Independent analysis debunks Apple's privacy and security pretexts--latest finding is that Apple's analytics data come with unique ID for each iCloud account, making users personally identifiable

In my recent analysis of the rule-of-reason balancing question in Epic Games v. Apple, I devoted a section to the correct definition of the term "pretext." Here's a paragraph from that section:

Of course, the most extreme case of a pretext--based on the example I gave--is indeed that it may be totally fictitious. But that's hard to come by in an antitrust context. Normally, it's just that the positive aspects of something are blown out of proportion and the downside is grossly understated, which distorts the ratio between good and bad.

When Apple claims that its tyrannical and extortionate strangehold on app developers is ultimately a good thing because of the overarching goals of privacy and security, and wants Epic's antitrust lawsuit thrown out and the Open App Markets Act (OAMA) not to be passed into law by United States Congress, there are different bases on which one can beg to disagree with Apple's position even if one doesn't doubt that certain rules are conducive to privacy and security:

1. Balancing: The narrowest kind of disagreement is to accept Apple's privacy and security claims as true (and as relevant), but to conclude that the downside of restricting competition in mobile app distribution outweighs the upside.

2. Competition is healthy: The balancing result in favor of open app markets may, in particular, be based on the conviction that at the end of the day, competition among app stores will incentivize improvements to the benefit of consumers (as Judge Gonzalez Rogers appeared to recognize during last year's trial), implicitly or explicitly rejecting Apple's paternalistic position that no one other than Apple--not even a company like Microsoft, which stands ready to compete and whose entry would be viewed favorably even by the King of Apple Bloggers, John Gruber--can take good care of consumers, and consumers are so stupid compared to Apple that only Apple's infinite wisdom can save them from the perils of the world.

3. Irrelevance: One doesn't have to take any position on Apple's privacy and security claims if one simply determines that those attempted justifications are not procompetitive justifications (i.e., arguments that restrictions of competition in one area will lead to more competition in another). That angle was the one Epic's counsel emphasized at last week's appellate hearing ("you don't get to squash competition in order to differentiate your product"). He argued that Apple could still offer consumers a walled garden if those consumers elect to use only Apple's App Store and only Apple's in-app payments system.

   The illogicality of Apple's and some of its die-hard fans' arguments is that they believe Apple's restriction of choice means more choice, just like you could check in your human rights at an entrance and the fact that you can do so means more consumer choice. Apple and its fans argue that if Apple had to allow alternative app stores and direct installs (which it will have to--the question is just when it will happen in a given jurisdiction), some app developers would then choose distribution methods that do not subject them to Apple's rules. But that is competition, and if Apple could convince enough consumers to decline to use apps that are not made available on the App Store subject to Apple's rules, then the market itself would force app makers to meet those standards (if all else fails, by offering a second version of each app that conforms to Apple's rules, which is by the way a compromise I've advocated before).

   I continue to believe that the very best next step for Epic v. Apple is a remand to get the market definition right. Apple wants the district court's judgment affirmed, and Epic wants an entry of liability without a remand on the merits. I can see why either party wants what it wants, but still think the district court made its worst--and really inexcusable--mistakes in connection with market definition, which Circuit Judge Milan D. Smith, Jr. appears to have clearly identified as a fundamental problem.

4. Self-preferencing and hypocrisy: This is the "rules for thee, not for me" issue. Apple subjects app developers to certain rules such as App Tracking Transparency (ATT), but applies double standards. And in this regard, Apple is losing a lot of credibility...

I've been following Apple closely for about 12 years now, and in my observation 2022 is by far the worst year in history for Apple's credibility. The eviction of Fortnite from the App Store in 2020 triggered some debate, and some of what came out as a result of the Epic v. Apple trial in 2021 was unfavorable, but this year--2022--is the one in which Apple has been exposed as exceedingly hypocritical.

It is not "par for the course" in lobbying, but an utter disgrace that Apple pays some lobbyists to falsely claim to represent the interests of small app developers while actually just echoing Apple's talking points, including the ones on privacy and security. That revelation may be the beginning of the end of ACT | The App(le) Association. Maybe that organization will silently shut down in the not too distant future. No policy maker will take ACT seriously anymore, and no litigant will find it difficult to get an amicus brief by ACT thrown out.

The Heritage Foundation also feels that enough is enough, and published a report last month on Big Tech's National Security Red Herring:

"Policymakers should reject specious Big Tech–funded national security appeals and instead consider antirust reforms on their merits."

To be fair, Apple is not alone in that: Google and Amazon are also called out.

Then, Kosta Eleftheriou, an indie app developer from California, has repeatedly exposed scam apps that passed Apple's App Store review. He continues to do so despite a recent settlement of his own case against Apple.

And now a Canadian-German development team named Mysk--Tommy Mysk and Talal Haj Bakry--has done more than anyone else to expose Apple's privacy pretext.

Mysk's Twitter account has become a "must follow" for anyone interested in mobile app store regulatory issues.

