U.S. Department of Justice reinforces motion for spoliation sanctions against Google, heavily relies on evidence from Epic Games case and points to Google's untruthfulness

On February 23, the Department of Justice (DOJ) on behalf of the United States brought a motion for spoliation sanctions against Google in the United States District Court for the District of Columbia. That motion referred to parallel proceedings over the same issue--the automatic deletion of "history off" Google chats after 24 hours and Google's employees' systematic use of "history off" chats for discussions involving allegedly anticompetitive behavior--as a motion by Epic Games and its co-plaintiffs (including three dozen state AGs) in the Northern District of California. In fact, the D.C. motion would likely never have been brought if not for Epic's persistent and investigative efforts.

On March 17, Google filed its opposition brief (which I've uploaded to DocumentCloud). Google argued that the plaintiffs in the D.C. search engine case were not prejudiced and, above all, that the motion was brought way too late.

Only 11 days later, Judge James Donato in San Francisco determined that Google had to be held responsible for spoliation of evidence. The first sanction he imposed is not important per se: just a reimbursement of fees. The big one--which will be non-monetary, but not "terminating"--is to be determined after the close of the (additional) fact discovery (April 7). What was remarkable about that order is that Judge Donato essentially accused Google's lawyers of having lied.

The DOJ reacted swiftly. It notified the California sanctions order to Judge Amit P. Mehta in D.C. on the same day it issued (Tuesday, March 28).

Yesterday (Friday, March 31) the DOJ filed its reply brief in support of its motion for sanctions:

United States of America, et al., v. Google (case no. 1:20-cv-3010-APM, D.D.C.): The United States' Reply in Support of Its Motion for Sanctions Against Google, LLC And an Evidentiary Hearing to Determine the Appropriate Relief

That file has more than 100 pages because I've also uploaded all publicly accessible exhibits. One can see that the evidentiary body here basically comes from the Epic litigation in California. Also, there's an excerpt from a San Francisco hearing transcript.

That reply brief is very well-crafted. I can't imagine that Judge Mehta would throw out the motion, at least not without the evidentiary hearing that the DOJ reasonably requests.

Frankly, the evidence is overwhelming that Google employees--all the way up to CEO Sundar Pichai--purposely used "history off" chats for sensitive discussions. There is even evidence of employees who wanted to act lawfully and have those chats recorded drawing internal pushback.

The evidentiary body for prejudice may become more robust. As I noted in my post on the California order, Google's Revenue Share Agreements (RSAs) with Android device makers are indeed at issue in the D.C. litigation and were mentioned in some of the Epic documents. The DOJ is currently reviewing 20,000 chats that it received after it brought its motion. And "recently produced chats show that Google discusses substantive business over chats with third parties—also instructing those third parties to communicate with care." So there already is quite some evidence, and this here is particularly damning:

"[...] Google’s Finance Director (and a deponent in this case) noted that 'the DOJ case is making the content very sensitive to share via email these days.'"

Like Epic, the DOJ notes that even Google's CEO "regularly turned 'history off so that we can speak (more) freely.'"

The DOJ seeks to dismantle Google's untimeliness argument using two attack vectors. One is that the DOJ argues that spoliation motions are not time-barred. In this context, the DOJ notes that the alternative would mean "flood[ing] courts with sanctions motions over what are often routine discovery conflicts" by filng motions "at the first hint of any potential issue." While it's just an out-of-circuit district court decision, the United States District Court for the District of Alaska stated it quite well when it wrote in a 2016 ruling that "a party need not file a motion at the first inkling of spoliation but is entitled to gather evidence . . . before filing a motion."

There may nevertheless be an untimeliness argument in some cases. But here there's an important factor:

"Google did not fully disclose its chat retention policy until January 2023. Following that disclosure, the United States timely moved for relief. The Federal Rules do not absolve Google’s spoliation because it previously provided partial information about its chat preservation policies.

"Google averred that it 'put a legal hold in place' which 'suspends auto-deletion' in November 2019. [...] The United States relied on that assertion."

Therefore, "it was only after the Epic sanctions motion was filed in October 2022 that the United States began to learn the full scope of Google’s chat preservation policies and its employees’ chat practices."

Google seeks to benefit from misrepresentations and stonewalling. I can't imagine that such a strategy will work. In the end, Judge Mehta will face the same dilemma as Judge Donato: to determine the proper sanctions, taking into account Google's misconduct on the one hand and the enormous implications of those huge antitrust cases--which no one would be comfortable deciding based on spoliation alone--on the other hand.

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Epic v. Google judge chides Google for unrepentance and lying about chat deletion, non-monetary sanctions TBD after April 7 discovery cutoff: implications for United States et al. v. Google

Two months after I wrote that "sanctions loom large" over Google's systematic deletion of chats about legally sensitive topics, that prediction and the fact that this blog has written about the topic more often than any other (non-paywalled) website--see the link list in this recent post--have been vindicated. Yesterday, Judge James Donato of the United States District Court for the Northern District of California, who is presiding over multiple consolidated Google Play Store antitrust cases (brought by Epic Games, three dozen state AGs, Match Group, and class-action plaintiffs), entered his findings of fact and conclusions of law, ordering monetary sanctions first (recovery of attorneys' fees) and announcing that non-monetary sanctions will be determined a little later:

In Re Google Play Store Antitrust Litigation (case no. 21-md-2981-JD, N.D. Cal.): Findings of Fact and Conclusions of Law re Chat Preservation

If this was about the actual merits of the case, that order would amount to

• an entry of liability (Judge Donato finds that Google is guilty of spoliation of evidence),

• a decision on a first minor remedy (recovery of fees, with the exact amount to be determined now), and

• a holding that a remedy of a certain category (at an abstract level, comparable to injunctive relief) is warranted, though more information is needed to make that determination.

• Furthermore, Judge Donato reiterated that a "terminating sanction" won't issue. So what the plaintiffs and Google know now is that there will be a non-monetary sanction that will have an impact on the adjudication of the case (unlike a fee award, which doesn't really matter between those parties), but it won't be fatal to Google's defenses. Comparing this again to a merits decision, it's like a judge saying that an injunction will issue, but it will have to be reasonably narrowly tailored.

Judge Donato notes that "[p]roportionality is the governing concept here." In order to have as solid a factual basis as possible for determining what remedy "fit[s] the wrong," he "would like to see the state of play of the evidence at the end of fact discovery." Fact discovery in this litigation was reopened after Epic and Match were allowed (in mid November 2022) to amend their complaints. As per a stipulation granted by Judge Donato, the cutoff date for that supplemental discovery is April 7 (next week's Friday). Thereafter, "plaintiffs will be better positioned to tell the Court what might have been lost in the Chat communications."

Proportionality must go both ways. Judge Donato "fully appreciates plaintiffs’ dilemma of trying to prove the contents of what Google has deleted." So the really tricky part is still ahead of the court and the parties. The remedy--some jury instruction--must not be disproportionate in terms of penalizing Google to an undeserved extent. At the same time, it would also be unfair if the absence of certain evidence that is totally due to Google's misconduct resulted in inconsequential sanctions.

I believe the minimum hurdle for Epic and its co-plaintiffs will be to show that Google employees likely discussed topics relevant to this particular antitrust litigation--such as "Project Hug" (see the previous link)--by chat. The hurdle for that should not be insurmountable.

