U.S. judiciary endorses EU antitrust chief Margrethe Vestager's solution-oriented approach to merger reviews while UK CMA keeps its own--but also constructive--profile

At this stage the question does not appear to be whether but when--Monday, Tuesday, or in August--Microsoft will consummate the acquisition of Activision Blizzard King. There were signs of ABK being delisted from NASDAQ or at least removed from the NASDAQ-100 index as early as tomorrow.

Even a commercial agreement between Sony and Microsoft to keep Call of Duty on the former's PlayStation has fallen into place. Sony was the only vocal deal critic, though Google was lobbying against the transaction as well.

The contractual target date for closing is Tuesday, July 18. There have been media reports of a potential extension since the UK Competition & Markets Authority (CMA) opened a new investigation in light of a new proposed deal structure, with a late-August deadline and the plan to wrap up ahead of schedule (PDF). The Financial Times wrote:

"[A]fter this week’s legal victory in the US courts and a potential lifeline in the UK, people close to the companies say they are likely to agree an extension to the deal early next week.

"'Things are moving quite quickly,' said one person close to the negotiations."

There's been a flurry of news recently. On Tuesday, Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California denied (PDF) a motion by the Federal Trade Commission (FTC) for a preliminary injunction that would have blocked the transaction. That was the outcome I predicted in my previous post on that topic. Just as I already observed when I attended the five-day PI hearing in person, the FTC failed to meet multiple requirements for a merger PI.

Between that decision and the Ninth Circuit's denial of an emergency motion by the FTC, various gamers reported that my name became a trending topic on Twitter for that community. But I'd rather talk now about the actual decision makers and the key institutions, and what the current situation means for them and their regulatory philosophies:

DG COMP showed the way

In the wake of the U.S. court rulings, a very thoughtful gamer and developer active on social media as EverbornSaga--who made various great contributions to my recent Twitter Spaces (basically, talk shows via Twitter)--declared the European Commission's Executive Vice President Margrethe Vestager "[t]he True Hero of this Story":

The True Hero of this Story… pic.twitter.com/DlHuwRqsIx

— Everborn Saga (@EverbornSaga) July 15, 2023

Everborn has a point.

Judge Corley started the final part of her PI denial order ("Conclusion") with the following observation:

"Microsoft’s acquisition of Activision has been described as the largest in tech history. It deserves scrutiny. That scrutiny has paid off: Microsoft has committed in writing, in public, and in court to keep Call of Duty on PlayStation for 10 years on parity with Xbox. It made an agreement with Nintendo to bring Call of Duty to Switch. And it entered several agreements to for the first time bring Activision’s content to several cloud gaming services."

That paragraph was just a more formal version of something she said at the PI hearing about those commitments and agreements:

"In many ways you [the regulators] won."

The FTC's trial counsel rejected that notion. They just wanted to block the merger. They wanted both the district court and the appeals court to turn a blind eye to the remedies that were already in place and constituted market realities. But Judge Corley was right--and is even more right now that Sony--albeit at long last--accepted an offer by Microsoft.

In a speech I called "historic" on Twitter and in various interviews, EVP Vestager stressed the need to focus on how regulators can bring about results that benefit the competitive process and consumers. She opposed the idea of--in my words--a hawkishness contest between regulators.

I still believe that actually the regulators who cleared the transaction unconditionally--most recently the Turkish competition authority--got it right. In fact, the Brazilian and Chilean decisions were my favorite ones, and in Chile they even conducted a survey among gamers to get an idea of whether vertical input foreclosure would work. But as Judge Corley wrote, the size of the deal warranted scrutiny, and that's why I don't blame regulators for launching a Phase II investigation. Still, I think that the most that a regulator could reasonably have expected here--given that the deal raises no competition concerns if analyzed competently and viewed rationally--would have been some public statements prior to clearance. Enforceable remedies with an independent monitor just seem unnecessary to me. Be that as it may, the European Commission received extremely positive feedback from gamers for clearing the deal on the basis of consumer-oriented formal remedies.

The U.S. judiciary has, by extension, endorsed EVP Vestager's regulatory philosophy.

FTC should drop its "case" now

As someone who spent far more time in court supporting (in 2019) than criticizing (in 2023) the FTC, I'm disappointed. The FTC's emergency motion with the Ninth Circuit was disingenuous in various ways. And it failed miserably.

The FTC's in-house trial is scheduled to start on August 2, and as per the Ninth Circuit's normal schedule (which can always be extended) for PI appeals, it has until August 9 to file an opening brief. The only logical thing now would be to seek an extension from the Ninth Circuit (easy, especially as I'm sure it would be unopposed) and to postpone that trial to conserve resources. And to drop the "case" after the deal has closed, as the FTC has historically always done.

Will this FTC make a rational decision? Maybe today's annoncement of an agreement between Microsoft and Sony makes it easier.

UK CMA still an outlier, but now a solution-oriented one

I stand by my harsh criticism of the UK CMA's April 26 decision and last year's issues statement. The blocking decision was all the more disappointing as I actually thought they were on the right track when they dropped their console market theory of harm in late March. Now I see that a lot of gamers are not really trusting the CMA anymore, though I encourage them to appreciate the fact that the CMA is willing to evaluate a new deal structure.

According to rumors in the media, that new deal structure would involve the divestiture of Microsoft's UK cloud gaming business to British Telecom subsidiary EE, which already had a 10-year agreement in place with Microsoft for Activision's titles.

If the CMA now approves the deal, it will have maintained the integrity of its processes, avoided a decision by the UK Competition Appeal Tribunal (which will hold a case management conference tomorrow in light of the parties' motion to stay the proceedings), and remained consistent with its position that non-divestiture remedies are disfavored even for vertical mergers.

That makes the CMA a winner, too. The question is now whether a solution can be found that enables the closing of the deal in the days ahead while also allowing the new merger review to go forward. My personal opinion is that if the CMA is philosophically inclined to clear the deal based on a UK-specific divestiture remedy, they could make an exception here and let the deal close for the time being. This merger review process is unlike any other, and therefore not really precedent-setting. Today's announcement of the agreement between Microsoft and Sony could make a major difference now.

There are serious issues in the tech industry, and arguably some even bigger problems that the world is facing in other respects. I've always said I want those regulators to emerge stronger. The FTC under its current chair has lost all four of its merger challenges. And the way they lose does not really suggest that they contribute to the evolution of U.S. merger case law or build an argument for legislative intervention, though I personally would actually consider it a good idea to make U.S. antitrust enforcement stronger if some problems (such as the FTC's in-house adjudicative proceedings, where the commissioners can ultimately just vote in favor of their own complaints) are addressed.

In the UK, the DMCC Bill will give the CMA's Digital Markets Unit more powers, and as an app maker I like that, too, though after this experience with the Microsoft-Activision case I believe a robust judicial review by the Competition Appeal Tribunal is key. Is the current framework good enough? Clearly, the CATribunal (or just CAT) is a winner here. It recognized the importance of this case, went out of its way to enable swift adjudication, and is clearly force to be reckoned with while a lot of "experts" suggested the CMA could basically do whatever it wants as the CAT would have to rubberstamp its decisions (not true) and always remand the cases anyway (not certain as the CAT itself interprets the relevant statute, which is not strictly limiting, and if the CAT effectively resolves a substantive question, a remand can be reduced to a mere notarization of a CAT decision).

