CMA issued schizophrenic statement on digital markets shortly after announcing to block Microsoft's purchase of Activision Blizzard: UK regulator contradicts own ruling

Were the CMA a person, one would really have to worry about it. As I'll show in this post, the CMA even contradicted itself on a fundamental question--competition among mobile app stores--on the very same day it tried, by means of a decision that won't stand, to block Microsoft's purchase of Activision Blizzard. Institutional schizophrenia.

I'll explain the reasons for this diagnosis first before talking about what's wrong with the CMA and the irresponsible approach taken by its current leadership, an approach that does damage without achieving anything good for UK consumers or companies in the end. Much to the contrary, the CMA's actions are counterproductive.

To be very clear, I'm not saying that any particular person is schizophrenic: there's no indication for that. It's an institutional problem. The biggest part of it is a lack of understanding of the tech industry, especially on the part of the Inquiry Group, whose members have an impressive background in other areas (mostly financial services) but are incompetent with respect to technology markets. Coupled with Mrs. Cardell's ambitions appearing stronger than her sense of responsibility, the results can be terrible, nonsensical, and in this case even schizophrenic.

In my two previous posts, I discussed why and how Microsoft can/will still close this deal (#UnblockABK) and the fact that Microsoft is not the first company to consider the CMA's actions a liability to the British economy: the CMA even tyrannizes startups and grown-ups, which a few years ago killed 30% of Deliveroo's jobs for no reason. Today's CEO was the agency's General Counsel at the time.

The CMA issued an unbelievably self-contradictory statement on Wednesday, only shortly after the merger-blocking decision:

Ensuring effective competition in digital markets, for people, businesses and the economy

A statement on mergers and digital markets from Marcus Bokkerink, Chair, and Sarah Cardell, CEO, CMA.

The one-pager argues that a legislative initiative that was introduced into the British Parliament the previous day--named Digital Markets, Competition and Consumers (DMCC) Bill--and largely crafted by Mrs. Cardell herself and the Microsoft-ABK decision "are distinct," but "[the CMA's] existing merger control regime and the new digital markets regime can work in complementary ways to maintain effective competition in digital markets."

The opposite is true with respect to ABK:

While the DMCC as the UK's equivalent of the EU's Digital Markets Act is indeed designed to open up mobile ecosystems and free them from the Apple-Google strangehold, the insanity that is the ABK decision would (if surprisingly allowed to stand) prevent the most promising challenger--also in financial analysts' opinion--to Apple's App Store and the Google Play Store from emerging.

That fact alone would make the statement self-contradictory, but the contradiction is far more specific than that and that's why this amounts to institutional schizophrenia:

1. The DMCC Bill as introduced into Parliament on Tuesday (April 25) will indeed--as the Cardell-Bokkerink statement says--"give the CMA the ability to work in a faster and more targeted way to improve competition and foster opportunities for innovation in digital markets where a firm is found to already have strategic market status." And yes, if the CMA uses its powers wisely (after carefully building the tech industry expertise the ABK Inquiry Group lacks), the DMCC Bill "will allow [the CMA] to set targeted and proportionate conduct requirements to ensure other businesses aren’t at risk of being exploited and excluded, and to safeguard users against unfair terms and constrained choices." (emphases added)

2. But this means that the CMA will impose conduct requirements on Apple and Google so they cannot exclude (Apple) or hobble (Google) rival app stores. App makers are being exploited; rival app stores are being excluded; and user choices are constrained.

3. Here's the key passage of the DMCC Bill:

   Chapter 3

   Conduct Requirements

   19 Power to impose conduct requirements

   [...]

   (7) The open choices objective is that users or potential users of the relevant digital activity are able to choose freely and easily between the services or digital content provided by the undertaking and services or digital content provided by other undertakings.

4. Apple and Google will undoubtedly be found to have "strategic market status" (SMS). That term is also found in the Cardell-Bokkerink statement. No restriction in digital markets is strategically more important than mobile app stores monopolies: two gatekeepers controlling what apps we get, what the apps can do, and how app makers can promote their products, as well as taxing every purchase we make there (directly through the app tax, and indirectly through self-preferencing of advertising systems etc.)

