will encourage business innovation in Arizona and protect consumer choice. While this is cause for celebration, it is only a first step toward achieving a truly level playing field for all.

— Coalition for App Fairness (@appfairness) March 3, 2021

In order for this measure to be passed into law, the Arizona Senate would have to adopt it as well, and the Governor would have to sign it (as opposed to vetoing it). The (counter)lobbying onslaught by Apple and Google has been massive already, and may further intensify. There are 16 Republican and 14 Democratic senators. It is counterintuitive that Arizona Democrats have such strong reservations concerning this measure, considering that the Democratic majority in the United States House of Representatives took a clear position on tech monopolies and walled gardens in October.

This remains interesting, and meanwhile there are initiatives in various other states. Today, the Minnesota Reformer website published an opinion piece by Justin Stofferahn and Pat Garofalo, calling on the Minnesota state legislature to "curb anti-competitive tactics" in order to become, once again, "an innovation center."

And in precisely two months from today, the Epic Games v. Apple antitrust trial will start in Oakland, California.

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Could a single state legislature topple both mobile app store monopolies? At least it could make a historical contribution.

This is just my first post on legislative initiatives in multiple states concerning mobile app stores, so I've really just begun to research the topic and have a lot to learn.

A couple of weeks ago, the North Dakota state senate voted against a bill that would have required Apple's App Store and the Google Play Store to allow app developers to use other payment in-app payment systems. The fact that the state legislature decided against it doesn't represent a ringing endorsement of the status quo of mobile app stores. It's possible that many of the lawmakers who voted against the proposal simply didn't want their state, with not even a million inhabitants, to take such a fundamental decision against two of the country's largest and most powerful companies.

There definitely is broadbased political support for the fight against app store monopolies: last fall, the Democratic majority of the United States House of Representatives adopted a report on digital markets that condemns the current situation in pretty strong terms.

All three branches of U.S. government are dealing with the issue in different ways: the judiciary has various antitrust lawsuits against Apple and Google before it (with a case management conference in Epic Games v. Apple taking place tomorrow, Monday); the executive government (the DOJ's Antitrust Division and various state attorneys-general) may bring antitrust cases as well; and as far as lawmakers are concerned, there's the aforementioned House report (which is non-legislative, though it does recommend that measures be taken) as well as activities in multiple states.

As a developer who's experienced (and continues to experience) how tyrannical and harmful those app store monopolies are, I welcome any initiative that has the potential bring about change, or at least to raise the level of awareness. The situation is unsustainable. I've been in this industry for decades, and I remember the times when Microsoft was accused of expanding into other markets by abusing its control over Windows. What was alleged at the time was, seriously, negligible compared to the present setup. I remember computer book publishers who were unhappy about the creation of Microsoft Press; established office app makers like WordPerfect and Lotus complaining about Microsoft using secret Windows API calls, though I never saw any evidence for that (and, in fact, those companies initially didn't even want to make the transition from MS-DOS to Windows); and there were antitrust issues, but they affected only those competing with Microsoft at the operating system level, like Digital Research with DR-DOS, or at least at the network server level, like Samba, which got help from the European Commission. But the market was wide open then compared to what it is today. Microsoft didn't (as it couldn't) prevent anyone from publishing anything. Microsoft made itself comfortable at the top of the food chain, but a self-serving, arbitrary, or tyrannical gatekeeper it was not.

The fight against the abuse of app store monopolies is generally a marathon, not a sprint. In particular, antitrust enforcement and ligitation are time-consuming. But there can always be a sudden breakthrough somewhere that brings about change. To topple the app store monopolies thorough state legislation is rather ambitious, but my initial analysis is that the Coalition for App Fairness (CAF) has everything to gain and nothing to lose by playing that game. That's because even if a dozen state legislatures voted against such initiatives, the House report would still be far more persuasive--but if any single state enacted an app store law, app developers might find ways to benefit from it, such as by setting up shop in that state, and Congress would have a pressing reason to prioritize this subject at the federal level.

That said, it's just hyperbole that Apple claimed a measure like the North Dakota bill would be the end of the App Store as we know it. Shopping apps like Amazon or parking apps (I just used one a couple of weeks ago) are also allowed to use their own payment systems. Many users may still prefer to create just one account with Apple and to use it across all apps, but the market should decide. Apple's position is that because it made iOS, it shouldn't have to face competition in app distribution.

My own #1 (and #2, #3, #4, ...) issue with Apple and Google is about their rules relating to apps that mention COVID. I see the point, however, in some organizations' criticism of the restrictions those platforms impose on in-app payment systems. We can't solve all issues at the same time, and maybe the payment context is the one in which the cost to consumers is clearest (after all, the Supreme Court allowed a consumer class action against Apple to go forward). But it would be a misconception to believe it's just about "the 30%." In a twittersation on Thursday, the founder and CEO of Epic Games clarifies what this is fundamentally about. In response, I listed a handful of related issues:

Where there is a monopoly, overcharging is just *one* of various negative effects. Apple restricts one billion users' choice using bad apples for a pretext, whether it's payment systems, promotional methods, functionality, themes, or presentation. And makes arbitrary decisions.