In October, @mysk__co showed that iOS 16 does communicate with Apple services outside an active Virtual Private Network (VPN) tunnel:

We confirm that iOS 16 does communicate with Apple services outside an active VPN tunnel. Worse, it leaks DNS requests. #Apple services that escape the VPN connection include Health, Maps, Wallet.
We used @ProtonVPN and #Wireshark. Details in the video:#CyberSecurity #Privacy pic.twitter.com/ReUmfa67ln

— Mysk 🇨🇦🇩🇪 (@mysk_co) October 12, 2022

On November 4, @mysk_co provided strong indications that the App Store app on iOS 14.6 sends every tap that a user makes to Apple:

🧵
1/5
The recent changes that Apple has made to App Store ads should raise many #privacy concerns. It seems that the #AppStore app on iOS 14.6 sends every tap you make in the app to Apple.👇This data is sent in one request: (data usage & personalized ads are off)#CyberSecurity pic.twitter.com/1pYqdagi4e

— Mysk 🇨🇦🇩🇪 (@mysk_co) November 3, 2022

Four days later, Gizmodo picked up this story, as did other websites thereafter.

Another two days later, a class action lawsuit over privacy violations, specifically citing Gizmodo's coverage of Mysk's research, was filed against Apple in the Northern District of California as TechCrunch, Gizmodo, and others reported (this post continues below the document):

Case 5:22-cv-07069 by TechCrunch

Now @mysk_co has doubled down on this issue with new--potentially really damning--revelations, according to which Apple's analytics date come with an ID that uniquely identifies an iCloud account, which means Apple's analytics can personally identify users:

🚨 New Findings:
🧵 1/6
Apple’s analytics data include an ID called “dsId”. We were able to verify that “dsId” is the “Directory Services Identifier”, an ID that uniquely identifies an iCloud account. Meaning, Apple’s analytics can personally identify you 👇 pic.twitter.com/3DSUFwX3nV

— Mysk 🇨🇦🇩🇪 (@mysk_co) November 21, 2022

Here are some articles that covered Mysk's latest strike against hypocrisy--tracking users even when their privacy settings supposedly prevent it from happening--and I wonder how long it will take before the existing privacy lawsuit against Apple will be amended on this basis or one or more new cases brought):

• Gizmodo: Apple Says Your iPhone's Usage Data is Anonymous, but New Tests Say That's Not True

  "Your iPhone's analytics data includes an ID number tied to your name, email, and phone number, say researchers who uncovered other holes in Apple' promises."

• 9to5Mac: iOS privacy concerns deepen as Apple’s promises on analytics anonymity appear to be false

  "The same researchers have now demonstrated that Apple can – despite assurances to the contrary – link this data back to individual users, as the same ID is used as that for iCloud accounts …"

• The Verge: iOS developers say Apple’s App Store analytics aren’t anonymous

  "The finding exposes the difference between the privacy policy you may think you’re covered under and the privacy policy that’s actually being applied."

As various commentators have said, the problem is exacerbated by Apple advertising privacy ("Privacy. It's Apple."), to lull users into believing that if they just rely on Apple, their privacy is ensured.

One can reasonably advocate the OAMA, and the Ninth Circuit could decide Epic's case against Apple, even without doubting Apple's privacy and security claims. But it's becoming increasingly difficult not to doubt Apple's claims in the first place.

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Stats suggest Apple's browser engine monopoly poses threat to national security--at minimum, anti-competitive rule is unjustified by security concerns

This is a follow-up to yesterday's post on Apple's browser monopoly abuse, Anti-innovative effects of Apple's Orwellian prohibition of alternative browser engines finally being discussed and investigated. After that post I spotted a top-notch Twitter thread by the Open Web Advocacy group:

Apple's claim is that it bans other browsers for security AND NOT because it's protecting its 70b of AppStore Revenue or 15b of Google Search Revenue in Safari.

The CMA says the ban not only doesn't protect security it could make it worse!

🧵 Lets dig in... pic.twitter.com/LL9TZaVsQz

— Open Web Advocacy (@OpenWebAdvocacy) June 27, 2022

Note that they subsequently clarified that the 70 billion figure for App Store Revenue is greater than Apple's income from the "app tax" (usually 30%; exceptions apply, but only to a small portion of App Store-related revenues). Also, for the avoidance of doubt, what Open Web Advocacy means is that Apple disallows alternative browser engines (Chrome or Firefox on iOS aren't truly Chrome or Firefox--they're just Safari with a slightly different UI, but with WebKit--Safari's engine--under the hood) in order to (a) ensure that the user experience of web apps is too bad to seriously challenge native apps (on which Apple imposes its app tax and over which Apple acts as a tyrannical censor) and (b) to be able to collect huge amounts of money--around $15B per year--from Google for making it the default search engine on the iPhone (alternative browser engines could have other defaults--or even no default at all).

According to its website, Open Web Advocacy is "a group of software engineers from all over the world who have come together to advocate for the future of the open web by providing regulators, legislators and policy makers the intricate technical details that they need to understand the major anti-competitive issues in our industry and how to solve them." (emphasis in original)

Based on the material they've put as well as a brief chat I had with them via Twitter direct message, I can attest to their in-depth technical understanding. They are actual software developers, which is more than certain folks defending Apple's anticompetitive conduct can say. For more background on Open Web Advocacy, I recommend this Register article by Thomas Claburn, Web devs rally to challenge Apple App Store browser rules.