I have great respect for the CMA's willingness to reevaluate the transaction in light of a new proposed deal structure, and I am hopeful that solutions will be found. Ideally also a provisional one that enables the closing of the deal in the days ahead.

As of now, prior to a new CMA decision and a New Zealand ruling that may come down in a matter of hours, the transaction can be closed with respect to 41 countries with 2.8 billion inhabitants and representing about two thirds of the global economy. With more to come.

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Federal judge further shrinks antitrust class action against Qualcomm: 'No License, No Chips' policy is lawful, but plaintiffs can pursue exclusive-dealing claims under California state laws

The Federal Trade Commission's antitrust litigation against Qualcomm came to a definitive end almost two years ago when the FTC refrained from seeking Supreme Court review of the first-class acquittal the San Diego chipmaker had won in the United States Court of Appeals for the Ninth Circuit. It was a resounding victory for Qualcomm's counsel from multiple firms under the strategic leadership of Cravath Swaine & Moore's Gary Bornstein, whose work for Epic Games (against Apple and Google) I have mentioned many times.

Still, there is a class action pending in the Northern District of California: In Re: Qualcomm Antitrust litigation, but no longer before Judge Lucy H. Koh, who has meanwhile been promoted to the appeals court. Presiding over this case now is Judge Jaqueline Scott Corley, who is based in San Francisco. Yesterday (Friday, January 6), she granted in part and denied in part Qualcomm's motion to dismiss the class action:

In Re: Qualcomm Antitrust Litigation, Order Regarding Motion to Dismiss

In 2021, the Ninth Circuit remanded the certification of the consumer class to the district court, and without going into detail expressed the view that the failure, as a matter of law, of some of the FTC's claims would by extension also dispose of substantial parts of the class-action complaint. Also, the Ninth Circuit took issue with the application of California law to a nationwide class, especially when there are "repealer" and "non-repealer states" with respect to the Illinois Brick doctrine that bars indirect purchasers from seeking antitrust damages unless state laws open the door to such theories. Illinois Brick could have been overruled in Apple v. Pepper (App Store antitrust case), but it wasn't because a narrow Supreme Court majority determined that app downloaders directly purchase from Apple.

Upon remand, the class-action lawyers drastically narrowed their case: it's now only about California law (the Cartwright Act, which is sort of California's Sherman Act, and California Unfair Competition Law (UCL))--and the class is now limited to California consumers. Under the Cartwright Act as well as under California UCL, the class-action lawyers are suing Qualcomm over

1. its "No License, No Chips" policy (device makers must take a standard-essential patent (SEP) license from Qualcomm as a precondition for getting to buy Qualcomm's baseband chips);

2. an allegedly exclusive agreement with Apple (to be precise, there were certain rebates that Apple was eligible for as long as it largely relied on Qualcomm's baseband processors); and

3. allegedly having defrauded the standard-setting process by making FRAND promises without the intent to honor them (such as by granting exhaustive licenses to rival chipmakers).

The doctrine that requires the district court to take into consideration the Ninth Circuit's FTC v. Qualcomm decision in its adjudication of Qualcomm's motion to dismiss the consumer class action is stare decisis (consistency with applicable precedent). The consumers are not collaterally estopped because of the FTC's defeat, nor can any of the factual questions be demeed res judicata given that the class-action lawyers are entitled to their own day in court and could--in theory (though hardly in practice)--present stronger evidence than the federal government.

It is the last point I mentioned that keeps the "exclusive dealing" technically alive. It's a zombie claim as far as I can see: unless the class-action lawyers dig up some silver bullet somewhere, the conclusion is going to be that Intel and other companies wouldn't have been able to provide an adequate replacement for Qualcomm's chips anyway. But it's a dead claim walking for the reason I explained. It will hardly survive summary judgment, though.

The "fraud" prong has been dismissed directly because the consumer plaintiffs are not Qualcomm's competitors and, therefore, can't allege reliance on Qualcomm's FRAND promise.

The claim that "No License, No Chips" constitutes anticompetitive tying has also been dismissed directly (under either state law). Its fundamental deficiency is that the allegedly tied product--licenses to Qualcomm's SEPs--is not available from a rival seller: only Qualcomm licenses its SEPs to smartphone makers.

The class-action lawyers made a legalistic argument in that context: a 2015 decision by the California Supreme Court (Cipro) involving reverse payment settlements under the Hatch-Waxman Act, which is (broadly speaking) about creating incentive for the makers of generic versions of patented drugs to challenge the relevant patents: the first one to take down a patent gets a certain exclusivity period. As a result, some pharmaceutical companies entered into settlements with the first challenger at the expense of all of their joint competitors.

In the Qualcomm case, the class-action lawyers argued that Cipro shows a greater willingness by the California state judiciary to find antitrust violations in patent holders' dealing and practices. Judge Corley declined the invitation to "strike a new path in tying jurisprudence under the Cartwright Act, just as Cipro did in the realm of horizontal restraint." She said that there is no case law at the moment that supports the "novel tying theory" against Qualcomm, and the district court won't broaden the scope of Cipro by predicting potential changes in California case law based on a philosophical interpretation of Cipro.

The class-action lawyers could now try to appeal Judge Corley's decision to the extent their claims got dismissed, and hope that someone will make new law in order for their tying claim to be revived. They can also try to argue it doesn't matter that consumers themselves never relied on any FRAND licensing promise by Qualcomm. And they can try to win the factual debate over whether there were any anticompetitive effects from the Qualcomm-Apple agreement in question.

They can try any or all of the above--but it's highly unlikely to lead to any payout to California consumers. The biggest obstacle to a settlement here may be the fact that Qualcomm is on the winning track, even if it takes another year or two (or more).

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Google appeals certification of consumer class seeking $4.7 billion in damages for Google Play app tax: valid questions about pricing of apps and in-app purchases put before Ninth Circuit

Epic Games and Match Group (Tinder) have made some progress lately in their Google Play antitrust litigation in the Northern District of California. Three dozen U.S. states are also suing Google over its Google Play practices. Then there is also a consumer class action seeking $4.7 billion in damages, claiming that this is the amount by which U.S. consumers overpaid for Android apps and in-app purchases due to the app tax.

I don't doubt that Google's terms and policies for the distribution of Android apps harm not only app developers but also consumers. It is, however, not trivial to determine what portion of the app tax developers would actually have passed on to consumers in the form of lower prices. Google argues that the class action lawyers went too far, and on that basis has appealed to the Ninth Circuit the district court's decision to certify a consumer class:

Ninth Circuit appeal no. 22-80140; Mary Carr, et al v. Google LLC, et al; Petition for Permission to Appeal

This is an interlocutory appeal, and the first decision for the Ninth Circuit to make is whether to grant the petition and hear the case at this stage. In its efforts to get the appeals court interested, Google has provided an outline of why it believes its appeal is meritorious:

• The central legal question here is whether a class can be certified if more than a de minimis number of its members have not actually been injured. Google's petition acknowledges a circuit split in this regard.

  Google cites Supreme Court precedent according to which the predominance requirement for class certification (that issues common to the claims of all class members outweigh the questions relating to individual members' claims) is not satisfied when "[q]uestions of individual damage calculations will inevitably overwhelm" common questions.

  I'm not fully convinced by Google's argument that there should be no class certification at all, but--despite my harsh and frequent criticism of Google's Android app distribution practices--I agree with Google that the class action lawyers' damages calculation is unrealistic.