— Florian Mueller (@FOSSpatents) February 25, 2021

For state legislatures, the in-app payment part is particularly intriguing because lawmakers can directly benefit consumers in their states and, potentially, attract app development companies. State-level initiatives have been reported from various states, such as Minnesota (StarTribune article) and Arizona (KAWC News).

The Coalition for App Fairness reported that the Arizona House Rules Committee "voted unanimously that [a bill including a part on app stores] is constitutional and in proper form." As a result of Apple's and Google's counterlobbying efforts (which show that they take those initiatives seriously), the question came ujp whether the proposal is allowed under the Commerce Clause, which gives U.S. Congress the power to legislate commerce. However, my research shows that the Commerce Clause doesn't prevent states from regulating commerce in their states as long as what they do doesn't run counter to federal legislation.

Of the three bills I've seen so far (Arizona, Minnesota, and North Dakota), my personal favorite is the language of the Grand Canyon State's version of the bill, which would make it illegal for Apple and Google to "require a developer that is domiciled in this state to use a particular in-application payment system as the exclusive mode of accepting payments from a user to download a software application or purchase a digital or physical product or service through a software application" (emphasis added). As Apple and Google are based in California, not Arizona, the argument is apparently made by the bill's opponents that this is interstate commerce and Arizona is just trying to favor its own companies, but again, the vote on constitutionality was unanimous and in favor of this proposal.

Assuming for the sake of the argument that Arizona (though it could also be any other state) passed such a statute into law, what would happen? Apple and Google could theoretically try to stop providing their app stores in that state, just so they would stop to meet the threshold (number of downloads, or revenue level) set forth in the bill. But after selling numerous iPhones in a given state, Apple could hardly stop serving those customers. The same applies to Google after its OEMs have sold tons of Android devcies somewhere.

Could Apple (or Google) stop doing business with app developers based in that state, especially if companies from other states set up offices in Arizona to benefit from the law? If they did so, they might be required under federal antitrust law or state UCL (unfair competition law) to make their essential facilities available to developers.

The first state legislature to enact such an app store state law could make history, and would benefit consumers and developers alike. I keep my fingers crossed, but there are so many other things going on that I'm sure it's not a question of if, but when, the app store situation will improve. When I campaigned against the EU software patent directive in 2004 and 2005, I thought it was the most fundamental threat to developers ever. It's how I became a campaigner for the first time in my life, and a little over a year after joining the fray, I received an award that went to Governor Schwarzenegger two years later, and I received more votes than fellow nominee Bono, which shows there were a number of people who thought I had made an impact on a major issue. But this app store cause is more important. I'm not going to be a full-time campaigner again, but I am determined to make my little contribution.

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Google approved official Android app of anti-lockdown pressure group promoting breach of Germany's COVID prevention rules

About a year ago, the two major app stores decided to bar tens of millions of app developers from publishing COVID-related apps, no matter how useful those might be, unless they enter into public-private partnerships or co-publish their apps with certain types of entities. Both Apple and Google claimed that this was done in the interest of public safety.

A couple of weeks ago I announced my own app development company's antitrust complaints in multiple jurisdictions over those rules and their arbitrary application. While apps that could make (or early on could have made) a positive contribution to the fight against SARS-CoV-2 get rejected (which is why the team that developed an app named Coronavirus Reporter is suing Apple in the District of New Hampshire), apps that let players act as bioterrorists (telling them to "infect the world") or apps and books promoting bogus medicine (Homeopathy for Epidemics) are allowed. Better rules are badly needed.

Today I learned that Google has reached a new level of self-contradiction concerning COVID apps. On the Google Play Store one can download the "official" app of #WirMachenAuf, a group of German small business owners promoting and coordinating the flagrant violation of national and regional coronavirus prevention rules (click on the image to enlarge; this post continues below the screenshot):

Whoever reviewed this app on Google's side could simply have googled what WirMachenAuf is all about (to provide just two of countless articles indexed by Google's search engine: BusinessInsider Germany, state-owned TV news program). It's a group of small business owners trying to mobilize their colleagues to reopen restaurants and stores in violation of governmental coronavirus prevention measures.

So far, that initiative doesn't have much traction. Only a few dozen businesses participated last month. But its lack of success doesn't make that campaign acceptable or lawful, and the longer the current lockdown stays in force (for certain types of businesses), the greater the risk that more business owners join such a movement. Also, the German #WirMachenAuf initiative has spawned similar ones in other European countries, and it appears that some cafés in Italy recently opened in flagrant violation of lockdown rules.

The app doesn't explicitly mention COVID or corona(virus), but the positions and objectives of that initiative are known and easily researched. There's a screen on which the app explains what it's all about, referring to governmental measures taken since 2020 and explicitly declaring the intent not to comply with them anymore (click on the image to enlarge; this post continues below the screenshot):

I can't help but quote Google's Requirements for coronavirus disease 2019 (COVID-19) apps:

"Google takes this responsibility very seriously, and in the interest of public safety, information integrity and privacy, only specific COVID-19 apps that meet the requirements below will be allowed on the Google Play Store."

There you have it.

In August Epic Games CEO Tim Sweeney criticized (on Twitter) "the broken state of mobile platforms in 2020." Whether one fully agrees with him or not, Google's approval of the "official" app of a group inducing small business owners to break the law and open in the middle of a lockdown does show that there are serious issues--which must be addressed, one way or the other.