When lobbying against such initiatives as the Open App Markets Act, Apple emphasizes two pet pretexts: privacy and security--and in order to give the term security more gravitas, Apple--and all sorts of people beholden to it--stress that it's about national security. What no one can deny is that Apple is the market leader in the U.S. smartphone business, so security issues affecting the iPhone are, by extension, an issue of concern to the country as a whole. But at the heart of Apple's national security argument resides a total non sequitur:

Apple considers it an axiom that whatever Apple does is inherently secure, and whatever anyone else does is inherently insecure. It's Apple's version of what's called infallibility in connection with various religions.

Against that backdrop, it's impossible not to ask the question of how Apple's browser security stacks up against other browser technologies. Open Web Advocacy (OWA) says that the UK Competition & Market Authority (CMA) has found--at the preliminary investigation stage--that Apple's prohibition of browser engine competition fails to serve the interests of security, and may even compromise security.

Competition is one of the most powerful forces in the technology universe. One of the benefits--we may call it a consumer surplus--that robust competition can bring is that different vendors have to compete with each other on security. In the absence of competition, companies will be tempted to engage in rent-seeking. They get lazy.

While the district judge presiding over Epic Games v. Apple got the law, the economics, and the technology terribly wrong in connection with (at least) market definition, she did say some great things throughout the trial, culminating in how she effectively got Tim Cook to admit that Apple's C suite doesn't give a damn about developer satisfaction. The single best thing she said (weeks before Tim Cook's deposition) was that competition could also be desirable from a security point of view.

What I find so interesting about the OWA's work (by the way, here's a link to their response to the UK CMA's interim report) is that they've compiled information that throws into doubt Apple's conclusory claim of monopolistic behavior being in the interest of (national) security.

I encourage you to read the OWA's Twitter thread. I'm going to be following the UK investigation with great interest, and I guess there'll be more opportunities to discuss the OWA's--as well as other organizations'--material related to the iOS browser engine monopoly issue. For the purposes of this post, I'd just like to show you the four charts shown at the start of the OWA's Twitter thread.

First, there are two charts according to which in the years 2014-2021 Apple's Safari (again, WebKit is the engine that all other iOS browsers are forced to use) was responsible for twice as many browser code execution vulnerabilities--that's the worst stuff because it means that a security issue arises only because of someone visiting a website containing malicious code--as Chrome and Firefox combined (click on an image to enlarge):

2024-2021 is an eight-year timespan. How did things change? Unfortunately, another chart suggests it's getting worse, with Safari's browser code execution vulnerabilities more recently (particularly in 2020 and 2021) having dwarfed those of the other two browsers, as the high red columns (compared to the low blue and yellow ones) in the following chart indicate:

The other important metric--besides the number of vulnerabilities--is how swiftly an issue is resolved. Security isn't static: issues will arise, so it takes an ongoing effort to solve the problem. It's about closing the window of opportunity for those seeking to exploit a vulnerability, and this is all the more critical when a security issue is widely known.

In that regard, the OWA also sees Apple underperforming its hamstrung-on-iOS rivals:

Here's how to interpret that chart, called a histogram: the Y axis (height of columns) shows the percentage of all security issues that got fixed during the relevant period (number of days on the X axis). Again, the red columns relate to Apple's WebKit browser engine, the yellow ones to Firefox, and the blue ones to Chrome. Columns can overlap. Apple has a small percentage (4) of fixes that shipped at the earliest point (0). But there's no red on the next several columns, which indicate bugfixes shipped within 5 to 25 days--only Chrome and Firefox play int hat league. Starting at 30 days, you can see some red columns again, and toward the end (80, 85, and 91+ days), Apple is alone because the other browser engines have long fixed their problems.

Another chart shows for the year 2021 that Apple (blue line) on average had far longer intervals between updates than Google, and it looks like things didn't get better at all during the second half of the year:

It does look like competitive constraints on Apple are needed, not only but also in the browser engine context, to make a better, more secure browser engine, and to work harder to fix any issues that arise. There should be far fewer issues, and Apple should address them much faster.

May other studies yield different results? Well, a company with such vast resources can even fund (through a third party) a poll according to which 71% of "American voters" say "it's extremely / very important for manufacturers to be able to license standard-essential patents [SEPs] in a way that is fair, reasonable, and non-discriminatory, just 23 percent say it's only somewhat or not too important." In reality, it would be hard to find even 0.071% of the U.S. electorate that even knows what a SEP is...

Apple's maintenance of its iOS browser engine monopoly is a serious issue. Google presumably doesn't like it either (otherwise it would do the same on Android, though there is a risk of Google adopting some of Apple's anticompetitive schemes unless regulators take action). But as long as Google can just pay Apple $15 billion or so per year to remain the default browser engine, Google can live with the status quo. The same company that always claims competition to its search engine is just one click away prefers to create an additional entrance barrier, as other search engines simply couldn't afford to outbid Google.