5. But here's what the crazy merger ruling says:

   "83. In relation to Microsoft expanding into mobile gaming, the chances of Microsoft succeeding seemed low in circumstances where the two largest mobile OS—Google’s Android and Apple’s iOS—either currently prohibit rival mobile gaming app stores or impose strict limits on their ability to monetise content."

6. So the CMA's chairman and CEO--in the same April 26 statement--celebrate the DMCC Bill and the benefits it will bring to consumers and companies, but they incredibly say that the Microsoft-ABK decision is part of the same master plan, when that one flatly rejected the Relevant Customer Benefit that a universal app store run by Microsoft would bring.

7. Here's the second sentence of that paragraph 83:

   "In any event, there seemed to be other, less anti-competitive ways, through which Microsoft could reasonably attempt to enter this market, such as by licensing mobile gaming content from publishers."

   No, there are not.

8. The problem with the second sentence is that the Inquiry Group is (as I mentioned before) simply incompetent when it comes to technology markets. Financial analysts know that the most serious threat to the Apple-Google app store duopoly is Microsoft. That's because it takes two ingredients for a rival app store to get traction: you need to be able to compete at all (Apple) and on a level playing field (that's the current problem on Android), but also need a very attractive offering that is exclusive to your store and will drive users there. Only then will users not only rely on the default app stores (an incredibly high hurdle to overcome, especially if one understands what the Power of Default means) but also go there to discover third-party apps--from app makers large and small, including app makers from the UK.

   It's simply attributable to the Inquiry Group's incompetence with respect to tech markets that they believes there "seemed" (which should not be the legal standard for rejecting a Relevant Customer Benefit anyway) to be alternatives such as licensing: there is no way that Microsoft could solve the problem through commercial agreements with game makers like ABK, simply because those will always go not only for maximum revenues but also (for strategic reasons) maximum reach. It's not realistic that Microsoft would make those companies a sufficiently attractive offer that they would forgo the maximum reach that the default app stores will offer them. Smaller companies may do that, or even larger companies but only for low-priority titles. That, however, would not overcome the Power of Default.

   But what can you expect from an Inquiry Group that is incompetent enough to count all Game Pass Ultimate users as xCloud users--when xCloud is unavailable in numerous countries and even where it's available, only the fewest people play games via xCloud instead of locally--and that doesn't even get basic math right (comparing five years of profits to one year of costs)? They were obviously way out of their depth, which didn't prevent them from feeling like they collectively had dictatorial powers (like the Central Committee of the Communist Party of the Soviet Union).

9. It will take time to make mobile app distribution competitive, but the CMA's sole remaining theory of harm is about cloud gaming and alternative app stores can succeed years before cloud gaming would even just hypothetically become as big as the technologically incompetent Inquiry Group asserts.

As I just referenced the Cold War days, let me adapt a famous speech by President Reagan:

Mr. Bokkerink and Mrs. Cardell:

If you want customer choice in mobile ecosystems, open the app stores.

Mr. Bokkerink and Mrs. Cardell:

If you want to create opportunities for UK companies of all sizes by giving them an alternative app store where end users will go to discover apps, allow the most promising challenger to emerge.

It's fairly likely that the CMA's CEO, Sarah Cardell, genuinely believes she's defending consumer interests even though she is not. Despite good intentions, she might be tempted to abuse her powers--powers she wouldn't have if not for Brexit (prior to which the CMA didn't get to decide major cases) and a rule-of-law deficit in the UK: regulators that have to defend their decisions in court on an a reasonably level playing field either have to act more reasonably (which usually happens) or at least they couldn't do much harm in the other event. The rule-of-law deficit could be addressed not only be changing the standard of review but simply by the government using its powers from time to time--as does the German government--to override regulator decisions when it's in the public interest.