• Google argues that developers would typically not lower prices if an adjustment did not take the price down to a distinct focal point. For instance, if an in-app purchase costs $0.99, and the reduction of the app tax would allow the developer to charge only $0.82, it's likely that the developer would keep the price at $0.99 because psychologically the two prices are about the same, so demand wouldn't change much and the developer would leave money on the table.

• Google reasonably criticizes the consumer plaintiffs' expert's "one minus share" formula. The expert's starting point is reasonable: the more competition an app faces, the more of the app tax (if it could be saved) would be passed on as savings to consumers. A monopolist will probably just increase its profits; in a fiercely competitive segment, prices will gravitate toward a reduction that more or less amounts to the app tax. But the consumer plaintiffs' expert simply looks at a given app's share in one of the 35 categories to which Google lets developers assign their apps. That is a coarse segmentation. Without substitution, there are no competitive dynamics, and Google reasonably argues that "[e]ven though the children’s game Thomas the Tank Engine and the adult game Doom are in the same 'games' category, they are clearly not competitors, are not marketed to the same consumers, and are not perfect substitutes such that if the price of one increased, consumers would switch to the other in proportion to the app’s share of the category."

  I would actually go even further: even if two games are in the same category, there may be zero substitution for in-app purchases, especially if those are impulse purchases. For instance, if someone plays Candy Crush and wants to spend money to master a level, such as by paying for some extra moves, it doesn't matter that there are literally thousands of other Match Three games out there that may sell five more moves at a lower price.

My take on Google's interlocutory appeal (at this stage): Judge James Donato

• was definitely right that consumers must have a chance to recover damages (especially in light of the Supreme Court's Pepper decision),

• may be right that a class action is the appropriate vehicle, but

• the class certification decision has been based in part on the acceptance of economic theories that Google rightly criticizes and that I, as an app maker, would equally disagree with.

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Another look at Epic Games' argument in the Ninth Circuit as to why it proved lock-in of Apple's customers

This is a follow-up to yesterday's post on Epic Games v. Apple. I have listened for a second time to the appellate hearing with a particular focus on the question of whether Epic's proposal of a single-brand market is dead at this stage due to a "failure of proof." Epic's appellate argument is purely legal; they are not challenging any factual findings under the "clearly erroneous" standard (though they do disagree with some of them).

There are three reasons for which I didn't consider Circuit Judge Milan D. Smith's concern over a potential failure of proof, which he voiced toward the very end of the hearing, necessarily fatal to Epic's case:

• Especially during the first 10-15 minutes of the hearing, Circuit Judge Smith appeared inclined to hold that the district court had committed legal error in the market definition context, and that this would require a remand. Epic didn't deny that a new market definition would require a remand. Its counsel even acknowleged it, but argued that it would prevail anyway under the rule of reason. (However, both Epic and the DOJ faced tough questions regarding their position that a final balancing was required.)

• I had discussed Epic's and Apple's position on the aftermarket part of the single-brand market test in September, and large parts of the problem with the fourth aftermarket factor are requirements that the district judge thought Epic would have to meet, particularly a policy change and (which would obviously be the case in the event of a policy change) customers' complete unawareness, including their inability to find out even if they wanted to, of the aftermarket restrictions by the time they make their purchasing decision in the foremarket. An incorrect legal standard is different from a failure of proof at the factual level.

• The most important question here is whether one considers the district court's finding of Epic not having proved lock-in a legal or factual determination. Apple uses an overbroad definition of what is "factual" and accuses Epic of, conversely, describing actually factual determinations as legal conclusions. So let's look at this part more closely because that's what the appeals court is going to do in the months ahead.

What certainly does help Apple here is that Epic's expert on lock-in, Professor Susan Athey, "got blown up" as Apple's counsel described it: the district judge was "not impressed" by what she presented (as it was not based on consumer surveys or similar data). That is indeed bad for Epic, but not fatal: a party can prevail on a question even if its related expert testimony isn't considered reliable.

According to Apple's counsel, all that Epic has to show in terms of lock-in amounts to only two--and rather old--Apple documents. That is an exaggeration. Let me quote from Epic's opening brief first:

"[The district court] made supporting factual findings, including that there are significant obstacles to switching away from iOS, such as 'time to find and reinstall apps or find substitute apps; to learn a new operating system; and to reconfigure app settings,' [...] and unsurprisingly, 'very low switching rates,' [...] The court nevertheless determined that Epic 'failed to prove lock-in,' primarily because the court incorrectly believed Epic needed to quantify consumers’ switching costs."

"The [district] court's findings and undisputed record evidence prove high switching costs. [...] To switch to Android, consumers must abandon a considerable sunk cost—their smartphone and its apps. [...] But that’s not all; as the district court correctly found, 'it takes time to find and reinstall apps or find substitute apps; to learn a new operating system; and to reconfigure app settings. It is further apparent that one may need to repurchase phone accessories.' [...] The court also found that Apple sought to compete by making its platforms 'stickier,' and its executives touted the difficulties in switching in their internal correspondence. [...] These costs, which result in persistent lock-in to iOS past the lifespan of a single device, far surpass those in Kodak, where a buyer could readily switch to a different brand once its first Kodak photocopier became obsolete."

In its reply brief, Epic then countered Apple's suggestion that it was confusing customer satisfaction (voluntary) with lock-in (an unwanted consequence of a previous decision):

"Second, the [district] court complained that Epic 'ignor[ed] the issue of customer satisfaction,' [...] and noted that 'the features that create lock-in also make Apple’s products more attractive,' [...] Nothing in Kodak or its progeny suggests that if consumers like the features that create lock-in, switching costs should be discounted, and the district court provided no legal support for this position."

"Third, the district court said that it 'is left entirely in the dark about the magnitude of the switching costs and whether they present a meaningful barrier to switching in practice.' [...] That assertion contradicts the court's findings, which identified numerous barriers with which all modern smartphone users are familiar, [...] and confirmed there is no meaningful migration between platforms [...]. Moreover, Kodak does not require a plaintiff to quantify the magnitude of switching costs; in Kodak, it sufficed that plaintiffs 'offered evidence that the heavy initial outlay,' along with support and parts, made switching costs very high for existing customers."

Epic basically argued in its two appellate briefs that the district court found all the ingredients of lock-in, and just made the mistake of not determining that if it looks like a duck, walks like a duck, and quacks like a duck, it probably is a duck. The way Epic actually stated it in its reply brief is this:

"[T]his is a classic single-brand product aftermarket case. Kodak and Newcal are good law, and Epic has proved all facts required for such a determination."

If one agreed with that, it would mean that the district court erred in its application of Kodak and Newcal to the facts it found, unless one considers the finding of a failure of proof of lock-in a dispositive factual determination and ends the analysis there. But even if one just considered it a mixed question of fact and law, the standard for review would be de novo and the appeals court could easily reverse.

Epic also argued that Apple's monopoly power was shown (such as that Apple only reduce its App Store commission under regulatory or litigation pressure).

What's very important to consider--and could have been my fourth bullet point further above--is that Circuit Judge Smith, shortly after raising the question of a potential failure of proof, noted that the district court's ruling was inconsistent about these types of facts and the conclusions drawn from them.

I remain optimistic that there will be a partial reversal and remand. Even if one accepts the district court's factual findings (as Epic elected to do on appeal), the elements are in place for the appeals court to tell the district court to give market definition another try.