Apple's neo-absolutism is not in the interest of (national) security. The UK CMA is now ahead of other competition enforcement agencies to tackle the issue. Others will--hopefully--follow.

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Epic Games to appeals court: the Government--not Apple--is in charge of national security and, like Epic, advocates opening up app markets: Ninth Circuit antitrust appeal

In the Epic Games v. Apple antitrust appeal before the United States Court of Appeals for the Ninth Circuit, the Fortnite maker (which obtained a significant concession from Google last week, though not with respect to Fortnite) has filed its reply brief. I may comment on that one in more detail some other time, but wish to quickly show it to you (and will share a very few observations further below):

https://www.documentcloud.org/documents/22038721-22-05-25-epic-games-reply-brief-ninth-circuit-in-apple-antitrust-case

To be very precise, it's Epic's second and final brief on appeal, and it is a reply brief in support of its own appeal of the rejection of its federal antitrust claims and a responsive brief to Apple's appeal of the state Unfair Competition Law injunction Epic had won. I basically agree with either appeal: Epic should prevail on the federal antitrust claims (though I only consider the "tying" part a Sec. 1 issue), but the California UCL stuff should be tossed.

At this stage let me highlight only two aspects of Epic's brief (again, I may write more about it some other time):

Footnote 10 is an appropriate response to that "national security" pretext I'm really getting tired of:

"Apple’s amici argue that removing Apple’s restrictions could risk national security. (See Former Nat’l Sec. Officials Br.) This fearmongering is based almost entirely on alleged facts outside the trial record and disconnected from the issues presented here. If true, the United States would have surely noted this risk in its amicus brief. The district court found that most protections against cyberattacks and malware 'are performed by the operating system or middleware independent of app distribution.'" (link to DOJ brief added)

The other part is that Epic also raises some issues I had previously raised here. I've criticized the terrible mistakes that Judge Yvonne Gonzalez Rogers made especially in connection with Epic's single-brand market definition, where she misrepresented what the Supreme Court said in Kodak as well as what Epic said in the case before her. And I actually just became aware of those inexcusable misconceptions because Apple's mistake to concede that iOS competes with Android (a blatant contradiction to its otherwise dogged denial of the existence of a smartphone operating system market) led me to re-read certain passages. Now, Epic's reply brief, too, says that Apple has conceded the existence of that market:

"Even Apple finally admits the obvious: iOS’s “‘main competitor’ in the relevant market [is] Android.” (Apple Br. 82 (quoting 1-ER-147).) These concessions confirm Epic’s foremarket."

Also, footnote 20 is worth noting in this context:

"Apple elsewhere concedes—as did the district court—that iOS competes with Google’s Android. (See Apple Br. 79 (quoting 1-ER-149).)"

Epic also notes that Judge YGR got Epic's foremarket wrong ("The district court misunderstood Epic’s foremarket theory"), and without saying anything like that, Epic also points to a sentence I found utterly nonsensical in the district court ruling. Just like what I wrote in March, Epic says "Apple’s share of the smartphone market is identical to its share of the smartphone operating system market." And beyond the "'main competitor' in the relevant market" part (which I highlighted shortly after reading Apple's brief and Epic refers to in the sentence I just quoted), Epic's footnote 20 points to another passage in Apple's brief that essentially says customers choose between iOS and Android devices based on certain criteria.

That's it for now, but I did want to share those observations immediately.

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Former Secretary of Homeland Security, former FTC chairman, and conservative think tank dismiss Qualcomm's and DOJ's "national security" arguments

In its answering brief to Qualcomm's Ninth Circuit antitrust appeal, the FTC says Qualcomm simply "abandoned" its national security argument before the district court and can't revive it now. Nevertheless, many of the (by now) 14 amicus curiae briefs supporting the FTC address the topic to some extent--and the one filed by the R Street Institute (a think tank close to the GOP) even focuses entirely on why any "national security" concerns over Judge Lucy H. Koh's ruling are unfounded because, if anything, Qualcomm's monopoly poses a threat to national security (this post continues below the document):

19-11-28 R Street Institute... by Florian Mueller on Scribd

The author, Charles Duan, is a well-known amicus brief writer. He always writes persuasively and comes up with interesting thoughts. In the past I agreed with his views in some cases and disagreed in others. With respect to FTC v. Qualcomm, I find parts of his brief a bit far-fetched, but in principle I agree with most of what he wrote.

The R Street Institute argues that "patents and even market concentration can also foster innovation, but only to a degree." Healthy competition is still required: "[S]trong patent protection is complementary to strong competition; the former does not promote innovation without the latter."

The brief gives examples of cases in which there was either hard evidence or at least some indication that patent holders who enforced their monopolies too aggressively or sought to charge unreasonably high royalties imperiled U.S. national security. Those examples include the Wright Brothers' patent enforcement against competitors, which had a chilling effect on the U.S. aviation industry (compared to European counterparts) in the early 19th century, a temporary shortage of torpedoes (which forced the U.S. to buy them from a power that was on the verge of becoming an enemy), or the problems the U.S. government faced when chemical company Bayer wanted to charge a rather high per-unit price for Cipro, its anthrax drug, at a time when the U.S. (after 9/11) had to fear a large-scale anthrax attack. Mr. Duan describes those situations in a balanced way, also pointing to criticism of certain views.