If there's nothing that disciplines the CMA's institutionalized excess, a regulator that's out of control will additionally complicate the United Kingdom's efforts to strengthen--or at least maintain the strength of--its economy post-Brexit. Venture capital investment in the UK has recently been hit harder than in any comparable economy, and the CMA complicates investors' exits and in the Deliveroo case even complicated fundraising and killed jobs. Opening up mobile app stores would help many venture-funded startups; blocking Microsoft's purchase of ABK helps no one but Sony, Apple, and Google. More and more companies are considering delisting their stock from the London Stock Exchange (LSE)--which by the way has a partnership with Microsoft that is unrelated to whether publicly-traded companies believe they can get better valuations in New York. The crown jewel of the UK's tech sector, Arm, is going public on the U.S. Stock market. The CMA was not the only regulator to have concerns over the sale of Arm to Nvidia, but its institutional excess and its irrational decisions do nothing to advance the UK's interests.

Should the CMA consider itself--as a person interviewed by the Financial Times suggested--"the world's policeman" for competition in digital markets, then there would be an additional diagnosis of megalomania, and not necessarily just institutional megalomania. Even the European Commission--which has far more power than the CMA and especially a lot more experience with major cases--wouldn't look at itself that way.

In a matter of weeks, the European Commission will show the difference between the Champions League of intelligent, competent, and reasonable antitrust enforcement on the one hand and a second-division team that overestimated itself after it was thrust into a higher league by historical accident. The EC will also show the difference between decades of experience in dealing with high-stakes global-player cases in the technology industry and a regulatory startup. The EC's specialized tech merger review unit is here the CMA's DMU hopes to get--and where it has the potential to get, prudent leadership provided.

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

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

Make no mistake: I am steadfastly committed to continuing the fight for reforms, keeping kids safe online & ensuring marketplace fairness. Next Congress you can bet that I will be reintroducing these bills & redoubling the work with my partners. 13

— Richard Blumenthal (@SenBlumenthal) December 20, 2022

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

“Bipartisan backers of a trio of proposals to rein in the power of Big Tech and stiffen antitrust enforcement have a simple question for Senate Majority Leader Chuck Schumer (D-N.Y.): What’s the deal?”https://t.co/O0g37S8J5I

— Jake Tapper (@jaketapper) December 17, 2022

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

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

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

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

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

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

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

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

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

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

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

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

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

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The three-letter acronym soup of UK tech antitrust enforcement: CMA, MIR, DMU, and temporarily ABK

This post is mostly a glossary of an alphabet soup. But first I'd like to draw your attention to a very interesting and well-crafted speech that Sarah Cardell, the Interim Chief Executive of the UK Competition & Markets Authority (CMA), delivered yesterday at the British Insttitue of International & Comparative Law (BICCL) and Linklaters Tech Antitrust Roundtable. Mrs. Cardell discussed the CMA's enforcement activities under the current legal framework as well as "the Digital Markets, Competition and Consumer Bill [that] will be introduced in the third session of [the British] Parliament" (emphasis added). That speech is a roadmap, and explains in very understandable terms why certain actions must be taken in order to remedy and ideally even prevent market failures.

The Digital Markets, Competition and Consumer Bill is somewhat comparable to the European Union's Digital Markets Act (DMA), but that analogy isn't meant to downplay its distinct nature. It is easy to confuse the two, however, as this UK legislative initative is often referred to as the Digital Markets Unit (DMU). But a unit is not a bill. The Digital Markets Unit of the CMA already exists, but it will make an impact on the market only after the Digital Markets, Competition and Consumer Bill is passed into law. The legislative process could have been massively delayed or even derailed as the country has very recently had three different prime ministers, but is now--fortunately--going forward.

The bedrock of the DMU as well as the EU's DMA is the realization that traditional antitrust rules are not suitable to task in a field in which unprecedented network effects giving gatekeepers an unhealthy degree of power. Many U.S. lawmakers agree, yet we are still waiting for Congress to enact at least the Open App Markets Act (OAMA).