It became very clear yesterday that Circuit Judge Smith does not believe that the district court got everything right, and that the critical part on which this case turns is market definition. I know Epic says market definition doesn't matter, but that's where I disagree with them. I don't think the district court's market definition should be affirmed, but if it was (and the risk is obviously greater than zero), it would seem pretty reasonable to me (though not my preferred outcome) to affirm the fate of Epic's federal antitrust claims. Epic's counsel argued that he couldn't think of any market definition under which Apple's conduct should be accepted, and that's an extreme position I respectfully disagree with: in a broad enough market, no one has market power.

The hearing would have gone really bad for Epic if the appeals court had said that the decision looks correct in every outcome-determinative respect. That was not the case. Circuit Judge Smith wanted to explore the practical consequences of a remand centered around market definition. That Epic would be in a stronger position if its lock-in expert had been more persuasive does not mean that it's "game over."

There's also a potential Plan B here: if the appeals court indicated that something was wrong with the district court's market definition, the DOJ--which supports Epic on certain questions without taking a final position on how the case should be decided--would benefit from it if and when bringing its own case against Apple's App Store terms. But we're not there yet. I still consider affirmance of the Epic v. Apple district judgment much less likely than a remand.

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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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11/Fortnite/22: Epic Games v. Apple appellate hearing to take place on November 14 (originally scheduled for Friday)

Due to the unforeseen unavailability of a panel member, the United States Court of Appeals for the Ninth Circuit had to postpone the Epic Games v. Apple hearing that was originally scheduled for Friday (October 21). Fortunately, the delay is limited: the appeals court just gave notice of a new hearing date: Monday, November 14, 2022, at 2 PM Pacific Time. The location is still San Francisco, of course.

This has already been confirmed by counsel for the parties as well as the United States Department Of Justice. [Update] As expected, Joshua Patashnik for Amicus Curiae State of California has also confirmed. [/Update]

Here's a screenshot of the hearing notice and the three acknowledgments (click on the image to enlarge):

Much to my relief, the hearing is still going to take place this year. I was a bit worried because Apple appeared to be stalling when the Ninth Circuit was scheduling the original hearing date. On June 29, 2022, Epic formally objected to Apple's request to set a date later than the fourth-quarter court sessions for which the Ninth Circuit wanted to know counsel's availability. On October 31, a jury trial will (or was expected to) begin and Apple's appellate counsel, Mark Perry (formerly of Gibson Dunn, now Weil Gotshal), described that one as an "actual conflict." For this present week, he couldn't assert an "actual conflict" and merely "request[ed] that argument be set for a later date if possible" so as not to affect his "final pretrial preparations." Epic explained that this was just a "scheduling preference" and reiterated the urgency of the case given that an injunction has been stayed pending the appeal.

Apparently a mid-November hearing date now works for Mr. Perry as well (maybe the other case got settled).

In my previous post on this case I have summarized why I'm very optimistic for Epic.

I'm pretty sure the case will end up before the Supreme Court, but the question is which party will have to seek cert and on what basis.

11/Fortnite/22--that's my mnemonic for the new hearing date. But as I said in my previous post (on Microsoft's plans for a cross-platform app store) and on some earlier occasions, Epic v. Apple is not merely the Fortnite case. It's very much about the Epic Games Store. The world needs third-party app stores on iOS (and Android).

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POSTPONED: Epic Games v. Apple appellate hearing (originally slated for Friday) must be rescheduled due to unforeseen unavailability of panel member

No "Friday for Fortnite" in San Francisco--at least not this week's Friday (October 21), the day for which the Epic Games v. Apple appellate hearing had originally been scheduled.

I just checked the Ninth Circuit docket and found the following notice (click on the image to enlarge or read the text below the image):

10/15/2022   197   Filed clerk order (Deputy Clerk: SVG): Due to the unforeseen availability of one of the panel members, the hearing in these appeals scheduled for October 21, 2022 in San Francisco is postponed. The Clerk will reach out to the parties to reschedule. [12564274] [21-16506, 21-16695] (SVG) [Entered: 10/15/2022 11:01 AM]

10/15/2022   198   Case came on for submission before SIDNEY R. THOMAS, MILAN D. SMITH, JR. and MICHAEL J. MCSHANE SUBMISSION DEFERRED. [12564275] [21-16506, 21-16695] (SVG) [Entered: 10/15/2022 11:05 AM]

There could also be other reasons, but "the unforeseen availability" of a judge in recent years has had to do with COVID in well over 50% of all cases.

The panel (former Chief Judge Sidney R. Thomas, Circuit Judge Milan Smith, Jr., and--sitting by designation--District Judge Michael D. McShane) was going to hear five cases. Two of the three criminal cases (one of them a habeas corpus petition, which is by definition somewhat urgent) have been taken under submission. The calendar of the United States Court of Appeals for the Ninth Circuit still states that each side will get 10 minutes in the third criminal case; maybe another judge will fill in or they have some other solution.

Presumably the three judges to whom the case was assigned--and their clerks--have already spent a fair amount of time analyzing the case, and hopefully they will remain in charge.

For a civil law case, Epic Games v. Apple is a rather urgent one, also because it involves an injunction (the enforcement of which was stayed for the duration of the appeal). That's why I have hope that the appellate hearing is still going to take place this year. But the parties' appellate attorneys are among the most sought-after ones in the United States (with Epic's lead counsel on appeal having achieved the two most spectacular appellate successes in technology industry cases in recent years), which won't make it any easier to find a near-term date that works for everyone. And I suspect that Apple would rather delay things.

On Friday--the day before the postponement was notified--MacRumors' Joe Rossignol tweeted about Apple holding a pre-hearing brief with reporters that same day, telling them "that Epic Games faces an uphill battle" and reminding everyone of the district court deciding against Epic on 9 out of 10 counts:

FYI: Apple held a briefing with reporters today to argue that Epic Games faces an uphill battle with its appeal to the Ninth Circuit court next week. In September 2021, a U.S. district judge ruled in Apple's favor on 9 of 10 claims brought by Epic.

— Joe Rossignol (@rsgnl) October 14, 2022

That's just litigation PR. Don't believe it.

To begin with, the number of claims is irrelevant. Epic could theoretically prevail on just one and still be the winner. This is not a ball game where you count goals; it's not like Epic now needs to score X number of goals to equalize. The underlying reasons for which the district judge ruled against the nine claims were closely intertwined. For example, some state law claims necessarily failed because the related claims under federal law had been ruled against.

While Apple calls it an uphill battle for Epic, Judge Yvonne Gonzalez Rogers herself said at the outset of the case that the parties should please agree to a jury trial because in her observation the appeals court affords a lot more deference to jury verdicts than to judicial decisions.

No matter what Apple told the press on Saturday, I am sure they are very, very afraid in Cupertino:

• The law is on Epic's side.

  In a recent post on the case, I provided links to my writings on the merits of the case, and since then I have additionally explained why Epic should prevail on its tying claim.

• The facts are on Epic's side.

  As Epic clarified in its reply brief (and it was actually clear all along), Epic focuses on legal questions, where the standard of review is de novo: technically, that means zero deference--the opposite of an uphill battle. You take the facts and start the legal analysis from scratch. This even applies to mixed questions of law and fact. While Epic noted that it does disagree with some of the district court's factual findings, it believes it can win this appeal as a matter of law even with the facts being accepted as they were described by the court below. Apple tried very hard (but unconvincingly in my opinion) to portray Epic's legal argument as disagreement with the district court's factual findings.