What doesn't convince me is his "monoculture" argument. That's a strong point with respect to software (operating systems and key applications) that can be infected by viruses. I can't imagine a virus could take control of a Qualcomm baseband chip.

But he does have a point that competition fosters innovation and, ultimately, is the best recipe for U.S. technological superiority. The notion that Qualcomm should now be afforded special protection because it drove various U.S. competitors out of business (which is basically what Qualcomm and its friends at the DOJ suggest) is truly absurd.

The R Street Institute's brief points to a recent op-ed by former Secretary of Homeland Security (under President George W. Bush) Michael Certoff in the Wall Street Journal, arguing that it's actually Qualcomm's monopoly that poses a threat to national security.

Another official who served in Republican administrations, Professor Timothy Muris, filed an amicus curiae brief this week (this post continues below the document):

19-11-29 Timothy Muris Acb by Florian Mueller on Scribd

Professor Muris was a senior FTC official under President Reagan, and FTC chairman under President George W. Bush. His brief is mostly about general principles of sound competition enforcement. This is a Republican, not a statist. More than anything else Professor Muris's brief is a response to Antitrust Assistant Attorney General Makan (I tend to call him "Macomm" because of his constant support of Qualcomm and his Qualcomm past) Delrahim's filing(s) in support of Qualcomm against the FTC--just a "historical anomaly" as Professor Muris explains.

Professor Muris recalls how somewhat similar concerns were raised almost 50 years ago in connection with the "MaBell" (AT&T) breakup, but ultimately competition had huge benefits for everyone and actually made the U.S. even more secure.

He shares a concern I also had immediately when I saw the Ninth Circuit motion panel's order granting Qualcomm a stay of the enforcement of two parts of the FTC's injunction: the order says that Judge Koh's ruling may be affirmed, but in that case it would be a "trailblazing application of the antitrust laws." Professor Muris contradicts and says the decision "fits squarely within traditional antitrust law." With respect to Qualcomm's "No License--No Chips" policy, Professor Muris notes that "[c]onditioning purchase of a monopoly product on taking a patent license is standard antitrust fare, ripe for examination under well-accepted antitrust principles."

Macomm Delrahim has a position that, according to the brief, "departs sharply from historical practices" and "abandoned the consensus among policymakers, SSOs, and courts concerning patent holdup in favor of an unprecedented position that impermissibly treats patents like natural rights—all of which underlie its position in this case." It's a widespread fallacy to consider patents a type of property like real estate with respect to the right to exclude (or to deny licenses). It's a problem in other jurisdictions as well.

Toward the end, Professor Muris also addresses "national security." He, too, points to former Secretary of Homeland Security Michael Chertoff's op-ed and argues that "[t]he better view is that the loss of innovation from Qualcomm's anticompetitive conduct, giving Qualcomm monopoly protection, is as much, if not more, a national security issue. Some reduction in SEP royalties that Qualcomm may receive going forward doesn't pose a fundamental threat to a company that "is extremely well capitalized with over $12 billion in cash, cash equivalents, and marketable securities on its balance sheet at the end of its last fiscal year—more than half of its annual revenues," and "[since 2015] has authorized double that amount in stock buybacks."

In light of all of that, Professor Muris rejects the idea of givign Qualcomm "special treatment" and instead wants the company to "play by the rules and focus on contributing to American innovation without illegally excluding its rivals."

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40 law and economics professors supporting FTC against Qualcomm's appeal contradict themselves just two pages apart

Last week, the Federal Trade Commission (FTC) filed its answering brief (prior coverage and commentary: 1, 2, 3) to Qualcomm's Ninth Circuit appeal of the agency's antitrust victory in the Northern District of California. This week, amicus curiae briefs in support of the FTC are due, with industry sources expecting a dozen or more submissions, and Professor Jorge Contreras (University of Utah) was first to file (this post continues below the document):

19-11-26 Jorge Contreras Acb by Florian Mueller on Scribd

Professor Contreras is not only a lawyer but also understands technology very well. He's cited all the time, including by some other amicus briefs that have meanwhile been filed in the same case. The first part of Professor Contreras's brief discusses what is also my #1 priority here: chipset-level licensing. After explaining the history of FRAND, which starts with competition law, and other legal aspects, Professor Contreras says that baseband chips are "highly complex" and "embody the principle technical features of the standard." That is, by the way, consistent with what Qualcomm's German outside counsel (then defending Daimler against Nokia) told the Munich I Regional Court last month. In the related footnote (#6), Professor Contreras notes:

"Moreover, it is not clear that a smartphone implements the entirety of the relevant standards either, as Qualcomm seems to argue, given that some functionality described in those standards is implemented in base stations and other central facilities."