The order rebukes the way in which Google has been dealing with this issue:

"Google clearly had different intentions with respect to Chat, but it did not reveal those intentions with candor or directness to the Court or counsel for plaintiffs. Instead, Google falsely assured the Court in a case management statement in October 2020 that it had 'taken appropriate steps to preserve all evidence relevant to the issues reasonably evident in this action,' without saying a word about Chats or its decision not to pause the 24-hour default deletion. [...] The Court has since had to spend a substantial amount of resources to get to the truth of the matter, including several hearings, a two-day evidentiary proceeding, and countless hours reviewing voluminous briefs. All the while, Google has tried to downplay the problem and displayed a dismissive attitude ill tuned to the gravity of its conduct. Its initial defense was that it had no 'ability to change default settings for individual custodians with respect to the chat history setting,' [...] but evidence at the hearing plainly established that this representation was not truthful."

In other words, Google's lawyers are liars according to the order. That's harsh, but it doesn't look like this is formally going to have an impact on the severity of the non-monetary sanctions to be ordered in the coming months. It is, however, the kind of stuff that will hurt Google when it appeals the decision, which I'm sure it will. Google even likes to appeal decisions prior to final judgment, and in another context but related to this litigation it succeeded to the extent that the United States Court of Appeals for the Ninth Circuit accepted to review a consumer class certification now. On that basis, Google has asked the court to postpone the trial in this litigation (PDF), and in a Twitter thread I agreed that Google had a point:

Google is not saying that the litigation as a whole should be put on hold; it's just about the trial. I consider the motion self-serving BUT reasonable.

Google is under pressure here because of the Google Chats issue involving even its CEO, see https://t.co/ceMJDvbLxG

🧵5/5

— Florian Mueller (@FOSSpatents) March 17, 2023

I want Epic and the other plaintiffs to prevail, and Google is not really concerned about litigation economics, but the fact that the Ninth Circuit is reviewing the class certification decision at this stage does warrant a postponement of the trial in my opinion.

Let's briefly also talk about what this means for the other Google antitrust litigation in which the same spoliation-of-evidence issue is now on the agenda: the first United States et al. v. Google case (in the District of Columbia). A little over a month ago, I commented on the DOJ's motion for sanctions. Meanwhile, Google has filed its opposition brief, which just like in the Northern District of California is the epitome of denial:

United States of America, et al., v. Google (case no. 1:20-cv-3010-APM, D.D.C.): Memorandum in Opposition to Plaintiffs' Motions for Sanctions

Meanwhile the DOJ and the plaintiff states have replied in support of their motion, but those documents are sealed for the time being. Anyway, I doubt that Google will be able to persuade Judge Amit P. Mehta to deny that motion in D.C. without an evidentiary hearing. The San Francisco decision isn't binding on him, but strongly suggests that there is an issue to be addressed.

Interestingly, some of the evidence of Google's systematic deletion of chats that the plaintiffs in the Northern District of California present is actually related to topics at issue in the D.C. litigation over Google's search engine monopoly, such as its revenue sharing agreements (RSAs). The last document I'll show you here was just filed a couple of days ago, and it's an unredacted version of a brief by Epic and its co-plaintiffs. I already published the redacted version in my most recent post on that California litigation, U.S. states, Epic Games, others accuse Google CEO Sundar Pichai of 'routinely opt[ing] to move ... to history-off [c]hats to hold sensitive conversations' in violation of retention obligations. The unredacted document makes it a little clearer what happened there, and the fact that Google's CEO himself sought to delete a message is quite interesting. Also, the unredacted material shows that Google employees were quite aware of what they were doing and why, and in at least one case someone even used a smiley, which is totally inappropriate when enaging in spoliation of evidence. Judge Donato apparently wanted that material to be made public first before issuing his order, given that his order makes even more sense against that backdrop. Here's the unredacted document with lots of exhibits:

In Re Google Play Store Antitrust Litigation (case no. 3:21-md-2981-JD): Unredacted Version of PLaintiffs' Supplemental Brief on Google's Chat Production

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U.S. states, Epic Games, others accuse Google CEO Sundar Pichai of 'routinely opt[ing] to move ... to history-off [c]hats to hold sensitive conversations' in violation of retention obligations

Since the "Google Chats" discovery dispute started with a motion by dozens of state AGs, Epic Games, Match Group, and other plaintiffs in October 2022, it has made Google's behavior look worse as more information came to the light of day. The issue has also widened because the DOJ and the same state AGs as in the litigation that was originally started by Epic brought a motion for sanctions in the United States et al. v. Google antitrust litigation in the District of Columbia. Both cases are scheduled to go to trial later this year, and the plaintiffs are seeking trial-related sanctions as opposed to a slap on the wrist.

The latest filing by the plaintiffs in the Northern District of California takes the topic to a new level: Google CEO Sundar Pichai himself is being accused of playing a key role in this. Despite heavy redactions, the following passage is revelatory:

"The newly produced Chats reveal a company-wide culture of concealment coming from the very top, including CEO Sundar Pichai, who is a custodian in this case. In one Chat, Mr. Pichai began discussing a substantive topic, and then immediately wrote: '[REDACTED]' Then, nine seconds later, Mr. Pichai [REDACTED]. [...] When asked under oath [REDACTED]' (Id. Ex. 2, Pichai Dep. Tr. 195:7-12.)

"Like Mr. Pichai, other key Google employees, including those in leadership roles, routinely opted to move from history-on rooms to history-off Chats to hold sensitive conversations, even though they knew they were subject to legal holds. Indeed, they did so even when discussing topics they knew were covered by the litigation holds in order to avoid leaving a record that could be produced in litigation." (emphasis in original)

It's a safe assumption that the above passage tells the story of Mr. Pichai himself having moved a conversation from a history-on to a history-off chat. The first redaction likely means that he realized that the topic should not be discussed with history on, and what he did "nine seconds later" will either have been that he turned history off or that he opened a new chat with history off from the beginning.

This is the filing by Epic and its co-plaintiffs that was made a few hours ago in response to a court order:

In Re Google Play Store Antitrust Litigation (case no. 3:21-md-02981-JD, N.D. Cal.): Plaintiffs' Supplemental Brief on Google's Chat Production

Google was also ordered to make a statement, and unsurprisingly Google continues to deny any wrongdoing or prejudice:

In Re Google Play Store Antitrust Litigation (case no. 3:21-md-02981-JD, N.D. Cal.): Google's Supplemental Breif in Response to the Court's February 27, 2023 Minute Order

From the outside it appears very, very difficult to imagine that Google will get away with what it's done. The courts in California and D.C. will most likely feel forced to impose sanctions. Let us not underestimate how unpleasant this situation is for the two district judges:

• Google's systematic avoidance of discovery obligations cannot be tolerated, or draw only symbolic sanctions, without calling the whole system of pretrial discovery and retention obligations into question.

• Both cases--the Android app store antitrust case in San Francisco and the search engine monopoly maintenance case in Washington--are among the most important U.S. antitrust cases in history. Adverse inferences could make a major impact.

  It would obviously have been preferable for Google not to delete those chats, and then the cases could be decided strictly on the actual evidence. Now it's too late.

Nothing has happened yet about the sanctions motion in the District of Columbia. In California, Judge James Donato has gone to extreme lengths to establish the facts. The discovery dispute there is now getting to the point where a decision will come down.