  Psychologically, the district court's judgment doesn't inspire deference. It's extremely sloppy, with close to 300 typos, and stylistically not at a level with what you normally see from U.S. federal courts. The appeals court has probably already noticed the poor quality of the decision below, and identified some legal error of the kind that calls the entire ruling into question.

• Public policy is on Epic's side.

  Tim Cook's deposition toward the end of last year's trial made it clear that Apple can do to developers whatever it wants and doesn't even have to care about developer satisfaction. It's an unsustainable situation that developers' access to more than a billion users--roughly one billion out of the 1.2 or billion wealthiest people on the planet--depends on a single company's app review tyranny and arbitrary tax regime. Apple's monopoly abuse is causing macroeconomic damage.

• That's why Epic has an impressive group of amici--most notably the Department of Justice, 36 States, and "the Dean of American Antitrust Law"--while Apple is essentially just supported by shills.

  During the pendency of this appeal, two organizations supporting Apple have been exposed as astroturfers: ACT | The App Association receives the vast majority of its funding from Apple. It's an Apple Association. There is only one thing I'd have liked Epic to do differently during the appeal: I wish they had opposed ACT's amicus brief and later (after Bloomberg exposed ACT) sought sanctions. Hopefully they'll do so next time. Then there's the so-called Computer & Communications Industry Association--actually nothing more than a Cash & Carry Industry Association. Just last week, three influential EU lawmakers filed a formal complaint accusing CCIA of astroturfing (pretending to speak for small companies).

• Epic even has the better lawyers.

  It's counterintuitive as Apple is the world's richest corporation and facing a company with a valuation that amounts to only about 1% of Apple's market cap. But Tom Goldstein won Oracle v. Google (for Google) and FTC v. Qualcomm (for Qualcomm). Cravath, which masterminded and continues to manage this litigation, is America's most prestigious law firm. Benchmark Litigation named five Cravath partners to its Top 100 Trial Lawyers in America list, two of whom represented Epic at last year's trial: Gary Bornstein and Katherine Forrest.

  Apple has very good lawyers, too, but I'm really underwhelmed by the work they did on this appeal, though their primary problem is that Apple is wrong. They even conceded away the foremarket part of Epic's single-brand market definition. Apple's principal brief on appeal was all rhetoric and little substance.

"Advantage Epic" across the board.

The postponement is unfortunate. The app developer community, of which I'm a part, urgently needs change, and this case is so very important. I'm also a bit worried that Congress may not adopt the Open App Markets Act as we're approaching the end of the legislative term, and there is a risk of some Senators and United States Representatives preferring not to hold the decisive vote shortly before the Epic v. Apple appellate hearing. But this is a pressing problem, and I hope they'll do the right thing and #OpentheAppStores. Both Congress and the United States Court of Appeals for the Ninth Circuit.

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Epic Games has a strong tying theory against Apple, but a remand is more likely than direct entry of liability by the Ninth Circuit

There are constantly new developments around Apple's antitrust woes, such as in the Apple Pay and access-to-NFC-chip class action in the Northern District of California (see the previous post, Credit card issuers oppose Apple's motion to stay discovery in Apple Pay antitrust case, cite recent decision by same federal judge in AliveCor v. Apple). Still I've finally also found the time to analyze in more detail the tying argument. I've re-read the related sections of the district court's opinion and the appellate briefs), and can share my observations six days prior to the Friday (October 21) hearing in San Francisco (see We now know the three judges who will decide Epic Games' appeal against Apple--and the composition of the Ninth Circuit panel, two of whose members ruled against the NCAA, likely favors Epic).

I remember from the TRO/PI stage (more than two years ago) how Epic's counsel--Cravath Swaine & Moore's Gary Bornstein--told Judge Yvonne Gonzalez Rogers that tying was best-suited to a quick decision by the court just based on the parties' pleadings. Epic's emergency-relief strategy was very much about being right on the merits (and being allowed to put back Fortnite on the App Store for that reason). Judge YGR, however, didn't want to take a position on the merits at that stage, so she said the case was not a slam dunk for either Epic or Apple--and even though she understood some issue very well at a later stage (during the spring 2021 trial, especially when she examined Tim Cook), she got other aspects of the case terribly wrong.

The (only) basis on which Judge YGR threw out Epic's tying claim in her final judgment was that IAP (Apple's in-app payment system) could--in her opinion--not be separated from the App Store as a whole. She didn't want to "create artificially two products" out of a single platform. And you can't anticompetitively tie together what is already inseparable.

On appeal Epic now argues (with broadbased and awe-inspiring amicus brief support) that this part is reversible error. Ideally, Epic would like the appeals court to then conclude that Apple is engaging in per se tying, meaning that its conduct is illegal and no rule-of-reason balancing is needed. There are two more criteria to satisfy for a finding of per se tying, which Epic claims to have proved already: "Apple has enough economic power to coerce developers into using the tied product, since it can (and does) deny developers access to iOS users if they do not use IAP. [...] And Apple’s tie affects billions of dollars of commerce."

Epic's fallback position is then that even if the rule of reason applied, "the analysis tracks Epic’s Section 1 claim challenging Apple’s prohibition against competing in-app payment solutions, and thus the result is the same."

In multiple previous posts on this appeal, I've expressed the view that a partial reversal and remand (hopefully with clear instructions) is much more likely than direct entry of liability. As an app developer, I want Epic to win, and I wholeheartedly believe that Epic should win, but as a commentator on such cases, I want my predictions to be realistic.

Microsoft's amicus brief in support of Epic's appeal is interesting for at least two reasons. One is that Microsoft itself faced a tying claim in one of the most famous U.S. antitrust cases, which is precedent that both parties are citing now in Epic v. Apple. The other is that Microsoft points to the holding in its own case according to which the rule of reason should normally apply to complex tying cases in the fast-paced technology industry to avoid the innovation-chilling effect of "preventing firms from integrating into their products new functionality."

The simplistic perspective here is that if it looks like a duck, swims like a duck, and quacks like a duck, it probably is a duck. Apple forces app developers to use its overpriced IAP if they want to distribute iOS apps. The fact that developers can also make free apps (with or without ads, though Apple deliberately kneecapped everyone else's ad business on iOS) or sell physical goods (no IAP tie then) changes nothing about the fact that some developers are subjected to the tie. This is about tying, not a bundle: a bundle is not a bundle if you can get something separately; a tie may still be a tie if it affects you under certain circumstances.

Apple's strategy is to make things look more complex than they are:

• While Epic's and its amici make the clear and simple argument that Judge YGR made the mistake of taking a functional approach (IAP being integrated into the App Store), Apple's primary anti-tying argument is that IAP is not just a payment system but does more. Epic says that doesn't matter: all that matters is that app developers would rather have the choice of using alternative IAP systems--and not just to pay more competitive fees, but also for other reasons such as direct handling of refunds or cross-platform features that Apple wouldn't allow, without Apple injecting itself into those app maker-user relationships.

  A point that--as far as I can see--didn't come up in that case, but which I've experienced as an app developer, is that Apple imposes some restrictions on marketing. For instance, there are promotions they do not allow such as voucher codes except for the limited quantity of such codes that Apple is prepared to generate (it's basically just good enough for testing). That is yet another reason for which app developers would rather enjoy greater freedom.