At least one other amicus brief I've downloaded by now makes that point as well, and it's too important for a mere footnote. Those monetization-focused SEP holders who refuse to license component makers--Qualcomm, Nokia, Ericsson, and various trolls (though there's only a floating border between former handset makers and trolls)--come up with arbitrary and shifting-sand-style positions on what hardware components are needed in order to implement a standard. For an example, in its German infringement actions against Daimler, Nokia argues that only an end product--in that case, a car--implements a standard, but car makers purchase telematics control units (TCUs) that, in turn, come with connectivity modules (often called network access devices, or NADs), and the NADs actually are like a complete phone, just without a screen, and cars add absolutely nothing that is required to practice the standard.

Even if the debate is about chipsets used in smartphones (as in FTC v. Qualcomm), the phone is an arbitrary choice: as the footnote quoted above notes, only the combination of an entire network (with all its base stations) and the end-user devices would implement the standard if one followed Qualcomm's (or Nokia's or Ericsson's) logic. As a result, no company other than a Huawei or Samsung (which make base stations as well as end user devices) would be entitled to a cellular SEP license--or maybe telcos that operate networks and resell phones could obtain a license, too. Such a nonsensical result would be an invalid outcome that would make it impossible to give any remotely reasonable interpretation to FRAND licensing pledges.

The second part of Professor Contreras's amicus brief explains that Qualcomm's reference to its own past license agreements as a point of reference for determining reasonable (the "R" in "FRAND") royalties is "circular logic." Here, Professor Contreras cites to a publication by Professor Thomas Cotter (University of Minnesota and author of the highly recommended Comparative Patent Remedies blog): Reasonable Royalties, in Patent Remedies and Complex Products: Toward a Global Consensus.

In the third and final part, Professor Contreras takes aim at Qualcomm's "national security" argument. He provides examples of comparable companies that are doing well without Qualcomm-like misconduct:

"[B]ased on publicly-reported 2018 financial information, Intel achieved a profit margin of approximately 62% on net revenue of $70.8 billion, and Broadcom achieved a profit margin of approximately 52% on net revenue of $20.8 billion. [...] Qualcomm, by comparison, reported a profit margin of 55% on revenue of $22.7 billion."

Related to this--and also very interesting--is the comparison of R&D investments:

"In 2018, Intel invested $13.5 billion in R&D (19% of revenue) and Broadcom invested $3.7 billion in R&D (18% of revenue). [...] Qualcomm, by comparison, invested $5.6 billion in R&D (25% of revenue)."

The brief also shows that "Qualcomm is not the global leader in 5G standards or technology development, nor does the U.S. lead in this technology sector." Pointing to an IAM article by IPLytics founder Tim Pohlmann, a table is shown according to which Qualcomm is just #7 in the world in terms of 5G patent families held (with Intel, the only other U.S. company among the top 10, following closely, and those patents were acquired by Apple this summer).

Whatever the reason may be, Professor Contreras filed a separate brief from the one submitted by 40 (precisely twice as many as their colleagues who supported Qualcomm in August) law and economics professors (this post continues below the document):

19-11-27 Law & Econ Pro... by Florian Mueller on Scribd

The passage of the "40 profs" brief I like best is the one that explains the economic dynamics resulting from Qualcomm charging a patent royalty separately from selling its chipsets and making it harder for others to compete with them in the chipset business.

In connection with Qualcomm's "No License-No Chips" policy, the 40 professors address the Supreme Court's linkLine decision which said that a margin squeeze is not enough to prove an antitrust violation: instead you either need to show a duty to deal at the wholesale level or exclusionary conduct (predatory pricing) at the retail level. The FTC's explanations as to why linkLine is inapposite here are very strong, though it obviously doesn't hurt if amici address the same (critical) question, too.

Unfortunately, the O'Melveny & Myers and Hausfeld lawyers who represent the 40 professors made a mistake that the signatories--many of whom I know (a few of them I've even met) and respect, but all of whom are presumably extremely busy--didn't notice...

The brief first argues (on page 14 based on the numbering at the bottom of each page; or page 20 of the PDF) that Qualcomm can't engage in a price squeeze affecting chipset manufacturers because it doesn't license or assert patents against them:

"As to form, the input here is the license to Qualcomm’s SEPs, and the non-integrated competitors are the rival chipset manufacturers. Because Qualcomm refuses to license chipset manufacturers, it is not squeezing them with a higher license fee."

But then, only two pages later, comes footnote #14, which flatly contradicts that formalistic approach:

"Qualcomm argues that the [No License-No Chips] policy is not anticompetitive because the cost is not levied directly on the competing chipset makers. [...] But as demonstrated by the Microsoft "per processor" royalty cases, there is no requirement that a monopolist impose costs directly on its competitor. [...] What is significant is that the monopolist imposes a charge on the transaction involving the competitor." (emphasis added)

One mistake doesn't devalue an entire (otherwise very strong) amicus brief. I agree with the 40 professors that the FTC's win should be affirmed; I largely agree with their reasoning. And again, the professors themselves presumably just lacked the time to identify the flaw highlighted above before they signed. It changes nothing about my respect for all of them. While I do want Qualcomm to be required to license rival chipset makers and to stop its "No License-No Chips" policy, there are cases where Qualcomm is right and/or Qualcomm's adversaries are wrong. I commented favorably on parts of Qualcomm's motion to dismiss (2007), I criticized the methodology used by one of the FTC's experts, and I pointed out months ago that it isn't easy to "shoehorn" Qualcomm's refusal to license rival chipset makers into the Aspen Skiing pattern. Now I believe the professors' footnote #14 is right (yes, the focus should be on the economic effect of a charge as opposed to just form), but then Qualcomm, too, is entitled to the benefit of that approach in the linkLine context.