I also have a brief update on a third Google antitrust case: the ad tech case that was filed in the Eastern District of Virginia in January. Google has requested that the case be transferred to the Southern District of New York, where a multidistrict litigation panel decided to consolidate various other ad tech cases (compared to which Google claims the DOJ's case adds nothing new, though it comes years after some others). Google acknowledges, however, that the DOJ's cases are immune to consolidation. It's just that Google sees no particular reason why that case should be litigated in the Eastern District of Virginia, and it argues that the DOJ's convenience (owing to geographic proximity) is not a major factor. Google may indeed win that venue transfer, given that there is a district judge in New York who's already very familiar with the issues.

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DOJ seeks sanctions over Google's systematic deletion of chats: more cross-pollination between United States et al. v. Google (D.C.) and In Re Google Play Antitrust Litigation (N.D. Cal.)

In the first of its two (possibly soon to be three) Google antitrust lawsuits, the Department of Justice filed a motion yesterday with the United States District Court for the District of Columbia, requesting that Judge Amit P. Mehta impose spoliation-of-evidence sanctions on Google over its systematic deletion of "history off" Google Chats after 24 hours. The motion proposes an evidentiary hearing over this issue.

This is only the latest example of United States et al. v. Google (in the District of Columbia) and In Re Google Play Antitrust Litigation (Northern District of California) being two highly interdependent cases--with some of the interdependencies being more than just procedural in nature. This blog has talked more about the Google chat preservation issue than any other (at least any other non-paywalled) website because the issue first arose in San Francisco (where the plaintiffs are three dozen state AGs, Epic Games (Fortnite), Match Group (Tinder), and some class-action lawyers). The DOJ motion explicitly refers in its D.C. motion to the California case, where an evidentiary hearing over this same issue was already held last month. The DOJ makes it clear that the developments in California inspired the motion in Washington. For example, two of the headlines speak for themselves:

"After The Epic Sanctions Motion, The United States Raised Concerns Regarding Spoliation In This Case"

"The Subsequent Epic Evidentiary Hearing Reveals Document Destruction"

Here are some previous FOSS Patents post on the Google Chats sanctions process in California (in reversely chronological order):

• 01/28/23: States, Epic Games, Match Group show smoking guns for Google's spoliation of evidence by moving sensitive talks to 'history off' chats: sanctions loom large

• 01/25/23: 36 states, Epic Games, Match Group allege Google had 'culpable state of mind' when auto-deleting relevant Google-internal chat messages: Google obviously denies

• 11/17/22: U.S. states, Epic Games, Match Group, consumers get evidentiary hearing over Google's systematic deletion of company-internal chats: Northern District of California, mid January

• 11/11/22: U.S. states, Epic Games, other plaintiffs reinforce motion for discovery sanctions against Google over systematic deletion of chats

• 10/14/22: 36 U.S. states, Epic Games, and consumer plaintiffs seek sanctions against Google for not preserving any relevant Google Chats: by default, all Google Chats are permanently deleted every 24 hours

There have previously been at least two other overlaps, connections, and interdependencies between those two Google antitrust cases:

• The scheduling of the San Francisco trial over Android app distribution was affected by the Washington D.C. trial, which will start on September 12. The witness lists overlap. In order to avoid scheduling conflicts, Judge James Donato scheduled his Google Play Store trial for November. The plaintiffs in that case remain concerned about the potential impact of the Thanksgiving holiday.

• The D.C. case is about Google's monopoly maintenance in the search engine market, and one aspect of it is that Google is the default search engine on Android devices. When state AGs involved with both of those Google antitrust litigations became aware of Google's dealings with other game makers by virtue of the D.C. case, that information was used in their 2021 California complaint, which then got consolidated with the Epic Games and class-action lawsuits that were already pending for about a year. That was the time when Google's "Project Hug" initiative to dissuade game makers from distributing their games outside the Google Play Store became an issue in the California litigation. By now that story has even given rise to a per se claim by Epic and Match, and we've learned that Google paid $360M to Activision Blizzard King alone (and other significant amounts to approximately 20 other publishers).

Back to the Google Chats discovery dispute: Let me first show you the DOJ's motion and then also the most recent minute order by Judge Donato in San Francisco, which shows that the noose may be tightening quickly around Google's neck now.

United States of America et al. v. Google (case no. 1:20-cv-3010-APM, D.D.C.): Memorandum in Support of the United States' Motion for Sanctions Against Google, LLC And an Evidentiary Hearing to Determine the Appropriate Relief

In my interpretation, the motion suggests that the DOJ has drawn a similar conclusion from watching the sanctions process in California as I did when I said (in one of the posts I linked to further above) that Epic and its co-plaintiffs had presented smoking guns. But the DOJ also had to act now with a view to the September trial date. The motion assures the court that the sanctions process does not require postponing the actual trial, and that makes sense--but they couldn't wait forever.

Last spring, Google came away unscathed in D.C. over another discovery issue: its "Communicate with Care" policy, which in the DOJ's opinion abused the attorney-client privilege. Some reference to "Communicate with Care" is also made in the latest motion, but the case for sanctions is now a lot stronger, and the key difference actually relates to what the consequences should be: if evidence has been destroyed, for which there is an extremely strong case here, the solution can't just be to go over a bunch of emails again and revisit privilege assertions like in the "Communicate with Care" context. There has to be an inference.

The DOJ says "Google’s daily destruction of written records prejudiced the United States by depriving it of a rich source of candid discussions between Google’s executives, including likely trial witnesses." Also: "Google destroyed written records covering nearly four years of employee communications, and those records likely would have been especially probative."

More specifically, the DOJ describes the potential impact of Google's systematic-automatic deletion of chats on the D.C. case by pointing to testimony according to which two Google executives chatted--with "history off"--about "Project Banyan, ... a potential collaboration with Samsung on app stores" that according to the DOJ was "worth hundreds of millions of dollars." That Project Banyan is at issue in both the California case over the Google Play Store and the D.C. case. A footnote of the DOJ's motion notes that "[Google executive] Mr. Rosenberg was shown Project Banyan documents during his deposition in [the D.C.] case."

The sanctions process in San Francisco is already at an advanced stage. It seems to me--and I say this with caution because I didn't attend any of the hearings (and the most interesting parts may have happened behind closed doors anyway)--that Judge Donato in California managed the sanctions process very well with his iterative approach. Step by step he obtained clarifications and asked the parties to make their arguments. Last week he entered the following minute order, which suggests that sanctions indeed loom large:

ORDER. For Google's production of additional chats, see MDL Dkt. Nos. 440, 451, Google must at minimum produce all chats that have been preserved for Custodians 1 through 383 (as identified in Dkt. No. 429-2) that are: (1) responsive to any search term the parties have agreed to in this litigation (as proposed by Google in Dkt. No. 451 at 6), OR (2) responsive to these additional terms: "sensitive," "history off," "history is not off," "history on," "history is on," "off the record," or "on the record."

To be clear, for the latter set of terms, Google may not limit its production to only those chats that discussed "turning history 'on' or 'off' in connection with the topics of this case or in connection with [a] legal hold, investigation, regulatory proceeding, or litigation." Dkt. No. 451 at 8. The responsive chats must be turned over without the additional limitation of being responsive to the search terms in this case or being connected to a legal hold, investigation, regulatory proceeding, or litigation.

Google must complete the production of these chats by February 24, 2023, at 5:00 p.m. California time at the latest. This deadline will not be extended. Google may conduct a responsiveness and/or privilege review only to the extent it can do that and still meet this deadline. To the extent Google decides against a privilege review, including for any subsets of custodians, plaintiffs will agree to a "broad non-waiver agreement allowing the clawback of any privileged material," as they have proposed. Dkt. No. 451 at 4.