• In response to Apple's focus on integration, which is a functional argument, Epic and its amici rightly note that the focus must be on whether there is separate demand. If there is separate demand, then two parts of something that a defendant has chosen to offer only as an integrated package can still be separate for the purposes of the tying analysis.

• Like Judge YGR, Apple says IAP is also a means of getting compensated for its IP (Apple: "IAP provides Apple an efficient means to collect its lawful commission for the use of its intellectual property"). About a year ago I already wrote that Apple would definitely not get a 30% rate (or even more in some places such as South Korea)--if anything--through IP enforcement. In any event, Apple being compensated is not relevant here. Also, wherever lawmakers or regulators require Apple to allow alternative payment systems, Apple collects its commission, too--maybe less efficiently, but it can be done.

• Apple aso argues that "IAP provides a suite of user-friendly services in the form of a centralized payment solution." Actually, Epic wouldn't have a problem with also offering Apple's IAP as a payment option to users, though at Apple's current commission rate, other payment options would then be much cheaper and most users would presumably bypass Apple's IAP for that reason alone.

• Epic and its amici have a strong point that procompetitive justifications simply cannot influence the initial analysis of whether there is a tie. And Apple's justifications are noncompetitive, such as its "security" pretext. But even if they were procompetitive, they'd have to be analyzed under the rule of reason, if that step is reached at all.

Microsoft's brief also mentions that regulators in other jurisdictions have found that Apple engages in tying, based on the same facts: the United Kingdom's Competition & Markets Authority (CMA) and the Netherlands' Autoriteit Consument & Markt (Authority for Consumers & Markets, ACM). I have no doubt we will learn about similar findings by the European Commission in the not too distant future.

I've given this quite some thought, and the warning from that old Microsoft case that companies could be prevented from adding features to their products definitely must be heeded. But Apple didn't merely add a feature. It imposed a requirement that it vigorously enforces--in fact, in my experience as an app maker, IAP offerings get far more attention from Apple than anything else. I had an app on the app store to which we did various feature updates, and they were approved quickly (so fast sometimes that there couldn't possibly have been a manual review), but the smallest change we made to anything IAP-related resulted in slower response times and often drew questions from Apple's app reviewers.

There's just one more passage from Epic's filings I'd like to comment on. In differentiating its own case from Rick-Mik (a 2008 Ninth Circuit decision), Epic wrote that "the relevant tying market in Rick-Mik was 'gasoline franchises,' and this Court recognized that franchises consist 'almost by definition' of ''bundled' and related products and services' particular to that form of business relationship. [...] There is no franchise here." (emphasis added)

I thought to myself that actually Apple treats developers even worse (and imposes more painful restrictions) than franchisors typically treat their franchisees, and its approach to developers is (as I wrote in a Korea Times opinion piece last year) the modern-day variant of medieval European feudalism or similar systems in 18th- and 19th-century Russia.

The difference is that someone who wants to open a gas station in a town can choose between different franchises or set up an independent one. Whatever one chooses, one can then reach all customers. But unless developers accept Apple's terms, they cannot reach a billion users (with far greater purchasing power on average than Android users).

We need the Ninth Circuit's help.

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We now know the three judges who will decide Epic Games' appeal against Apple--and the composition of the Ninth Circuit panel, two of whose members ruled against the NCAA, likely favors Epic

It's no longer a secret to which three judges the United States Court of Appeals for the Ninth Circuit has assigned the Epic Games v. Apple App Store antitrust appeal. The hearing will take place in San Francisco in ten days (October 21), in the mid to late morning by local time. And these are the three judges:

S.R. THOMAS, and M. SMITH, Jr., Circuit Judges, and McSHANE (Oregon), District Judge

I'm thrilled! I want the fundamentally flawed ruling by the district judge overturned, and my initial resarch indicates that this panel is very unlikely to be hostile to Epic's case for political reasons.

While I consider myself more of a Republican than a Democrat on a number of important issues, I was a bit worried about the possibility of a Republican "antitrust minimalist" majority in this case (though things have changed: Justice Kavanaugh tipped the scales in favor of an iPhone user class action against Apple in the Pepper App Store antitrust case, and conservative justices strengthened antitrust law in NCAA v. Alston). The Ninth Circuit used to be very liberal until President Trump got to nominate a number of judges. So it took a bit of luck, and that's what Epic deserves because the district judge made some really bad and unnecessary mistakes that favored Apple.

Now that we have a complete cast of characters, I'll

• introduce the three appellate judges,

• compare the parties' support from amici curiae ("friends of the court")

• provide links to my writings on the merits of this case, and finally

• talk about the lawyers on both sides.

Spoiler: "Advantage Epic" in each of those four respects. That still doesn't mean that the outcome is a foregone conclusion. Anything can happen in a complex, high-stakes case like this. But the stage looks like it's set for a reversal (which Apple will then appeal to the Supreme Court, of course).

Panel composition

1. Former Ninth Circuit Chief Judge Sidney R. Thomas:

   Judge Sidney Thomas, a Democrat, was nominated by President Clinton to the Ninth Circuit in 1996, and served as the appeals court's chief judge from late 2014 to late 2021. He has heard well over 11,000 (!) appeals and authored more than 400 precedential opinions. He took senior status this year.

   Judge Thomas came close to a nomination for the Supreme Court: President Obama interviewed him in 2010 (but chose now-Justice Elena Kagan).

   The most important antitrust decision he authored was the 2020 per curiam in the NCAA case (In Re NCAA Athletic Grant-in-Aid Cap Antitrust Litig.) that the Supreme Court affirmed last year under the caption of National Collegiate Athletic Assn. v. Alston. That bodes well for Epic's appeal in multiple ways, including but not limited to the application of Sherman Act Section 1 and, especially, the rule of reason: NCAA distinguishes between truly procompetitive justifications and other excuses. That may make it harder for Apple to score points with its security and privacy pretexts.

2. Circuit Judge Milan D. Smith was appointed by President George W. Bush, but is neither a Republican nor a Democrat.

   Not only did he vote for then-Chief Judge Thomas's NCAA opinion, but he also filed a concurrence in which he even went beyond. In particular, Judge Milan Smith is concerned about precedent that permits "defendants to offer procompetitive effects in a collateral market as justification for anticompetitive effects in the defined market"--that is also an issue in Epic v. Apple. The final paragraph of his concurrence in NCAA is really interesting in this regard:

   "Lacking a robust justification, I fear that our cross-market Rule of Reason analysis frustrates the very purpose of the antitrust laws, in this case to the great detriment of Student-Athletes. I hope our court will reconsider this issue in a case that squarely raises it."

   Epic's case against Apple is an opportunity to clarify a number of things, and (apart from single-brand markets) the admissibility of certain "justifications" for anticompetitive conduct is an issue Epic and its amici raise.

3. Sitting on the Ninth Circuit by designation is District Judge Michael J. McShane. He was appointed to the United States District Court for the District of Oregon by President Obama in 2012. I haven't been able to research anything more specific about his political affiliation than the fact that he's an Obama appointee, a fact that Apple won't find encouraging.

Epic's amici are as good as it gets.
Apple has little more than astroturfers and shills.