No matter how hard I try to find an element that reasonably sets one context apart from the other (the wider context is actually the same: No License-No Chips), I can't find one. Either one wants to argue that indirectly-imposed costs count, or one doesn't.

Expect more posts on FTC v. Qualcomm amicus briefs in the days ahead.

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FTC to Ninth Circuit: Qualcomm "abandoned" national security argument by failing to introduce evidence

This is a follow-up to yesterday's post on the Federal Trade Commission's answering brief to Qualcomm's opening brief on appeal. Before talking about another aspect--national security--I'd like to share some further thoughts about the FTC's right-for-the-wrong reasons strategy.

I believe a private party would have been fairly likely to defend Judge Lucy H. Koh's ruling on either ground: her Aspen Skiing approach and the FTC's Third Circuit Broadcom logic. That's because private parties--and especially their counsel--try to leave no stone unturned. It would have been possible for the FTC to argue that the Aspen Skiing standard is too high, but that it's met regardless if one makes a certain effort to shoehorn this case into that pattern (by arguing that Qualcomm might not have known what it was doing when it temporarily granted exhaustive licenses to chipset makers, but it didn't do so involuntarily). But it appears that the FTC's litigation team felt it was prudent to focus completely on a Third Circuit precedent that the Ninth Circuit doesn't have to, but may very well adopt. The fact that Qualcomm won a (partial) stay of the injunction likely played a role here. At the stay stage, the FTC didn't attempt to defend the Aspen Skiing reasoning (as Qualcomm noted in its reply brief), but now it's clear that the FTC is rather confident that the summary judgment on contract interpretation regarding licenses to rival chipset makers will stand (that's a precondition now for the chipset licensing-related antitrust theory), and is more optimistic that the Ninth Circuit will agree with the Third Circuit.

Maybe some amici curiae will still defend the chipset licensing part of the district court's ruling. But the focus is now going to be on what the FTC has chosen as its appellate strategy for chipset licensing. As I wrote yesterday, it comes down to viewing the FRAND licensing commitments that participants in standard-setting enter into as a cartel remedy, and the fact that there already is a remedy in place under competition law then lowers the hurdle for finding non-compliance to be an antitrust violation (not every non-compliance, but under certain conditions).

The likelihood of this case going all the way up to the Supreme Court (where Oracle v. Google has finally arrived, by the way) has just increased. Should the Ninth Circuit decide along similar lines as the Third Circuit, Qualcomm will point to other circuits (such as the Fifth Circuit) to argue there's a circuit split. The FTC could argue the same if it had to appeal, but whether the FTC, given its internal stalemate, could actually bring an appeal is another question.

What helped Qualcomm tremendously when seeking a stay from the Ninth Circuit was the national security argument that the Antitrust Division of the Department of Justice--run by a former Qualcomm lawyer--stressed. Statements by officials from the Department of Defense and the Department of Energy were attached to the DOJ's filing.

It's hard to think of a more important factor in the public-interest context of an injunction than national security. It's a big term. But here it rings hollow. It's a non sequitur.

The FTC case has the potential to reduce Qualcomm's margins, but not to render it unprofitable. The security concern relates to Qualcomm's chips, not patents (a patent can't be secure or insecure, but an embodiment of an invention can be). So Qualcomm would have to lose such a huge part of its revenues that it couldn't be competitive in the chipset business (where it's currently the undisputed leader).

In its intragovernmental quarrel with the DOJ's Antitrust Division, the FTC points to the DOJ Antitrust Division's poor timing: just like a request for a separate hearing on remedies was made months after the trial, the DOJ also raised those national-security concerns late in the game.

According to the FTC, "Qualcomm alluded in passing to national security in a pretrial filing, it introduced no evidence on the topic," which is why the FTC says Qualcomm "abandoned it."

Qualcomm simply couldn't have shown that the viability of the company was at stake, much less in light of its financials. The FTC says in a footnote what it noted on at least one prior occasion: "Qualcomm spends more on stock buybacks and dividends than it does on R&D. [...] (showing 2015-2017 R&D of $16.13 billion versus combined stock buybacks and dividends of $25.63 billion)."

Qualcomm's (and its Antitrust Assistant Attorney General friend's) "national security" strategy is not about rules of procedure or economic logic. It's all about diverting attention away from the merits and, more than anything else, about politicizing what should be a straightforward matter of competition law.