Signed by Judge James Donato on 2/15/2023.

That's a rather strict tone. Google's lawyers have been trying for a while now to downplay the issue and to put up smokescreens, but Judge Donato wants the truth to come out--and as far as I can see, he's not asking for too much (such as a manual review of millions of documents).

Finally, a quick follow-up to the substantive issues in the D.C. case (United States et al. v. Google I):

Five days ago I wrote about the DOJ's and the state AGs' opposition briefs to Google's motion for summary judgment (U.S. states liken Google's various anticompetitive actions to octopus tentacles; DOJ says 'Google has bought, not earned, at least 33% of all U.S. searches'. Professor Herbert Hovenkamp commented on that, highlighting the key question, which is that defaults are not ties (defaults can be changed by customers, ties cannot):

The U.S. brief relies heavily on defaults, which are not ties. With a market share >90%, are multiple defaults (Android, Apple, several browsers) unlawful? Google notes defaults can be changed. Should their effect be treated as an empirical question? unlawful as a matter of law? https://t.co/FxzMD46mb8

— Herbert hovenkamp (@Sherman1890) February 19, 2023

Google's argument is that this is not really foreclosure, and if it is, then only to a negligible extent because most users would choose Google anyway. But there is evidence that Bing--Google's only competitor (and now even more so than ever)--gets far more usage where Google is not the default search engine. Shortly after the DOJ's and the state AG's opposition briefs, two amicus curiae briefs were filed. The American Antitrust Institute supports the plaintiffs, but what I find more interesting is the following amicus brief by three behaviorial economists (including one from Munich by the way) about the immense Power of Default:

United States of America et al. v. Google (case no. 1:20-cv-3010-APM, D.D.C.): Brief of Behavioral Economists George Loewenstein, Klaus M. Schmidt, and Paul Heidhues as Amici Curiae in Support of Plaintiffs

There'll be more discussion about the Power of Default--in both of the Google antitrust litigations discussed in this post.

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U.S. states liken Google's various anticompetitive actions to octopus tentacles; DOJ says 'Google has bought, not earned, at least 33% of all U.S. searches'

On Tuesday, Google will--according to MLex--participate in the European Commission's Microsoft-ActivisionBlizzard hearing as a complainer. On Twitter you can find my comments on that (1, 2).

Most of the time, Google is a defendant to competition enforcement actions. The United States Department of Justice and various states filed a second antitrust lawsuit against Google. And a couple of days ago, the public redacted versions of the DOJ's and the plaintiff states' responses to Google's summary judgment motions (see my commentary on those Google motions) became available. Technically, those are two cases consolidated into a single one, with substantial overlap.

I'll publish the new filings further below. First, a few observations and "soundbites":

• The most important legal argument raised in both parts of the case is that the plaintiffs urge Judge Amit P. Mehta of the United States District Court for the District of Columbia to focus on the entirety of Google's allegedly anticompetitive actions as opposed to looking at individual agreements with other parties in isolation.

  That argument comes up many times in either opposition brief, and the plaintiffs refer to the 2001 Microsoft decision that is controlling case law in the D.C. Circuit.

  The opposition brief filed by the Colorado Plaintiffs (dozens of states led by Colorado) is generally more colorful than that of the DOJ, but I don't mean that negatively--just two different styles. The Colorado Plaintiffs then liken Google and its different anticompetitive methods to an octopus and its tentacles:

  "More than a century ago, journalistic cartoons depicted monopolies using separate tentacles to harm competition in different ways while controlled by the single mind of a single octopus. In 1911, the Supreme Court recognized combined competitive harm arising from a monopoly’s “resistless methods,” which included multiple products, places, and forms of conduct. [...] Much has changed in the economy in the last hundred years but not this simple precept: a company that has harmed competition in multiple ways must face responsibility for the full and cumulative effects of all of its anticompetitive conduct, without regard to which tentacle it employs."

  The Colorado Plaintiffs even point the court (via a footnote) to a cartoon from 1899.

• A second legal question is particularly key to the DOJ's filing. Google argues that its various agreements (such as the default-search-engine deals with Apple and Mozilla) had only a negligible foreclosure effect because it was all merits-based and customers would predominantly use Google anyway. The plaintiffs, however, point to case law and literature (such as Areeda-Hovenkamp) according to which the foreclosure effect is measured based on the part of the market that becomes practically incontestable, not on what choices end users would have made anyway.

  Applying that standard and referring to an expert report by Professor Michael Whinston, the DOJ says that "50% of all U.S. searches covered by the challenged terms of Google’s contracts are well protected by the power of defaults," but users who are not affected by the defaults "are rare":

  "33% of all U.S. searches are covered by the challenged terms of Google’s contracts and conducted by users who follow the default, whatever it is. [...] Thus, Google has bought, not earned, at least 33% of all U.S. searches"

• A feedback loop further cements Google's market leadership. The DOJ quotes from Google-internal documents to explain how it works:

  "One can regard each [results page] as a massive multiple-choice test. Each day, we get to ask humanity a billion questions of the form, ‘Which of these 10 documents is most relevant to your query?’"

  "With every query, [Google gives] some knowledge, and get[s] a little back. Then we give some more, and get a little more back. These bits add up. After a few hundred billion rounds, [Google] start[s] lookin’ pretty smart! This isn’t the only way [Google] learn[s], but the most effective."

• Concerning the Power of Default, the DOJ's footnote 18 is interesting:

  "For example, on Windows PCs, where Bing is the leading default, Bing’s market share is more than seven times higher than on Mac PCs, where Google is the default."

Now that the integration of ChatGPT makes Bing so much more interesting than it used to be, the question of whether Google's default-search-engine deals are legal is even more relevant. There's more to say about the DOJ's and the plaintiff states' opposition to Google's summary judgment motions, and The Register reported on Friday that the UK Competition & Markets Authority is looking into a revenue share agreement between Apple and Google for the iOS version of Chrome, but I'll leave that for another day. You can find the two court filings below.

United States et al. v. Google (case no. 1:20-cv-3010-APM, D.D.C.): [DOJ] Plaintiffs' Memorandum in Opposition to Defendant Google's Motion for Summary Judgment

United States et al. v. Google (case no. 1:20-cv-3010-APM, D.D.C.): Plaintiff States' [i.e., Colorado Plaintiffs'] Memorandum in Opposition to Defendant Google LLC's Motion for Summary Judgment

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States, Epic Games et al. v. Google jury trial over app store rules scheduled for November 6--another major Google antitrust trial (first DOJ case) starts on September 12

"Remember, remember, the 5th 6th of November" (and the 12th of September):

• Judge James Donato of the United States District has formally approved a case schedule negotiated between Google and the Google Play Store antitrust plaintiffs (three dozen U.S. states, Epic Games, Match Group, and a consumer class action) and set the In Re Google Play Store Antitrust Litigation (case no. 3:22-cv-2746-JD, N.D. Cal.) jury trial in San Francisco for November 6, 2023.

  This means the trial will be interrupted by the Thanksgiving holiday (November 23), though it is unclear whether the trial will be interrupted for a full week or just a very long weekend.

• As previously reported, Google already has a huge antitrust trial coming up in the last third of this year: on September 12, the United States et al. v. Google trial in the District of Columbia will go ahead.

  That case has already impacted the California app store case because of the information the three dozen state AGs obtained through discovery in the D.C. case.