Epic v. Apple is David v. Goliath in some ways, but when it comes to support for the parties' positions in the form of amicus curiae briefs, one would think that Epic, not Apple, is the world's richest corporation.

Epic's amici include, but are not limited to,

• the United States of America (i.e., the federal government, represented by the DOJ, which will actively participate in the hearing),

• 35 U.S. states supporting Epic's federal antitrust claims plus California focusing on its state law claims,

• 38 professors, most notably the "Dean of American Antitrust Law" (whom even Apple's amici recognize as the #1 U.S. antitrust scholar!), Professor Herbert Hovenkamp,

• the Electronic Frontier Foundation (EFF) (which surprised me in a very positive way because the EFF very often sides with Google, and Google is facing a similar Epic lawsuit), and

• Microsoft.

There was no way that Apple could have counterbalanced this even if the United Nations had filed a statement in its support following a vote by its General Assembly. Apple's App Store terms, policies, and practices are against the interests of the wider economy and of society, and nothing says it like the fact that Apple has almost no support beyond Roblox (another gatekeeper whose treatment of creators is highly controversial) and astroturfers and other lobbyists who are paid by Apple (and/or Google):

• The appeals court should actually sanction Apple because ACT | The App Association is largely funded by Apple (as Bloomberg reported): it's just ACT | The Apple Association. They do not represent small app developers like me, period. It's a disgrace that a lobbying front for the world's richest corporation shamelessly collected small business aid from the U.S. government at the start of the COVID-19 pandemic.

• CCIA calls itself the Computer & Communications Industry Association, but would more appropriately be called the Cash & Carry Industry Association. Looking at when Apple joined them (shortly before the Epic v. Apple district court ruling) and what CCIA has done since then, it's pretty clear that Apple primarily wanted another ally--or service provider--to defend its App Store monopoly abuse. CCIA deceptively claims to advocate open markets and fair competition, but is about the very opposite these days.

In its patent dispute with Ericsson, Apple is essentially telling the United States International Trade Commission that by virtue of its profitability, whatever is good for Apple is good for the United States: even patent infringement would be great--so long as it benefits Apple. But as an early-stage venture investor pointed out, Apple is harming small businesses (even outside the technology industry). Apple's App Store rules are even an inflationary force. And it ruthlessly cashes in on classism, which hurts many low-income American families. The Biden Admistration and three dozen U.S. states are absolutely right to support Epic against Apple.

Epic's appeal is clearly meritorious

Using chess terminology, the adjudication of an antitrust claim has an opening, a middlegame, and an endgame.

• Opening

  • Market definition: The district judge got the foremarket part of Epic's single-brand marekt definition wrong to a partly even absurd extent. Epic also has very strong aftermarket arguments.

  • On the applicability of Sherman Act Section 1 vs. Section 2, I'm torn. Philosophically, I'm sympathetic to the approach by the district court and Apple as well as some of its amici that unilaterally dictated agreements should be dealt with under Section 2 and Section 1 should be reserved for cases in which two players having a horizontal or vertical relationship voluntarily disable market forces, but I also see that tying is a Section 1 issue (that part is even undisputed).

• Middlegame: The key issue here is the standard for tying. One part of that overlaps with a question relevant to market definition: whether there can be a market for something Apple doesn't sell separately. (That's also an issue in the Apple Pay case I mentioned further above.)

  While I have a firm opinion that Apple engages in tying, I have yet to analyze that part more fully in order to elaborate on it, which I intend to do before the Ninth Circuit hearing.

• Endgame: rule-of-reason balancing. I discussed that part a few days ago, and would like to refer you to my analysis, which led me to conclude that Judge YGR failed to perform the balancing required under the rule of reason. The district court's judgment cannot stand in that regard either. The question is just whether the appeals court can directly enter a liability judgment or whether there will be a remand.

While even a sloppy judgment could be well-reasoned, the close to 300 typos and similar errors in the district court's judgment are symptomatic of a fundamentally flawed decision.

The lawyers: Tom Goldstein (plus the DOJ) v. Mark Perry

Epic will be represented by Goldstein & Russell founder Thomas C. "Tom" Goldstein. He's a machine and did an incredible job for Qualcomm against the FTC.

While Mr. Goldstein is going to be Epic's frontman, I wish to mention the brilliant strategic mastermind behind this case: Cravath Swaine & Moore's Gary Bornstein. He deserved to win in district court, but for the reasons I discussed in various other posts it didn't work out. Justice may now be done at the appellate level.

Nickolai Levin from the Antitrust Division of the United States Department of Justice will deliver oral argument on the Biden Administration's behalf. Deputy Solicitor General Joshua Patashnik will speak for the State of California.

Apple's counsel, Mark Perry, joined Weil during the pendency of this case. While I don't doubt for a second that he's outstanding, Tom Goldstein has an even more impressive track record in the nation's highest courts.

Apple's principal brief on appeal was replete with rhetoric (really too much for my taste, though I enjoy creative and persuasive writings), but very weak on substance, which--to be clear--is not the lawyers' fault, except that I consider it a surprising blunder on their part to concede away the foremarket part of Epic's proposed single-brand market definition by acknowledging that iOS competes with Android while claiming that there is no such thing as a smartphone operating system market for antitrust purposes. When I read that admission, I couldn't believe my eyes and immediately blogged about it.

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Looking for support against Epic Games, Apple joined CCIA (the so-called Computer & Communications Industry Association--actually, just a Cash & Carry Industry Association) shortly before district court's judgment

"Drain the swamp"--in reference to Washington D.C.--is a bipartisan phrase: it has been used by Republican Presidents Reagan and Trump as well as Democratic Speaker Pelosi. The type of swamp that I am particularly concerned about is a transatlantic one: in D.C. and in Brussels, all sorts of Apple- and Google-funded entities claim to speak for entire industries or industry segments while their only objective is to advance the interests of one or both of those platform monopolists.

Bloomberg deserves credit for its contribution to draining the swamp with the (unsurprising to me, but previously unconfirmed and not obvious to everyone) revelation that ACT | The App Association is actually an Apple Association. Against that backdrop, it's just insane that a deceptive-lobbying front for the world's richest corporation benefited from the U.S. government's Paycheck Protection Program.

On an outrageousness scale from 1 to 10, ACT is clearly a 10 because it untruthfully claims to work for many of the victims of Apple's App Store monopoly abuse.

On the other end of the spectrum, there's the Fair Standards Alliance (based in Brussels, but an active filer of statements in the United States, too). Most of the most active contributors to, and investors in, digital standards would disagree with the FSA on what's really "fair." From their vantage point, the FSA is nothing but a SEP Devaluation Alliance. In internal communications that came to light as a result of its litigation with Qualcomm, Apple--the FSA's largest member--defined the devaluation of SEPs as a strategic objective and is often criticized for it. A correct and nonjudgmental name for the FSA would be Net Licensees' Alliance. Be that as it may, the FSA is clear and consistent about its agenda, and doesn't attempt to mislead anyone into thinking that it speaks for anyone but its members.