Google's use of its monopoly power in the COVID context is also being challenged in court. On January 20, 2021, the Munich I Regional Court issued a press release on a preliminary injunction hearing held by the court's 37th Civil Chamber (patent cases are heard by the 7th and 21th Civil Chambers, just to avoid any confusion here) in a case in which a WebMD-like website named NetDoktor.de (recently acquired by a large European publishing group named Hubert Burda Media) alleges an antitrust violation by Google's prominent display of a government-owned health information website (gesund.bund.de) when users search for certain COVID-related terms, thereby disadvantaging private-sector health portals like NetDoktor.

The problem on Android is even worse, as Google just doesn't allow anyone except governmental and certain government-approved entities to use COVID-related keywords anywhere in their metadata (as opposed to merely giving preferential treatment to some apps). Still, I can relate to NetDoktor's concerns. I don't know what the lower Munich court's inclination is, but no matter what the outcome will be, this case is sure to be appealed by the losing party to the Munich Higher Regional Court--and not only will there be a final decision on the preliminary injunction request but also a main proceeding and, therefore, a full trial.

The Burda publishing group raises a combination of antitrust and freedom-of-press concerns, such as in this opinion piece, according to which lawyers for the federal minister of health told the court that granting the injunction would undermine the minister's authority as the federal government's public face in the fight against COVID (which is ridiculous for a variety of reasons). One of the Burda group's C-level execs, Philipp Welte, gave a podcast interview in which he explained that for websites like NetDoktor "Google['s search engine] is the market." I understand that the decision, which was originally scheduled for last Friday, has been pushed back to Wednesday (February 10, 2021).

As I already explained last month, I don't have issues with Apple and Google at this point apart from their COVID app rules (and with Google I've disagreed on API copyrights for more than ten years). I hope the problem can be solved. With respect to Android apps relating to COVID, Google appears to be pretty specific about what YouTubers are not allowed to say (COVID-19 Medical Misinformation Policy). Both major app stores should improve their COVID app rules, and they should apply them reasonably and consistently, in which case Google would never again approve apps seeking to dissuade small business owners from complying with regional lockdowns.

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Viral Days: inspired by the COVID-19 pandemic, this real-time strategy game for Android and iOS demonstrates the propagation of a virus and, especially, the most effective ways to stop it

Nine months ago, to the day, I woke up after about four hours of sleep. With large parts of the world in lockdown, I started thinking about how a mobile game could make a useful contribution in the current situation and any future situation, as the SARS-CoV-2 pandemic is not the first and won't be the last of its kind.

I'll tell you in a moment what happened then, but fast foward from March 2020 to this weekend, and Viral Days (product website) is available for iOS on Apple's App Store, and for Android on the Google Play Store, [Update] the Huawei App Gallery, and the Samsung Galaxy Store [/Update]. Here's a gameplay video (this post continues below the video):

Back in March, some low-quality games from traditional genres, basically cheap knockoffs of titles like Angry Birds and Super Mario Bros., had been rethemed and rebranded as COVID-19 games. But they made no sense. You don't cure a disease by throwing toilet rolls at virus-like faces, or avoid getting infected by jumping over obstacles. What I wanted to come up with instead was a game that would really make a difference. A game that would

• demonstrate the problem of exponential propagation in a simplified, time-compressed form and

• promote several of the most effective ways to stop (or at least slow down) the spread of the virus.

After about an hour, I felt very good about my rough idea, and I luckily got another three or four hours of sleep. After waking up, I was (still) absolutely determined to turn this idea into reality. That same morning, before stores opened, I already had a call with Mario Heubach, whose company was doing contract development for my app development firm. We actually had been working together on another title--a highly interactive trivia game--since the summer of 2018 and were probably just a few months away from launching it. I was worried he'd declare me completely crazy to put a near-finished project on hold in order to start a new one. Let's face it: this is completely against conventional wisdom. But under the circumstances, what one would normally not even consider for a second was the right decision this year--we agreed on this much, and in early April, after some further conceptual work and research, development began. The Unity 3D engine was our obvious choice, and we also found valuable material on the Unity Asset Store.

We took our time to get it right--we really wanted to make a high-quality game--and finally submitted the app to Apple, Google, and Huawei yesterday. Apple and Google approved very quickly--they had previously taken a look at our beta versions. It's part of the history of this project that we initially had to deal with rejections, but I don't want to go into detail, at least now here and now. What matters is that the game is now available. And today we also submitted it to Samsung's Galaxy Store for review.

The initial release comes with 14 different languages.

Later this month we'll publish an HTML 5 (WebGL) game based on the same engine. I'm pretty sure that one will go absolutely viral, and when you see it, you'll see immediately why I think so. Stay tuned.

I'm aware of only one other game that "strategygamifies" the problem of a viral pandemic: Ndemic Creations' Plague Inc., which was launched in 2012 with what is now called its "main mode." That "main mode" has the objective of extinguishing humanity by means of a lethal virus. By stark contrast, my game's subtitle is "Heal - Protect - Prevent." Also, the virus in Viral Days isn't lethal. There's a difference like day and night between those two virus games not only in terms of the game objective but also the genre. Plague Inc. is a numbers-centric, abstract game where you see dots on a world map. Viral Days is about people you see--and try to take good care of. It's hands-on because players get to distribute masks, hospitalize or home-quarantine infected people, disperse crowds, and when you impose a lockdown in my game (available once you've reached level 18), you see people running home, just like you can see how infections are happening when an ill person and a healthy person spend too much time close to each other.