  Google has moved for summary judgment against the DOJ and the state AGs, who have meanwhile filed their opposition briefs, which are sealed for the time being. When Google filed public redacted versions of its SJ motions, I provided an overview of its theories. I don't expect the whole case to go away, so the September trial is going to happen in one form or another.

  It will be a "trying" final third of the year for Google's legal department as the stakes are extremely high in either one of those antitrust cases. The DOJ and eight states recently filed another Google antitrust complaint (over adtech).

The hearing minutes in which Judge Donato stated his approval of the November 6 trial date are primarily about the continued fight over sanctions that may be imposed on Google for systematically moving sensitive discussions to chats that were then automatically deleted after 24 hours. The governmental and private plaintiffs were able to show some smoking guns. Judge Donato has ordered further productions and would like the parties to "meet and confer about which of the relevant custodians still have their history setting turned to 'off' for any of their chats, and whether Google should now change those default history settings to 'on' for the core set of relevant custodians as the parties agree." It looks like some spoliation-of-evidence sanctions are rather likely, and the question may just be how impactful they will be.

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DOJ and eight state AGs file antitrust lawsuit against Google, demanding divestiture of key ad tech assets

The United States Department of Justice has done today what media reports indicated yesterday: the DOJ, together with the attorneys general (AGs) of eight states (in alphabetical order: California, Colorado, Connecticut, New Jersey, New York, Rhode Island, Tennessee, and Virginia) filed an antitrust lawsuit over Google's ad tech. The key remedy sought by the governmental plaintiffs is this:

"Order the divestiture of, at minimum, the Google Ad Manager suite, including both Google’s publisher ad server, DFP, and Google’s ad exchange, AdX, along with any additional structural relief as needed to cure any anticompetitive harm"

At this stage, I just wanted to share the complaint, but it will take me some time to form an opinion. I've heard a lot of negative things about the ad tech sector in general, and an ongoing EU antitrust investigation into Google's ad tech may give rise to a Statement of Objections this year, but to pursue a break-up as a remedy is extremely--or in some people's opinion, exceedingly--ambitious.

The new complaint was filed in the Eastern District of Virginia (which is well-known in the patent litigation community for its "rocket docket"), while the 2020 United States et al. v. Google case over Google's search engine practices is pending in the District of Columbia.

United States et al. v. Google ad tech complaint (case no. 1:23-cv-108, E.D. Va.)

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Redacted versions of summary judgment motions shed light on Google's litigation strategy against DOJ and state AG antitrust lawsuits

One of the candidates for "Antitrust Trial of the Year 2023" is the upcoming United States et al. v. Google trial in the District of Columbia. The DOJ and three dozen U.S. states are suing Google over its search engine practices, such as the agreement with Apple that makes Google the default search engine on iOS (for an amount well north of $10B per year). There is also the possibility of another DOJ v. Google lawsuit, which would focus on ad tech. Politico and other media have reported that the Assistant Attorney General in charge of the Antitrust Division, Jonathan Kanter, has been cleared to oversee any Google cases. Google requested his recusal in late 2021, and now, in early 2023, the DOJ's decision may pave the way for the federal government's next enforcement action against Google.

There was a deadline for summary judgment motions in mid-December, and the parties then had about a month to file public redacted versions. Last week, the public versions of Google's summary judgment motions--one against the DOJ's claims and one against the additional claims brought only by the State of Colorado and other states--became available.

First, here's the motion against the complaint that has the most broadbased support:

United States of America, et al, v. Google LLC (case no. 1:20-cv-03010, District of Columbia): Defendant Google LLC's Memorandum of Points and Authorities in Support of Its Motion Motion for Summary Judgment

This case has three parts: Google's agreements to make its search engine the default one in various browsers; Google's Android licensing terms that have the same effect on Android devices; and the last part is about IoT devices (such as smart speakers and TVs) as well as Google's practice of making key features and functionality available only as part of proprietary Android applications while allegedly removing key features from the open-source Android code base.

The largest one of Google's exclusive agreements is the one with Apple. As Google's motion explains, that partnership predates the iPhone and the iPad. 20 years ago, Apple launched the first version of its Safari browser, which provided access to Google via a search box.

What Google cannot deny, however, is that Apple was a niche player at the time ("When Google and Apple entered their first revenue share agreement in 2005, the Safari browser accounted for an estimated 1.3% of worldwide browser usage"), and that's why the amount that Google pays now to be the default search engine on Apple's products dwarfs what it paid early on.

Other important agreements include the one with Mozilla, which for a long time was the primary funding source for the development of the Firefox browser. By now, Chrome has way more market share--and it belongs to Google.

The motion also makes reference to deals with Opera and UCWeb, but says none of those "has garnered more than about 1% of browser usage in the U.S. since 2009."

Google argues that

• partners such as Apple choose Google's search engine because it's the best,

• end users want Google because it's the best,

• third-party browsers and Google's Chrome make it very easy for users to switch the default search engine if they want,

• Google's agreements with Apple and others allegedly don't even prevent them from promoting other search engines (some of Google's partners actually do promote other search engines according to Google), and

• if one wanted to argue that any kind of foreclosure happened, the market share impacted by it would have been less than 1%.

I have a plausibility problem with this: if everyone (browser makers and users alike) chooses Google anyway, if Google didn't even have a guarantee that it would be the default search engine, and if this had practically no effect in terms of monopoly maintenance, why did Google spend so much money on it? Last time I checked, Google was not a charity. Tens of billions for nothing? I don't buy that.

Still, the governmental plaintiffs will have to overcome all of those defenses, and the fact that Google monopolizes from an incredible position of strength may up the ante.

Google's Android agreements in question are

• the Android Compatibility Commitment (ACC), formerly known as Anti-Fragmentation Agreement (AFA),

• the Mobile Application Distribution Agreement (MADA) (which OEMs need to sign so they can distribute Google's proprietary apps, such as the Google Play Store app), and

• revenue-sharing agreements (RSAs), some of which have different names (such as Mobile Incentive Agreements, or MIAs).

Google argues that all those contracts serve legitimate purposes and that end users remain free to select different search engines. Also, Android competes with Apple's iOS.

The motion stresses that the legal standard is high: in order to be anticompetitive, the challenged conduct must be "exclusionary, rather than merely a form of vigorous competition." And even a monopolist "remains free to compete and to maintain its monopoly through 'competition on the merits.'" Google then tends to conflate the merits with making the highest bid, benefiting from economies of scale. As the Competition Commission of India explained in its recent decision, Google's competitors simply can't match those bids.

Google points to its rights to define its products in accordance with Allied Orthopedic and Microsoft precedent.

The State of Colorado's complaint (together with three dozen other states) incorporates the DOJ's claims, but adds some others on top:

State of Colorado, et al., v. Google LLC (case no. 1:20-cv-03010, District of Columbia): Defendant Google LLC's Memorandum of Points and Authorities in Support of Its Motion Motion for Summary Judgment

Google describes the states' allegations as follows:

(1) designing certain units appearing on its search engine results page in a way that allegedly discriminates against companies that Plaintiffs call “Specialized Vertical Providers” (“SVPs”), as well as entering into certain data contracts with these SVPs that improve search results; (2) designing and operating Google’s search advertising tool, Search Ads 360 (“SA360”), in a way that provides incomplete interoperability with certain Microsoft advertising platform functionality; and (3) entering distribution agreements involving Google Search that Plaintiffs claim are exclusionary.