Somewhere in the middle between the FSA and ACT | The App(le) Association, there's the so-called Computer & Communications Industry Association (CCIA). That is a misnomer because the CCIA never in its 50-year history tried to build an industry-wide consensus. It was founded as an anti-IBM lobbying initiative, and while I, too, have criticized some of IBM's historical mainframe practices, there was a time when no one could claim to represent the computer industry without having IBM on board. One could even argue that this is still the case. In the late 1990s and early 2000s, CCIA took aim at Microsoft more so than IBM; then (after a settlement with Microsoft) IBM was in the cross-hairs again; subsequently CCIA worked for Google and Samsung against Apple and (former CCIA member) Oracle; and they are now lobbying for Google and Apple on issues on which the mobile platform duopolists are aligned, while simultaneously helping Amazon and Google against (former CCIA member) Microsoft, their most important competitor in the cloud services business.

The time has come to call CCIA out. It's simply a Cash & Carry Industry Association: sell it and they will come. Think of a family visit to a mall, where a given family member visits only one shop while there may be shops that are of interest to two or more family members. At least they all agree that it's convenient to have a nearby mall.

In 2010 I had a conversation with an IBM lobbyist (whose name I've forgotten) at an OpenForum Europe event where the EU's then-antitrust chief Neelie Kroes delivered a keynote address. CCIA was supporting its (temporary) member TurboHercules against IBM, and the IBMer told me this (I don't recall the exact words anymore, but it was very close):

"We don't like organizations that operate like CCIA where everyone who pays gets to use the entity for some purpose."

The man had a point. And nothing has changed about that.

Actually, since 2010 CCIA's flip-flopping has become even more apparent; the cycles have become ever shorter; and CCIA is now working against the interests of the vast majority of technology companies, including various of CCIA's members, some of whom may be too shy (or incompetent) to formally dissent from the organization's views while others may have exactly the attitude that the IBMer criticized: there's something for everyone, like a cash & carry market.

Take standard-essential patents (SEPs). In the entire history of wireless standards, there have only been two reasons for which SEP holders seek injunctions against implementers. One is because of a disagreement on royalties, whic his the normal course of business in patent licensing; the other, however, was really problematic: Google's temporary subsidiary Motorola Mobility (against Apple and Microsoft) and Google's long-standing hardware partner Samsung (only against Apple) were seeking SEP injunctions to force other parties to give up their intellectual property in the form of a zero-zero cross-license. Through Motorola, Google even wanted to put so much pressure on Apple that no Android device maker would ever have been sued again over slide to unlock, rubber-banding, and similar Apple non-SEPs.

The royalties that Motorola and Samsung demanded were prohibitive. For instance, Motorola's initial offer to Microsoft amounted to more than it gets from computer makers for a Windows license in many cases (as Motorola wanted 2.25% of the price of the actual device, which it even explained in writing). That's not the case now with Ericsson and Apple, for example.

That type of abuse was a fundamental threat to the computer and communications industry. But there was deafening silence from the Cash & Carry Industry Association: Google, which had joined in the mid-2000s, was its dominant member at the time, and Samsung joined during that period. (Despite everything else, I commend CCIA for some brilliant write-ups on the design patents damages dispute between Apple and Samsung; their author has since left.)

After the Android patent disputes had settled out for the most part, Google and Samsung were more interested in bringing down SEP royalties. That's why CCIA then, all of a sudden, described SEP abuse as one of the biggest perils of the technology sector and filed amicus curiae briefs and public interest statements in various cases, including the Qualcomm-Apple dispute, though Apple hadn't joined yet. (The fact that Qualcomm never was a CCIA member also reduces to absurdity the organization's claim to speak for the computer & communications industry.)

"Open Markets, Open Systems, Open Networks -- Full, Fair and Open Competition." But CCIA members' walled gardens are fine...

When campaigning against IBM and Microsoft and then again IBM, CCIA's mission statement was the one I just quoted. In retrospect, even if one disagreed with some of IBM's and Microsoft's terms and policies of way back when, whatever they may have done was nothing compared to what the Goopple duopoly is doing now.

IBM didn't even attempt to monopolize the PC: presumably because of its mainframe antitrust experience, it made it an open architecture--a lot more open than the Mac ever was, and the Mac is actually pretty open compared to the iPhone.

Microsoft at some point decided to settle with the European Commission and to cooperate with competition regulators in general. By contrast, Apple and Google exhaust all appeals and are not even deterred by non-compliance fines (just chump change for them).

Just like CCIA didn't speak out against SEP abuse when there really were serious issues, CCIA has now thrown its whole "Open Markets, Open Systems, Open Networks" and "Full, Fair, and Open Competition" mantra overboard. Now that advocates of open markets and fair competition are really needed, CCIA is not merely silent: it even opposes regulation and legislation that could open today's most strategically important markets.

Why? Money from Mountain View. Plain and simple.

CCIA even intervened as a supporter of Google's appeal against the European Commission's Google Android ruling. What else do I have to say? The few supporters that Google had against DG COMP were all paid by, or dependent upon, Google, such as HMD (of which Google is a major shareholder). Fortunately, the EU General Court was not going to be gaslighted: it materially affirmed the Commission decision, and perfectly understood that the two major mobile platforms don't compete with each other in the app distribution aftermarket.

Apple saw CCIA's efforts to defend Google's monopoly abuse, and apparently some people in Cupertino asked themselves: why don't we, too, put some coins into that jukebox called CCIA?

After the Epic Games v. Apple trial, no one knew for sure how the district court would rule, but one thing was a given: that the losing party would appeal. Apple knew that it would soon need allies who would file amicus curiae briefs with the United States Court of Appeals for the Ninth Circuit (yesterday I published another post on that case as the appellate hearing will be held this month).

Apple already had some entities and individuals in its pocket, but may have anticipated that Epic would (as it did) get a lot more support. In fact, Epic even has the Biden Administration and three dozen U.S. states on its side.

It was in early September 2021--roughly a week before the district court's decision--that Apple was first listed on CCIA's website as a member. Normally you would expect an "industry association" to welcome the industry's largest player with a press release (and possibly even throw a party). But that's not CCIA's modus operandi. It does frequently update its published member directory, and I save snapshots from time to time as part of my research. CCIA's members join as silently as they leave (Microsoft was the only exception because of a settlement that they just had to announce).

The first favor CCIA has done Apple since was an amicus curiae brief in the Epic case. CCIA was in bad company as ACT also made a submission. But that is nowadays pretty common. CCIA and ACT also cooperate on the alarmist "Save Our Standards" campaign, which I called out on making false claims about SEP issues allegedly facing small app developers (Despicably deceptive: Big Tech's Save Our Standards campaign presents small app developer as victim of standard-essential patent abuse though it NEVER had to license SEPs).

Of course, Apple is also aligned with CCIA on SEP devaluation. But when Apple joined CCIA, it had no shortage of lobbying fronts on SEP issues: ACT, FSA, and HTIA--to name but a few. What Apple really needed was another ally against Epic.

Interestingly, CCIA--unlike ACT--did not even file a public interest statement in response to the USITC's request for such submissions after Ericsson's three complaints against Apple earlier this year. I do, however, anticipate that CCIA will make filings at a later stage of that dispute. CCIA's three most recent submissions to the ITC supported Google against Sonos (December 2, 2021); Apple, Samsung, and other smartphone makers against Arigna (February 28, 2022); and Apple against AliveCor (July 27, 2022).

Apple doesn't really have allies in the tech industry. There are some mutual interests with Google, but even Google is campaigning (unsuccessfully) against Apple's walled garden with respect to instant messaging. CCIA will remain silent on that one for sure. Apple does have a lot of money, though, and even claims that because it's so profitable, no import ban should issue on its products even if found to infringe Ericsson's patents.

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