Viral Days highlights proximity with a frame that adjusts dynamically. I prototyped that one back in 2014, originally for a completely different purpose, and for a long time I had been looking for a way to put it to use in a game. In the early morning hours of March 19, 2020, I finally found it.

This game has the potential to reach a huge audience--and should have a positive effect on many (especially, but not only, young) people's attitude towards masks and social distancing. Apple disallows COVID-19-themed games, and Google has strict rules concerning metadata containing such keywords as COVID-19, corona(virus), and pandemic. But Viral Days is a generic virus game. In fact, what you see in the game would apply to the Spanish Flu of 1918 as well.

When I started blogging about those App Store antitrust cases in the summer, I said I was about to publish a game app myself. It took a few months longer than I thought then, but by now you know which one I meant. I'm so happy to have created a game that I'd definitely play even if I hadn't made it. And proud to have invented a new strategy game genre: real-time strategy without anything resembling military combat. It's viral real-time strategy.

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Epic Games ignores Apple's property rights and technical contributions as it reinforces motion for judgment on pleadings against counterclaims

Before I talk about Epic Games' latest filing in the antitrust dispute with Apple in the Northern District of California, here's a follow-up to what I posted one month ago when I wrote that the political clout of the newly-founded Coalition for App Fairness (Epic Games, Spotify, the Tinder company, and others) would depend on its ability to attract more members. This week, the CAF announced the addition of 20 members, and claimed that more than 400 other app developers have applied for membership. The names of the would-be members awaiting approval of their request to join aren't known, so I can't tell how credible and significant they are.

There are at least a couple of shady ones among those who have been allowed to join. It appears that Prepear's real issue with Apple is a trademark dispute, and I think Apple made a reasonable and responsible decision when it disallowed Eristica's "challenge" system as such challenges can indeed be quite dangerous.

But at least the majority of the CAF's members appear legit. Should this group continue to grow at a similar pace, it may at some point be in a position to claim that there's widespread disagreement with Apple's App Store and Google's Google Play business terms. A few dozen companies can't claim to speak for those who make millions of apps--but Apple will have to keep an eye on the CAF's momentum going forward because at some point it could become an influential organization and lend credence to Epic's and Spotify's narrative.

Now, on to Epic's latest court filing (this post continues below the document):

20-10-23 Epic Games' Re... by Florian Mueller

In order to eliminate the risk of punitive damages, Epic seeks to limit the dispute with Apple to an antitrust case if Epic wins and a contract dispute in case Epic's antitrust claims don't succeed. For that purpose, Epic brought a motion for judgment on the pleadings (somewhere between a motion to dismiss and a motion for summary judgment) against Apple's non-contract counterclaims, which Apple opposes. Late on Friday, Epic filed the above reply brief in support of that motion.

Philosophically, Epic Games v. Apple is in no small part about the relative value of the contribution each party makes to, for instance, Fortnite's commercial success on iOS. While it's obvious that there wouldn't be a Fortnite on iOS without Epic or without Apple, either party's counsel is now trying to convince the court that their respective client is the more important contributor. And that leads them to paint a self-centric picture.

Last month I agreed with famous and vocal iOS app developer Marco Arment that Apple shouldn't reduce to its 30% commission the value that we developers (my next title is slightly delayed, but we'll apply for TestFlight beta distribution in a matter of days) add to iOS. But the introductory part of Epic's latest filing makes a very one-sided statement: "Consumers who choose to make in-app purchases in Fortnite pay for Epic's creativity,innovation and effort—to enjoy an experience that Epic has designed." The fact of the matter is that Epic is standing on the shoulders of giants; Fortnite does not exist in a vacuum; and without the mobile revolution (which the iPhone sparked), app developers would today have fewer viable platform options.

The question of what actually belongs to Apple is relevant to certain counterclaims Apple brought against Epic. Apple wants to hold Epic responsible for having defrauded its app reviewers by sneaking a prohibited alternative payment system past the review process, and Epic argues that Apple isn't entitled to anything other than what Epic owes on a contractual basis. Apple, however, argues that only because it's protected itself against fraudulent acts through contractual provisions doesn't mean it doesn't have claims against Epic under tort law. Epic acknowledges that a breach and a tort can co-exist, but insists that the tortious act must be "independently wrongful." And that is, in my opinion, ultimately a question of whether one takes Epic's perspective, which is that they have every right to provide apps to iOS users and it's just Apple that restricts this right by uniterally imposing contract terms, or whether one primarily views Apple's App Store and the iOS platform as Apple's property, giving Apple the right to decide which apps become available via the App Store (and, therefore, to review those apps).

The "property" question is even more central to Apple's "conversion" claim (the civil law equivalent of theft). Epic argues that it's not theft to take money from Fortnite users on iOS, as opposed to "stealing cash from a vault in Apple Park, or raiding Apple's bank account."

My feeling is that the part about defrauding the app review process is not ripe for decision at this point; some of what Epic says may be valid, but not sufficient to defeat the counterclaims at this early stage. Conversion, which requires a possessory interest, may be ripe for judgment.