To an even greater extent than in the DOJ case, Google emphasizes that its "product design decisions" don't violate the antitrust laws. It's all just for the user experience, Google suggests. Google also argues that the plaintiff states "place [SVPs] outside the alleged relevant markets."

Google describes the SA360 interoperability part of the case as a duty-to-deal issue.

I'll go into more detail when the opposition briefs have been made public.

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Potential transatlantic divergence in tech competition regulation: App Store legislation, Activision Blizzard acquisition--can the cradle of antitrust law regain thought leadership?

The United States is more advanced than Europe in various ways, though not in every respect. Over the past couple of days, I have seen some news--primarily from Bloomberg--concerning mobile app stores as well as vertical mergers that surprisingly suggest the EU is currently has smarter priorities in place when it comes to tech competition regulation. The cradle of antitrust law can regain its thought leadership, but must get its act together--such as its Open App Markets Act (OAMA).

On Tuesday, Bloomberg reported on a statement by Microsoft President Brad Smith at his company's annual shareholder meeting the same day, according to which he's confident in his case for the acquisition of Activision Blizzard King (NASDAQ:ATVI), but also said this:

"I’m disappointed that the FTC didn’t give us the opportunity to even sit down with the staff to even talk about our proposal to even see if there was a solution there."

The Federal Trade Commission didn't dispute this specifically and merely told Bloomberg that remedy proposals will always be considered. But it's one thing whether a company can submit a proposal and it will be read (more or less) and another whether a competition authority constructively resolves a potential issue through dialog. It's a lot easier to work out a solution if the two sides meet and talk.

The FTC's press release that announced the complaint on Thursday made it clear to me that the FTC was suing for the sake of suing, as I called it in my immediate reaction. That impression was based not only on the press release (and later reinforced by the actual complaint, which has shocking deficiencies as well as reports that Microsoft even offered a Call of Duty commitment to the benefit of Sony's PlayStation Plus multi-game subscription service), but in the build-up to the decision there had been some media reports that indicated the FTC simply wanted to sue, period.

The misleading part about post-acquisition Microsoft-exclusive Bethesda games was clarified by the European Commission when MLex reached out. It's not that the FTC had lied, but it had blown things out of proportion and misled people by making it sound as if Microsoft had reneged on a commitment, formal or informal.

On Monday, the EC's Directorate General for Competition (DG COMP) published a policy paper on how to address digital mergers (PDF). What's typically European is that the first section focuses on interoperability--a priority that I agree with and that I believe is increasingly recognized in the U.S. as well. Interoperability is obviously a non-issue with respect to Microsoft-ActivisionBlizzard. The paper also says: "Under the Commission’s long-standing policy, divestiture commitments are the best way to eliminate competition concerns resulting from horizontal overlaps." There's no divergence in that regard, and it's not an Activision Blizzard issue either. What about vertical mergers, though?

"[T]he Commission’s recent decisional practice shows that many mergers in the digital and tech sectors involve players active in vertically-related or neighbouring markets, which can mean that a divestiture may not always be the most appropriate method to solve competition concerns. If competition concerns can be removed by targeted, clear-cut and enforceable changes to market practices, non-divestiture remedies can allow, and have allowed, the Commission to intervene in a proportionate manner to address non-horizontal concerns."

Remedies are not a binary question. There are behavioral remedies and there are divestitures, but besides divestitures there can be other structural remedies--such as long-term license deals. That is something the FTC should be more receptive to.

Analyst Ben Thompson published a very interesting article on Microsoft-ActivisionBlizzard, most of which is a walk down memory lane all the way back to the first video games and the Atari 2600 console. The article makes a lot of valid points, though I don't even see a threat to Sony's market leadership in any scenario, and I consider it a non sequitur that there should be any obligations on the acquirer as this is, by traditional legal standards, a case for unconditional clearance. But those are questions on which reasonable people can disagree. I did, however, chime in to defend the FTC against an accusation of doing nothing about mobile app store abuse because it seems to me that there is simply an inter-agency agreement that the Department of Justice would deal with that part (and its support of Epic's case against Apple is a very significant first step) while the FTC focuses on other problems:

I agree with 90%+ of this analysis and I, too, started with an Atari 2600. While I agree 100% that the FTC is on the wrong track, it is however unfair to blame the FTC for not doing enough about the Apple-Google app tax: the DOJ is working on that and supporting Epic in 9th Cir. https://t.co/ejeVBv2KmT

— Florian Mueller (@FOSSpatents) December 13, 2022

That said, I do agree with Ben Thompson that "the real threat to gaming today is the dominance of storefronts that exact their own tax while contributing nothing to the development of the industry." Apple makes more money with games than any other company, without actually making games. It's a clear case of a monopolist (here, a single-brand aftermarket monopolist) simply leveraging a monopoly in one market to impose unfair conditions on actors in other markets.

A Bloomberg article that came out yesterday reminded not only me but also other people of Microoft's plans to use the popularity of Activision Blizzard King's mobile games to compete with the incumbent mobile app stores. In order for that to happen, it takes merger clearance on the one hand but also demonopolization of mobile app markets on the other hand. The fact that there is meaningful progress concerning the latter makes the former even more relevant. Bloomberg's Mark Gurman reported that Apple is working on features in iOS 17 that will enable third-party app stores as mandated by the EU's Digital Markets Act (DMA) by early 2024.

To give further credit to the author who got that scoop, let me show you a couple of Mr. Gurman's tweets here:

If similar laws are passed in additional countries, Apple’s project could lay the groundwork for other regions. But the company’s changes are designed initially to just go into effect in Europe.

— Mark Gurman (@markgurman) December 13, 2022

Let me repeat this: "If similar laws are passed in additional countries, Apple’s project could lay the groundwork for other regions." This means U.S. consumers might actually get the benefit later. But it's now increasingly unlikely that Congress will adopt the OAMA during the remainder of the lame-duck period. Next year, I'm sure the bill would be reintroduced, but things would take time. In the end, it could be that the schedule set by the EU then effectively also becomes the one for the U.S. market--and in a worst-case scenario, Europe would open up the market while the U.S. would continue to listen to Apple's and Google's lobbyists. I still hope the OAMA will be passed into law ASAP.

Whether Apple will comply with the EU DMA in good faith is rather questionable. As Bloomberg notes, Apple still plans to charge developers for access to iOS, even if their apps were to be installed directly ("sideloading") and not through Apple's App Store. There will be issues, and Apple is probably going to litigate or create situations in which the enforcers have to. But the noose is tightening.

It's also possible that the timing of Apple's revelation of working on those changes has to do with an imminent decision in the EU's Spotify case or some other App Store investigation.

The best solution for determining fair compensation for Apple would be to let Apple try to enforce its intellectual property against app developers who bypass the App Store. As I explained a while ago, there's no way that IP enforcement would earn Apple a commission in the 30% range, and there would actually be quite a possibility that Apple would get zero. Would that be unfair? No, because Apple makes enough money with those devices. Microsoft doesn't charge Windows developers. Apple isn't collecting anything from Mac app makers who bypass the App Store. And consoles are a different product category.

A Twitter user who according to his profile "loves [...] Apple"--but doesn't seem to love competition and the benefits it brings--warned against "all kinds of [unspecified] dangers." The tweet with which I responded has already received more than 200 likes even though it was not retweeted by a power user with hundreds of thousands (or even millions) of followers:

Apple loyalists will remain free to just install apps from Apple's then-demonopolized App Store.