It worked for Qualcomm at the stay stage: a motions panel with a conservative majority explicitly placed a lot of emphasis on the Administration's input. Now they hope it will help again--or, at the latest, when this matter reaches the Supreme Court.

When politics is the name of the game Qualcomm is trying to play, who cares about whether an argument was presented to the district court in time? Who cares about evidence, or abandonment as a result of not introducing evidence? It's all just about influencing the judges. The FTC makes a compelling argument that there's no substance to Qualcomm's national security concern, and that there's a strong public interest in competition enforcement. As the FTC recalls, competition also works wonders for product quality, so having more than one U.S. baseband chipset maker is ultimately also the best-case outcome for national security. I hope the Ninth Circuit will see through the "national security" smokescreen, and not be swayed by it when adjudicating the antitrust issues before it.

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Hot summer for Ninth Circuit motions panel: Qualcomm's motion to stay enforcement of FTC remedies still pending after more than 3 weeks

Imagine you're a judge on the United States Court of Appeals for the Ninth Circuit, and from time to time you serve on the Motions Panel that changes every month. Motions to stay the enforcement of injunctions are the most critical ones to resolve, short of anything related to executions, but there aren't any pending in the Ninth Circuit.

Most motions, including those motions to stay enforcement, involve relatively narrow issues. But from time to time, a "monster" motion comes along. That's what happened when Qualcomm, understandably though I mostly disagree with them on substance, sought a stay of the enforcement of the injunction the FTC had obtained from Judge Lucy H. Koh of the United States District Court for the Northern District of California.

Just the findings of fact and conclusion of law underlying the order span 233 pages. But there's also been a significant volume of briefing on the motion. Assistant Attorney General Makan Delrahim, a longstanding Qualcomm friend who represented Qualcomm while in private practice, heads the Antitrust Division of the Department of Justice, and his subordinates made a filing in support of Qualcomm that was also backed by a couple of other Administration officials. The FTC's solid but somewhat lackluster opposition to Qualcomm's motion was supported by industry body ACT | The App Association and by chipmaker MediaTek, whose filing showed a Qualcomm-internal presentation depicting competitors' exits from the cellular baseband chipset market with tombstones.

The national security arguments made by Qualcomm and its usual allies are bogus claims from different perspectives. Not only are products, not patents, relevant to security and is Qualcomm far too profitable that a requirement to extend patent licenses on fair, reasonable and non-discriminatory terms could threaten the innovative capacity of a company that spent far more on stock buybacks in recent years than on research and development, but Qualcomm's national-security argument also comes down to them saying that the elimination of competition (by means that the district court found illegal) has now made them, as the sole survivor, absolutely critical to U.S. national security. Meanwhile, Apple has acquired Intel's mobile chipset division, ensuring that there still is at least one major U.S. company investing in R&D in this field.

But let's again try to look at this from the vantage point of a judge on the Ninth Circuit motions panel. You get hundreds and hundreds of pages to review, which point to lots of external documents, such as other decisions. That's why, after Qualcomm was granted expedited appellate proceedings, they found even they, with their vast resources and their intimate knowledge of the issues, needed more time. You see a submission by the federal government that urges you to grant the motion lest the world descend into chaos.

It's not easy to brush aside those concerns by giving the motion short shrift. Judge Koh denied Qualcomm's original motion to stay enforcement quickly, but the original ruling had taken even her (as famous as she is for working smart and hard) well over three months after the January trial. I still remember the laughter in her courtroom when she said: "Sadly, this opinion's gonna take some time." It did, but the result was well worth it.

It's now been more than three weeks since briefing was completed, and some knowledgeable people had actually expected a decision to come down in July.

I'm not sure about how the Ninth Circuit organizes this internally, but I presume that the July motions panel (with a Democratic majority) is still in charge, given that the motion was fully briefed before the end of July and the judges on the motions panel are, according to the appeals court's website, "assigned to consider ready substantive motions matters," and this one was ready with almost a week left in July. The August panel has a Republican majority, so should that new panel be in charge now, then the DOJ's brief would likely be given more weight unless they see that a former Qualcomm lawyer's lobbying for his past client (and possibly also future client when he returns to private practice) doesn't make the idea of healthy competition an ideological cause.

The decision will be interesting, but whatever the outcome may be, let's not overrate it. An appeals court may well stay enforcement, especially for the duration of an expedited appeal, but nevertheless affirm, in whole or in large parts, when the focus is entirely on the merits, or it may deny a stay but identify serious issues later on.

The time that it's taking them to decide can't be reliably interpreted. The only safe assumption is that they are kind of overwhelmed. It might mean that they're working on a rationale that will enable them to grant the motion without taking such a strong position that would suggest the merits panel could decide only one way. It could also mean that they've concluded the motion should be denied, but in light of governmental brouhaha about the end of the world being nigh, the appeals court wants to write up a thorough denial. Qualcomm might internally--and reasonably--view the time that this is taking as a sign that is more likely than not to be positive, especially since I guess they feared a swift denial of their motion. Contrary to Qualcomm's representations, it's not like anything dramatic would happen to Qualcomm's business in the very short term, given that any license (re)negotiations would take a lot longer at any rate.

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