As for the question of whether Epic's offering an alternative payment mechanism (which Epic did in order "to illustrate that competition could exist on iOS, and that consumers would welcome and benefit from it") constitutes interference with Apple's customer relationships, Epic points to a passage in Apple's agreement with end users (Apple Media Services Terms and Conditions) that says "Apple acts as an agent for App Providers in providing the App Store and is not a party to the sales contract or user agreement between you and the App Provider." On that basis, Epic describes itself as the "principal" in the relationship with end users, and Apple as an "agent" at best and "an outright non-party" at worst. However, iOS users have a relationship with Apple that goes beyond Fortnite.

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Fortnite users continue to make in-app purchases on iOS that bypass Apple's payment system: court filing says "Epic is stealing money from Apple"

Two weeks after Fortnite maker Epic Games brought a motion for judgment on the pleadings against some of Apple's counterclaims (particularly the ones that might give rise to punitive damages), Apple filed its opposition brief on Friday evening Pacific Time (this post continues below the document):

20-10-16 Apple's Opposi... by Florian Mueller

One of the disputed theories is called conversion, which Apple describes as follows:

"Stated simply, Epic is stealing money from Apple. Theft is a crime, and 'conversion' is its civil-law analogue. The victim of theft has always had the right to sue for conversion to get its property back from the thief—irrespective of the technical means by which the conversion is accomplished. If, for example, Epic sent an agent into Apple Park and stole cash from a vault, a conversion claim could properly be pleaded. If Epic hacked an Apple bank account and stole cash electronically, a conversion claim could properly be pleaded. And if Epic bypassed IAP to funnel funds that include Apple's revenues and commissions into Epic's coffers, a conversion claim can be—and has been—properly pleaded." (emphases added)

In yesterday's filing, Apple says it has the right to sue Epic not only for breach of contract but also for tort, given that Epic would face tort liability "if [t]c had never executed the contracts with Apple and had instead found another way to smuggle Fortnite and its 'hotfix' payment mechanism into the App Store." Apple argues that a company protecting itself against such behavior through contracts must not be in a weaker legal position than one that doesn't. What Apple does clarify is that it won't seek "multiplicative recovery" if the same conduct on Epic's part constituted both a breach of an agreement and fraud. In other words, Apple would then content itself with only the greater of the two alternative amounts.

It appears that the "hotfix" was just a simple data point on Epic's servers--not program code, but merely a trigger. When the iOS version of Fortnite checked on that data point, it offered an alternative payment mechanism to end users in circumvention of Apple's in-app payment rules.

After the "hotfix" that Apple says became Epic's hot mess, Fortnite was removed from the App Store. That means it cannot be downloaded to iOS devices right now, and Epic has already failed twice (with a motion for a temporary restraining order as well as a motion for a preliminary injunction) to get a court to force Apple to tolerate an iOS version of Fortnite that bypasses Apple's in-app payment system.

At least so far, Apple has not removed Fortnite from the devices of iOS users who downloaded it prior to its removal from the App Store. Those users can't get updates, and they wouldn't be able to reinstall Fortnite if they (the users) deleted it. But so far the battle royale game has remained on tens of millions of devices.

What I didn't know (because I didn't have Fortnite on any of my iOS devices when it was removed from the App Store) is that Epic continues to offer in-app purchases that bypass Apple's system. Yesterday's filing says the following:

"{...] Epic's refusal to deactivate its hotfix makes this a continuing tort, as Epic's bank accounts continue to grow daily with additional stolen amounts. While Epic has repudiated its contractual obligations through its lawsuit, and its claims will be tested in time, Epic's continued siphoning of sales from IAP is just theft, plain and simple."

"[...] Epic's acts of conversion continue to this day [...]"

"[...] Epic to this day is stealing definite, ascertainable sums of money from Apple, and the tort of conversion provides a civil remedy for such conduct."

"The amount stolen by Epic from Apple can be fixed with certainty; the fact that this amount increases with every day that Epic continues its wrongdoing does not relieve Epic of tort liability."

Epic had various reasons for sneaking that alternative payment system past Apple's review process. From an antitrust angle, Epic appears to believe that any purchase made by a user of Fortnite on iOS that bypasses Apple's payment system can later serve as proof that there is "demand" for such alternatives. Epic also wants to make the case for how such alternatives save end users money.

After Fortnite was removed from the App Store, Epic could simply have deactivated that trigger it calls a "hotfix" and resubmitted a version of Fortnite to Apple's app review that would have complied with Apple's rules. But Epic doesn't want to de-escalate. Instead, it takes the position that it's simply allowed to breach an agreement with Apple that Epic claims to be a violation of the antitrust laws and, therefore, illegal and unenforceable.

From the get-go, Epic has viewed its dispute with Apple as a combination of litigation and public relations. When Epic CEO Tim Sweeney declared war on Apple by way of a 2 AM email, he announced that the two companies would be in conflict "on a multitude of fronts – creative, technical, business, and legal" (and possibly "for many years"). By continuing to generate in-app purchasing revenues on iOS without Apple getting its contractual share, Epic demonstrates its determination to fight. But it can't necessarily count on support from the courts.