— Florian Mueller (@FOSSpatents) December 13, 2022

Some people's fundamental misconception is to argue that a restriction of choice by Apple constitutes consumer choice. They argue that app developers--including some who make apps that people really want or even have to use--will then have a choice to avoid Apple's fees and rules. But the solution is, again, competition: if Apple made reasonable rules and didn't impose unreasonable fees, why would any maker of a major app (and only those apps are "must have" apps) not be prepared to offer it on the App Store (even if maybe not exclusively)?

Apple's (and Google's) app review guidelines are simply optimized for the purposes of locking in end users, keeping end users in the dark (anti-steering), and taxing and tyrannizing developers. It would be up to Apple to compete on the merits. If Apple decided not to do that, then users should blame Apple, not developers or alternative app stores.

I can see why some people--such as Apple-dependent journalists--rush to Apple's defense and even make nonsensical arguments, such as denying the difference between portable general-purpose devices (that for large parts of the day are the only device we have available) and niche products like video game consoles (which are used in a setting where we have alternatives at hand), ignoring that hardly anyone will carry an iOS and Android device at the same time, describing Android as a fundamental alternative when users are locked in and face high switching costs (and Android app distribution faces largely the same problems anyway since alternative distribution methods exist but are fundamentally disadvantaged). But none of their arguments withstands scrutiny. In the end, if any Apple fans want to live in an Apple tyranny, just like there were a few lunatics in West Germany who preferred to live on the other side of the Iron Curtain, that option will always exist: just install 100% of your apps from the App Store.

It's funny how Apple fans and people who have a professional interest in currying favor with Apple try to criticize the EU DMA's enablement of alternative app stores as less choice -- when it's undoubtedly about more choice, especially if Apple is ready to compete on the merits.

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Professors, former judges and government officials make the case against the case against the DOJ's Avanci Business Review Letter: 'Critical Function of Patent Pools in Consumer Electronics'

When we talk about cellular standard-essential patents (SEPs) and how to license them to the automotive industry, it bears remembering that car makers generate rapidly increasing levels of revenues from connectivity itself (annual fees, after the first few years, for continued access) and premium features that would be unthinkable without connectivity. Here's a very recent headline that I found on Manufacturing.net (click on the image to enlarge):

$1,200/yr. for faster acceleration is just the latest example of this trend. In the summer, BMW already had to respond to criticism over charging $18/mth. for heated seats.

In light of the gold mine that connectivity is for the automotive industry, one would think that SEP royalties in the low double-digits per car are a total non-issue. Not so. While Continental finally gave up on a meritless U.S. "antitrust" lawsuit in October, frustrated critics of the Avanci patent pool sent a letter to the Assistant Attorney General in charge of the Antitrust Division of the United States Department of Justice, Jonathan Kanter. They asked him to revisit and somehow nuance or downgrade his predecessor Makan Delrahim's July 2020 Business Review Letter that identified no competition concerns over Avanci's envisioned 5G patent pool.

AAG Kanter presumably has some more pressing issues on his to-do list. By far the best way to help the U.S. automotive industry through antitrust enforcement would be to prevent an "autocalypse": Apple and Google--who may indirectly have a hand in that anti-Avanci letter--are trying to take control over future automotive revenue streams (which I call "digital carjacking"). Senator Elizabeth Warren (D-Mass.) wrote a letter to AAG Kanter as well as FTC Chair Lina Khan about it.

But those advocating SEP devaluation are begging for attention: on Tuesday, Bloomberg Law published an opinion piece by the two principal authors of the anti-Avanci letter, Professor Michael Carrier and the Public Interest Patent Law Institute's Executive Director Alex Moss: Protect the Supply Chain From Patent Trolls Before It’s Too Late

If non-practicing entities are the paramount concern, the authors should actually welcome patent pools that have a diversity of licensors (not just Avanci, but generally speaking). For instance, Avanci has at least one important member of the--allegedly imperiled--automotive supply chain among its licensors: LG Electronics. If Avanci can bring the likes of LG, Qualcomm, Nokia, and Erisson together with licensing firms (some of which conduct their own research & development while others enable innovators to transfer assets and the related monetization risk to them), the compromise that results from it will be better for implementers than having to deal with individual NPEs.

It's a safe assumption that the few SEP holders who are not among the 50+ contributors to Avanci's 4G pool include NPEs that ask for a lot more money (relative to portfolio size) than Avanci.

Avanci is just an option. An optional one-stop shop. Car makers can take an Avanci license; they can also seek bilateral licenses if they believe the benefits of doing so outweigh the incremental transactional costs. Automotive suppliers, too, can seek licenses, including exhaustive component-level SEP licenses. One of the key reasons why the DOJ issued its Avanci BRL in the first place was that participants are not restricted from anything. Avanci members have, in fact, granted exhaustive component-level licenses to automotive suppliers.

IP Watchdog was first to report on a November 30 letter by "[t]wenty-five former judges, government officials, legal academics, and economists [...] in support of the DOJ’s 2020 business review letter." Here's the actual document:

November 30, 2022 letter to Assistant Attorney General Jonathan Kanter

The letter was authored by Professors Adam Mossoff (a frequent witness on Capitol Hill) and Jonathan Barnett. The signatories include former judges and government officials:

• Alden Abbott (Former General Counsel, Federal Trade Commission)

• Ronald A. Cass (Former Vice-Chairman and Commissioner, United States International Trade Commission)

• Judge Douglas H. Ginsburg (Senior Circuit Judge and Former Chief Judge, United States Court of Appeals for the District of Columbia Circuit)

• Damon C. Matteo (Former Chairperson, Patent Public Advisory Committee, United States Patent & Trademark Office)

• Judge Paul Michel (Chief Judge (Retired), United States Court of Appeals for the Federal Circuit)

• Judge Kathleen M. O’Malley (Circuit Judge (Retired), United States Court of Appeals for the Federal Circuit)

The key message is that the 2020 Avanci BRL got it right, and there is no compelling reason to break with the tradition of BRLs relating to patent pools:

"Any reconsideration of the 2020 business review letter, as proposed in the October 17 letter, would give rise to significant uncertainty concerning the Antitrust Division’s commitment to the aforementioned sequence of business review letters that have been issued concerning other patent pools in the information technology industry, as well as the larger group of patent pools that did not specifically seek guidance through the business review letter process but relied on the legal template that had been set forth in those previously issued letters."

Case in point, a business review letter gave patent holders the necessary confidence, back in 1997, to start MPEG LA. Earlier today I commented on a shameful lawsuit by a small minority of licensors trying to renege on their commitments to MPEG LA's HEVC patent pool. That one poses a threat to the legal certainty and transactional efficiencies that pools can provide, but so does the October 17 letter urging the DOJ to revisit the Avanci BRL. Patent pools are under attack from both sides: a small minority of unreasonable licensors as well as implementers and those beholden to them.

Yesterday's letter is highly instructive, and if you have a professional interest in this topic, I recommend you to read it. The actual letter spans little over 10 pages. The rest is the list of signatories and an appendix that lists academic papers.

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Apple on losing track against Epic Games: reversal of market definition and remand for further consideration most likely outcome of Ninth Circuit antitrust appeal

Today is "November Fortnite." The United States Court of Appeals for the Ninth Circuit just held its Epic Games v. Apple appellate hearing. It was incredible. Historic. Awesome.