There is something in between traditional antitrust enforcement (investigations that lead to fines for and/or injunctions against abusive conduct) and a so-called ex ante regime like the one envisaged for the DMU. Without having to establish a violation of antitrust law, the CMA has the power to conduct market investigations, which may then lead to structural measures. In other words, the standard is a market failure, not a finding of abuse (though in practice, there will be findings of abuse, just that the legal standard for such findings doesn't have to be met). I have stated on various occasions--most recently on Friday when commenting on a tweet by Internet luminary Jack Dorsey (of Twitter and Block/Square fame)--that the CMA correctly identified a need to look into (and, as I believe it will at the next stage, to take measures) relating to mobile browsers and cloud gaming. Apple's WebKit dictate--forcing all other browsers on iOS to use the same engine as Safari--is terrible for innovation and competition.

One week ago, the CMA announced that after a public consultation, the agency is now carrying out a market investigation. The next three-letter acronym is MIR: Market Investigation Reference. The MIR is a formal decision to open a market investigation (PDF) that may indeed lead to structural remedies. The CMA published the Terms of Reference (PDF) "in relation to the supply of mobile browsers and mobile browser engines, and the distribution of cloud gaming services through app stores on mobile devices (and the supply of related ancillary goods and services) in the United Kingdom."

On another occasion I'll comment on some of the submissions by stakeholders. Apple's claim of acting procompetitively is so very absurd that I don't know how they can even make that claim with a straight face, but now is not the time to go into detail on that. The market investigation will take up to 18 months and has enormous potential to bring about change. The Platform Law Blog explains the scope of the MIR very well.

The fourth and final three-letter acronym in this UK tech antitrust context is different from the others because it's non-governmental: it's the abbreviation of a company name, Activision Blizzard King (ABK).

The official company name is only Activision Blizzard, but King (the maker of Candy Crush) is key and it's in third place only for chronological reasons (Activision first acquired Blizzard, later the combined entity acquired King), not as an indicator of strategic importance. The CMA is reviewing Microsoft's purchase of ABK. While merger cases have their own legal framework, there are factual overlaps here that matter to me as an app developer.

Microsoft's response to the CMA's Phase 2 Issues Statement discusses the problems facing Fortnite on Xbox Cloud Gaming. In that section of the blog post I also show a conversation on Twitter in which I defended the CMA's decision to consider the iOS browser monopoly issue closely related to cloud gaming.

It was also in that UK merger review process that Microsoft publicly revealed its plans to compete with the incumbent mobile app stores. Section 2.15 of Microsoft's October 23 submission to the CMA explains that it takes two factors to make this work. The walled gardens must be opened up, but then there will still be the challenge of convincing consumers to use app stores other than the default ones:

"In particular, the concept of a next-generation game store that operates across a range of devices ('Universal Store') is risky. Moving consumers away from the Google Play Store and Apple App Store on mobile devices will require a major shift in consumer behaviour. Microsoft hopes that by offering well-known and popular content, gamers will be more inclined to try something new. But this is far from guaranteed and also depends on proposed regulations and legislation in the U.S., and around the world, that would require Apple and Google to make their platforms and app stores more open to third-party stores and commerce platforms. As such, in seeking approval from its Board of Directors as a public company, Microsoft leadership could [REDACTED]. Nevertheless, as Mr. Spencer confirmed, Microsoft will measure the strategic success of the Merger on [REDACTED]."

It looks like Microsoft is prepared to make a ten-year commitment to the PlayStation. If that helps in the EU, it may also be deemed satisfactory in other jurisdictions--including, but not limited to, the United Kingdom. At any rate, I hope the CMA will take the same holistic perspective on digital markets when making a decision on Microsoft-ActivisionBlizzard (and will take the potential benefits to app developers into account) as Mrs. Cardell did in her speech yesterday, which covered a lot of ground (and in which she mentioned that so far the CMA has actually blocked only one tech merger, Facebook-Giphy, which is easily distinguishable from Microsoft-ABK).

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