On Monday, Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California will hold a case management conference relating to multiple App Store antitrust cases pending before her.

Epic Games v. Apple is the highest-profile battle in the App Store Antitrust Wars, but far from the only one as my App Store Antitrust Battlemap shows (click on the image to enlarge):

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Bonny Sweeney suing Google on indie app developer's behalf--what's the connection between her and Epic Games CEO Tim Sweeney?

At times it feels there's not a day on which nothing happens in those app store antitrust cases. Yesterday, Microsoft threw its weight behind the Coalition for App Fairness (CAF) and Epic Games' complaints, but in a political sense and without joining the CAF or formally intervening in those lawsuits--and, by the way, Microsoft is reluctant to apply the goose-gander principle to the Xbox, at least for the time being. Then, today and Monday are two particularly likely days for Judge Yvonne Gonzalez Rogers to enter an order on Epic Games' motion for a preliminary injunction against Apple. And here's just a quick procedural update on the Google cases pending in the same district, but before a different judge (Judge James Donato) and in a different city (San Francisco, not Oakland).

Yesterday Judge Donato held a joint case management videoconference in all three Google cases pending before him and which he decided to relate: Epic Games v. Google, Carr v. Google (consumer class action), Pure Sweat Basketball v. Google (app developer class action), and Peekya Services v. Google (another app developer class action). Peekya sells an Android app that costs approximately three bucks to download, depending on the country where the customer resides. This may or may not be a coincidence--should it be one, then it's a really funny one: the attorney who appeared on Peekya's behalf is Bonny E. Sweeney, a San Francisco-based partner of Hausfeld, a major law firm especially in competition matters. Hausfeld represented 40 law professors who supported the Federal Trade Commission against Qualcomm.

Mrs. Sweeney is co-chair of Hausfeld's U.S. antitrust practice. So let there be no doubt she was chosen for this case because of her qualifications. But isn't it odd that a lawyer going after Google over its Google Play store terms for app distribution and in-app purchases has the same family name as Epic Games CEO (and tireless anti-Apple tweeter) Tim Sweeney?

The Peekya case is the most recently filed one of those anti-Google app store antitrust cases. On September 30, Peekya issued a press release, in which it alleged that "Google has abused its dominant position atop the market." The same press release quotes Mrs. Sweeney as follows:

"Giant platform companies like Google have achieved unprecedented power. Hausfeld is proud to be paving the way for the enforcement of antitrust laws in these technological markets."

But Epic isn't mentioned in the press release. Maybe someone can shed some light on this. As a lawyer representing Apple against Samsung once said, "I'm old enough not to believe in coincidences anymore."

It's quite a challenge for the judge to juggle those four cases, which overlap in some ways but not in others.

Judge Donato has decided that Epic is more equal than the others. All others are required to file a consolidated amended complaint by October 21, but Epic can still maintain a separate complaint. So Mr. and Mrs. Sweeney won't have to consolidate their complaints. But even the "little guy" cases won't be fully consolidated at this time, the judge notes.

I would actually have singled out the Carr case because it raises consumer--not app developer--issues. Then, Judge Donato may have had reasons for this that I couldn't figure out.

All parties--even Epic--have to file a proposed case schedule by October 16.

One piece of bad news for Google: "Discovery will not be stayed on the basis that a motion to dismiss is pending." Google had asked for a stay, and Epic had argued that a stay would only be warranted in case of a strong showing of such a motion succceding. This has been a bad enough week for Google on the litigation front because its Supreme Court hearing (against Oracle) was described by one of its most loyal supporters among journalists (Ars Technica's Timothy B. Lee) as a "disaster" (as I mentioned in my fact check post today). Now it also appears Judge Donato is not--at least not yet--impressed with Google's attempts to get Epic's case thrown out at the earliest possible stage.

On October 29, the next videoconference will be held to discuss the further steps in those Google Play antitrust cases.

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Desktop OS monopolist Microsoft criticizes app distribution terms of smartphone OS makers Apple, Google: closing ranks with Epic Games, Spotify

Everyone in the industry has known for years that Microsoft hates the notion of Apple and Google retaining 30% of whatever end users pay for and in Microsoft Office and other smartphone apps. Microsoft was exceedingly hesitant but ultimately accepted. The word "hates" has a meaning here that transcends purely financial considerations--in fact, Microsoft has been in business for more than long enough to know and remember that traditional distribution channels used to ask and get up to about twice that margin when Office was installed from a bunch of DVDs, CDs, or floppy disks. There's also a psychological problem here. The need to agree to a revenue split that the likes of Epic Games and Spotify--midgets compared to Microsoft--are fighting against is nothing short of a major humiliation for Redmond. The combination of a revenue split one would rather avoid (or at least minimize) with a constant reminder of having lost in the smartphone operating system (OS) market--and, in fact, no longer being the world's #1 OS company if all device categories are considered--presumably feels toxic.

In an alternative universe in which Microsoft would have extended its desktop operating system monopoly (as a matter of fact, Microsoft didn't even appeal an EU court decision that concluded it was a desktop OS monopolist) to smartphones, which it tried very hard but ultimately unsuccessfully,

• Microsoft itself would likely have found itself on the receiving end of antitrust complaints (maybe not by Epic and Spotify, but by others, possibly even Apple and Google),

• Microsoft wouldn't have provided sworn declarations to a plaintiff challenging an alleged OS monopolist (as it has already done twice: 1, 2), and

• there definitely wouldn't have been today's public statement by Microsoft, 10 app store principles to promote choice, fairness and innovation.