If what the judge who was talking most of the time--Circuit Judge Milan D. Smith Jr.--said throughout the course of the hearing is any indication for what the per curiam opinion will say, the decision will be materially consistent with what I've been writing about this appeal all year long. Yes, I feel vindicated because even if the decision surprisingly deviated from how the hearing went, what Judge Smith just said shows that those were positions one reasonably can take.

The most senior judge on the panel, former Chief Judge Sidney R. Thomas, was mostly listening--like Justice Thomas until Justice Scalia's passing. But if he had fundamentally disagreed with Judge Smith, most likely he'd have made it clear. District Judge Michael McShane (Oregon) said more than Circuit Judge Thomas, but very little compared to Circuit Judge Smith. A couple of things that he said sounded a bit more deferential to Judge Yvonne Gonzalez Rogers, but that's a pattern I've seen in other cases, too: district judges sitting on an appeals court by designation are rather sympathetic to their peers. That typically doesn't affect the outcome. So my operating assumption is that Circuit Judge Smith will write the per curiam and it will most likely be a unanimous decision.

In theory, I could just refer you to my previous writings, such as this post which summed up the reasons for which I believed Epic was likely to win and links to my related writings, particularly the ones on the merits of the case. And--what's very important--my writings did not echo Epic's briefs. There are some notable differences.

Market definition

Epic's counsel, Tom Goldstein, stated his client's preference for the appeals court to resolve the matter on the basis of the rule of reason, without a remand. That's why even though Epic believes it is right on market definition, it would actually like the Ninth Circuit not even to resolve that question--or at least not to focus on it. Epic would like to take a shortcut--or, if one wants to disagree with Epic, one could criticize their proposal for shortcircuiting the whole analysis--to the rule of reason, where the focus is on whether Apple's procompetitive justifications (privacy and security) are in fact procompetitive justifications or, in other words, pretexts.

Circuit Judge Smith has a more systematic approach (as do I) and stressed that antitrust analysis begins with market definition, and everything depends on it. And just like me, he feels that if the appeals court reverses Judge Yvonne Gonzalez Rogers on that part, there should be a remand, though it appears that the Ninth Circuit is perfectly prepared to do more than the bare minimum and to provide further clarity and instructions. I, frankly, think Epic should be grateful for that. It's nothing to be taken for granted; quite often, appellate judges are minimalists and just kick the ball back into the lower court. I understand why Epic's counsel said that in this event, things would just take longer and they'd be meeting again in the same appeals court in two years from now. They don't want it; they want a solution as quickly as possible, and maybe they're uneasy about what the Supreme Court might do in the next step. But it would be incredibly beneficial if the appeals court resolved market definition, especially if one looks beyond just Epic's case: there are so many App Store issues.

Any plaintiff-appellant would prefer direct entry of liability over a remand. Epic is no different. But this is a complex case and various factual findings--as Apple's counsel, Weil's Mark Perry stressed (though he may have overstated it in part)--were against Epic, and Epic is not appealing any factual findings here as clearly erroneous. It's purely an appeal of legal determinations.

When Circuit Judge Smith asked asked Mr. Perry about how key market definition is, he also said so as he'd otherwise have had to contradict Apple's position that the rejection of Epic's market definition by the district judge is an independent reason for which Epic would lose the case.

Rule of reason

Regarding rule-of-reason balancing (the final part to which Epic would just like to skip), Circuit Judge Smith asked the DOJ--which supported Epic--just the right question: "When the district court makes factual findings, what does it say? It feels this way? Or [...] numbers?"

The problem with the district court's rule-of-reason analysis is that it doesn't really balance the anticompetitive effects of Apple's App Store monopoly against the attempted procompetitive justifications.

Circuit Judge Smith asked how the court of appeal could analyze a rule-of-reason decision without any quantitative amounts. In my opinion, this also counsels for a remand.

There are only two outcomes I cannot imagine based on how the hearing went: wholesale affirmance--and direct entry of liability.

In the rule-of-reason context, a key question is whether Apple's privacy and security arguments are indeed procompetitive justification in the first place. This was the context in which I felt Mr. Perry's made his weakest arguments, and Mr. Goldstein (also in his rebuttal) very effectively countered Apple's argument by saying that they can still offer a walled garden to consumers, but don't get to restrict competition from (for instance) an iOS version of the Epic Games Store. Apple can always tell consumers to use only Apple's App Store and only Apple's in-app purchasing system (the latter, of course, wouldn only apply to digital transactions, not when they buy physical goods from the likes of Amazon). But then it has to compete with--an example Mr. Goldstein mentioned repeatedly--a hypothetical Disney app store, the Epic Games Store, and others. He didn't mention Microsoft's plans for a competing app store, though he could have. Mr. Goldstein said: "you don't get to squash competition ... in order to differentiate your product." At the outset, Mr. Goldstein had already described as "the most significant" issue in this case that Apple cannot legitimately and procompetitively create a walled garden.

What Apple said about the differences between iOS and Android didn't convince me at all. Epic wouldn't be suing Google if Android gave developers all that they want (as Apple claimed). It's not like Android is a cesspool of malware and fraudulent apps and iOS is totally safe. It's not like only Apple does manual reviews: last time the headcounts were discussed in public, Google employed about four times as many app reviewers as Apple did. And while there are different Android app stores, there are reaons for which only the Google Play Store really matters.

Section 1 or 2 applicability

Epic would like the case to be decided under Sherman Act Section 1 (concerted action) as opposed to Section 2 (unilateral conduct) and made this one of its two key points at the beginning (the other was rule-of-reason balancing). Tellingly, Circuit Judge Smith instead wanted to discuss market definition first. Anyway, it seems that Epic's Section 1 argument may succeed, but there were also some skeptical questions and statements. I've said on previous occasions that I wouldn't mind if Epic prevailed on that one, but I view those unilaterally-imposed contracts of adhesion as unilateral conduct, though I recognize that Section 1 is also applied to tying.

California UCL (anti-anti-steering)

It seems to me that the appeals court isn't too interested in the California Unfair Competition Law part, but with the State of California participating in the hearing only for that part, the court inevitably had to spend some time on this, too. While I largely agree with Apple on that one, Mr. Perry said something that really makes zero sense to me. He said that the only anti-steering restriction that remains (after Apple allowed developers to communicate with users outside the app, such as by sending them emails about alternative options to purchase content) is that "Apple does not allow links and buttons because [Apple] cannot review them, track them, and protect users from malware, fraud, porn, hackers. It would be a breach in the wall that bad actors could exploit." The highlighted part makes no technical sense as long as there is an App Store monopoly, including that sideloading isn't possible. There is no way that iPhone users would end up installing malware or that hackers would take control of the iPhone unless there's a massive security issue that any website (regardless of whether people get there from inside an app or just with Apple's Safari browser) could exploit--and there's never been a security problem that allowed websites to practically enable sideloading.

It will take the appeals court some time to decide this huge case. Apple will most likely lose this appeal. If the Ninth Circuit reverses--as it rightly appears inclined to do--on market definition and--which would be really generous and beyond the call of duty, but appears to be the plan--resolves additional questions and provides valuable instructions, the first question is whether Apple will try an interlocutory appeal to the Supreme Court or content itself with an en banc petition. Anyway, just like Circuit Judge Smith, I believe this case should be remanded. Whoever loses on remand will appeal to the Ninth Circuit. And ultimately this case will presumably end up in the Supreme Court.

Words cannot express how much I'm looking forward to the Ninth Circuit opinion. I believe it will be worth the wait.

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