It's not like Microsoft hadn't found other great opportunities, such as its Azure cloud. It's a terrific, innovative company and has reinvented itself. Of course, it's still milking its Windows and Office cash cows. But paying what the likes of Epic describe as the "Apple tax" and "Google tax" is comparable to a dethroned king having to pay for the upkeep of his castle after decades of being in the position to tax his subjects (which Microsoft still can and does, but in other ways and other markets).

In the wake of a Congressional report that, among various other topics, also discussed app distribution terms, Microsoft informally joins the Coalition for App Fairness (CAF).

There's also a close personal connection here: Horacio Gutierrez, Spotify's legal and licensing chief, was Microsoft's head of IP and widely considered its #2 lawyer (after Microsoft President Brad Smith). I've said it on another occasion that Spotify couldn't have made a better hiring choice. But that doesn't mean I necessarily agree with his positions.

A few years ago, Microsoft and Google actually made peace in the sense that neither was going to instigate antitrust investigations against the other. Those EU antitrust complaints against Google had been backed by Microsoft. But then Microsoft left certain organizations. Now, while Microsoft hasn't formally joined the Epic-Spotify-led CAF yet, it's in a de facto anti-Google alliance again. Who knows--maybe Google will (again) lend support to anti-Microsoft initiatives at some point.

Microsoft is apparently going to make adjustments to the app distribution terms on Windows to the extent it's necessary to be CAF-aligned. From an app developer perspective, I actually welcome that move, and it may very well shield Microsoft against allegations of hypocrisy as far as Windows app store commissions are concerned. But what about the XBox? Microsoft writes:

"We also operate a store on the Xbox console. It’s reasonable to ask why we are not also applying these principles to that Xbox store today. Game consoles are specialized devices optimized for a particular use. Though well-loved by their fans, they are vastly outnumbered in the marketplace by PCs and phones. And the business model for game consoles is very different to the ecosystem around PCs or phones. Console makers such as Microsoft invest significantly in developing dedicated console hardware but sell them below cost or at very low margins to create a market that game developers and publishers can benefit from. Given these fundamental differences in the significance of the platform and the business model, we have more work to do to establish the right set of principles for game consoles."

That's a non sequitur distinction. It means that the device maker can just let app developers pay for what consumers get. And what should Google say then? Google makes Android available on open-source terms. Whether or not it actually does get paid by device makers, I'm sure it's much less than the price of an Xbox.

At least Microsoft promises to give further thought to "the right set of principles for game consoles." That is very vague. When? What? How? And why not now?

Is Microsoft really giving up much? Certainly not with respect to Windows. The alternative would have been for Microsoft to make technical changes to Windows so as to prevent direct installations. Apart from the enormous logistical effort this would have involved in order to avoid major disruption, it would have raised antitrust issues because Windows is clearly a destop OS monopoly. By contrast, Apple and Google are fiercely competing with each other in a two-horse race. And while Microsoft would have imposed terms now that it's been a monopolist for several decades, Apple and Google asked for the same 30% when they started (and therefore weren't monopolists), and if anything, the terms for app developers have only improved since then. Now, as an app developer I'm always happy about further improvement. But for now I'm talking about it from an antitrust perspective. If Microsoft leveraged its monopoly to impose something it hadn't done in decades, that would be much easier to attack than the fact that Apple and Google haven't made their terms more favorable to app developers.

There have been times, even quite recently, when Microsoft's market capitalization was the highest of any company at least in this industry. Today, Apple is about $400 billion ahead, and Alphabet about $600 billion behind. Doing some damage to those companies would make it easier for Microsoft to reclaim the top spot.

Microsoft is calling for a constructive dialog, which is always good to have. But whatever Microsoft does with respect to its own platforms is motivated by the factors I outlined in this post, and probably others I'm not even aware of. What I see happening here is that some of those who dislike Apple's and Google's app distribution terms create their own app stores or sweeten the terms of existing app stores only to up the pressure on Apple and Google. It's something one can also observe in the patent licensing space where deals are sometimes struck and targets are picked primarily for the purpose of establishing "comparable transactions" and then they impose the same terms on others.

If regulatory agencies are simply looking for "evidence" they can hold against Apple and/or Google, they might make use of those "comparables." It's another question whether any courts that may one day have to review their decisions, or make their own decisions (such as in Epic Games v. Apple and Epic Games v. Google, both in the Northern District of California), will be impressed once they figure out what's going on and why.

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Epic Games acknowledges liability toward Apple for breach of contract with recent Fortnite version if Epic loses its antitrust case

As it had already announced a few days before, Epic Games brought its motion for judgment on the pleadings targeting some of Apple's counterclaims late on Friday by Pacific Time (this post continues below the document):

20-10-02 Epic Games Motion ... by Florian Mueller

The objective of this motion can be summed up as follows:

Epic Games wants this dispute to be only about what percentage of Fortnite in-app purchasing (IAP) revenues the app developer--Epic--and what complementary (100% minus the former) percentage the platform maker and operator--Apple--will get. Now, they're not actually asking the court to lower Apple's 30% cut, but they say they want to be permitted to offer alternative in-app payment methods and they want alternative iOS app stores to be allowed to compete with Apple's App Store, with the ultimative objective of bringing down that percentage. They furthermore claim that customers will get better service, but that's just because they want to show that consumers are harmed (a key issue in antitrust cases) in the sense of being deprived of certain benefits they could have if only Apple was less heavy-handed.

If, say, Epic served 50% of its customers directly, Apple would get its 30% only on the remaining 50%, resulting in an effective rate of 15%, which would already be pretty close to the 12% Epic is charging developers who offer their products via Epic's PC and Mac app store. In reality, Epic would presumably hope for Apple to simply reduce its 30% under such competitive pressure, thereby reducing or entirely eliminating any incentives for developers like Epic to deal with payment processing themselves.

The risk-opportunity picture would be quite appealing to Epic if the best case was a (potentially drastic) reduction of Apple's 30%, and the worst case would just be for Epic having to pay Apple what it owes under the current Apple developer contracts anyway, plus legal fees on top, which will quickly be in the tens of millions in this case, but that's just a rounding error on the balance sheet of the multi-billion-dollar business that is Epic.

Looking at it the other way, it would be an attractive gamble to spend tens of millions in hopes of saving billions in App Store commissions over the years. I mean, with such economics you might even attempt a long shot, especially if you believe (right or not) that you also benefit from it in terms of publicity for your products. (I actually see strong indications of both Epic and Apple believing they'll win this case as a matter of law when all is said and done; but I also get the impression of Epic founder, majority shareholder, and CEO Tim Sweeney being on a crusade and potentially hoping to immortalize himself as a digital freedom fighter in a way he never could by making and selling even extremely popular games and game engines.)

But Apple's counterclaims represent a Damocles sword over Epic's head that could make the worst-case scenario quite a bit more costly.

What Apple did was to accuse Epic of malicious and fraudulent conduct. On the one hand, Apple doesn't deny that Epic is in its right to challenge the legality of Apple's business terms (that, by the way, sets Apple apart from monopolists that impose "gag order" clauses on customers preventing them from bringing complaints with antitrust authorities, a tactic that Qualcomm has been accused of, or sports bodies like the International Olympic Committee and FIFA/UEFA as well as their national member associations, which leverage their monopoly power to force others to submit to binding arbitration over questions before arbitration tribunals staffed, stacked and controlled by the very same associations). On the other hand, what Apple does not accept--and that's the reason for its counterclaims--is for someone to sneak a hidden, undoubtedly contract-breaching functionality through Apple's app review.

Some of Apple's counterclaims are about Epic's conceded breach of contract. Even in Friday's motion, Epic makes an unequivocal admission:

"Epic does not prevail on its antitrust claims, then Epic would be liable for breach."

Epic wouldn't lose much money if the court held it liable for breach. But Epic might lose a lot more if liable for tort.

There are two reasons why the tort part of Apple's counterclaims poses a greater and not easily calculable risk to Epic:

• Apple is seeking punitive damages (a claim that Epic is trying to get rid of with Friday's motion). The idea of punitive damages is that they should deter certain conduct, even if it means that the defendant (here, Epic is the defendant to the counterclaims) ends up paying much more than the actual damage it caused.

• If at some point--possibly after multiple rounds of litigation--the focus was on what damage Epic caused Apple, the numbers wouldn't be limited to some percentage of Fortnite's iOS revenues but the starting point for that further discussion would be the ginormous value of the App Store and of Apple's customer relationships. (Obviously, it's not like Epic destroyed the App Store as a whole, but Apple can argue that the lost goodwill etc. far exceeds the revenues Epic might have generated by breaking the rules; it's like if a compact car has an accident with a Ferrari, the damage to the latter can get costly with no regard to the value of the former.)

One of Apple's tort claims, called conversion (interference with someone else's property), will be hard to defend as Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California already indicated in Monday's hearing. That's why it's not worth analyzing in more detail, unless Apple's efforts to keep that claim alive unexpectedly get traction.

But Epic is also tackling another tort counterclaim: intentational interference with prospective economic advantage. The short form would be "tortious interference."

In order to persuade the court to dispose of the tortious-interference counterclaim, Epic makes some points, which aren't all equally persuasive:

• Epic says that what it did, by offering an alternative payment system, was just a breach of contract, and tortious interference is not meant to deal with a breach of a contractual duty. This one looks weak. It's not like the existence of a contract between parties constitutes a safe harbor, just like fraud can happen even if there's a contract in place. Epic points to case law where the "breach" was actually just a termination or non-performance of a contract--but nothing like what happened here, starting with Epic sneaking some hidden functionality past Apple's App Store review team.

• Epic also argues that it didn't prevent any users of the iOS version of Fortnite from doing business with Apple, as Apple's IAP option was still offered, with just an option to bypass it, which roughly half of those users elected to do.

• Epic insists that Fortnite users aren't "third-party strangers" to the Apple-Epic relationship as they're Epic's customers, too, and not just Apple's.

  How the court views this one could also have implications for the antitrust claims.

The court will presumably decide next month. If the tortious-interference counterclaims survives this motion, Epic will continue to face the risk of punitive damages I outlined above.

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