Spotify, other app makers, and media companies urge EU antitrust chief Margrethe Vestager to take decisive action against Apple, other digital gatekeepers

Politico's Samuel Stolton reported today (here's a LinkedIn post that contains a link to the actual Politico Pro article) on a letter by several companies and industry associations to European Commission EVP Magrethe Vestager. The subject of the letter, dated January 17, 2023, is "Call for swift and decisive action against anticompetitive practices by digital gatekeepers".

The corporate CEOs among the signatories are:

• Basecamp (online collaboration) co-owner David Heinemeier Hansson

• Deezer (music streaming) CEO Jeronimo Folgueira

• Proton (encrypted email and personal information) CEO Andy Yen

• Schibsted ("family of digital brands ... across media, online marketplaces and technology ventures") CEO Kristin Skogen Lund

• Spotify (music streaming) CEO Daniel Ek

The following industry associations also signed the letter:

• European Publishers Council

• France Digitale (which also brought a data privacy complaint in France that recently resulted in Apple being fined)

• News Media Europe

The letter particularly focuses on Apple, which it says "has imposed unfair restrictions on [the signatories'] businesses" that "hamper [their] development and harm European consumers." The signatories generally urge the EU to act against Apple and other digital gatekeepers, also by enforcing as soon as possible the Digital Markets Act (DMA). But what appears to be the most immediate priority here is a call for "a rapid decision in the competition case against Apple for its illegal, anti competitive behaviour involving music streaming services."

As the letter notes, the Statement of Objections (SO) in the Spotify case is "nearly two years old" (it came down right before the Epic Games v. Apple trial in the Northern District of California).

Here's my take:

It is indeed unusual that almost two years after an SO, no decision has been handed down. Normally it takes about a year or less.

The letter correctly notes that Apple's conduct causes problems every day.

That said, no victim of those practices--neither Spotify nor its co-signatories or third-party app makers like me--would benefit from a DG COMP ruling that Apple gets annulled by the Court of Justice of the EU. Apple has vast resources and will exhaust all appeals. The Commission has lost some cases for (partly) procedural reasons. It's key to ensure that Apple cannot make a meritorious argument centered around a violation of its rights of defense and/or on the substance of the case.

According to media reports, EU antitrust chief Margrethe Vestager met with Spotify CEO Daniel Ek a few months ago. For now, I have no reason to believe that the case is going nowhere, but I would agree that things are a bit slow.

Epic Games--represented by Clifford Chance in the EU just like Spotify--brought its own antitrust complaint about two years ago, and its counsel told a reporter that Epic was "joining" the Spotify case. In formal terms, however, that is not the case, and the question is what the Commission is going to do about Epic's complaint.

Clifford Chance's EU antitrust practice needs a new success story, and needs it badly. They brought those high-profile complaints over Apple's conduct, but neither has resulted in a ruling and one has not even given rise to full-blown investigations. Then they're behind that European Superleague Company case, where the Advocate General clearly disagrees with Clifford Chance on the most important questions (such as Clifford's "conflict of interest" mantra), and the way the firm is attempting to litigate the case via conferences is not necessarily advisable.

The letter is a bit premature with respect to the DMA. There will be important things happening this year (designation of core platforms etc.), but actual DMA enforcement won't begin before next year. It appears to me that the letter just tries to put the Spotify-Apple case into a wider context.

The signatories--all of whom are European (at least at the personal level)--are a pretty good group, but I'm not blown away. They're long-standing complainants over Apple's App Store practices. A big part of the problem is that for fear of retaliation, many app makers don't dare to speak out, and that even includes large companies.

I'm underwhelmed by the letter for stylistic reasons as well. For example, the letter twice mentions "softwares", which Wiktionary describes as "[g]enerally an error made by non-native speakers" (it's an uncountable noun).

The open app markets movement is fighting the good fight, but it has room for improvement in various respects.

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

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

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

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

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

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

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

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

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

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

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

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

— Florian Mueller (@FOSSpatents) December 13, 2022

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

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

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

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

— Mark Gurman (@markgurman) December 13, 2022

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

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

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

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

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

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

— Florian Mueller (@FOSSpatents) December 13, 2022

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

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

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

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

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Outrage over Apple's App Store reaches unprecedented heights: Meta, Spotify as well as Marco Arment and other indie app developers are publicly complaining

The slightly postponed Epic Games v. Apple appellate hearing (United States Court of Appeals for the Ninth Circuit) is less than three weeks away, and outrage from app makers of all sizes--from "indies" to Spotify to Meta--over Apple's App Store monopoly abuse has reached a new level.

It was just about 24 hours ago that I quoted at the start of a post a variety of unflattering tweets, one of which says Apple is now a "bad-faith operator." In that post I discussed three aspects of Apple's new app review rules: a totally subjective current events guideline, the expansion of Apple's app tax to boosted social media posts, and the reduction of NFT sales to an in-app purchasing (IAP) loophole (a web3 entrepreneur agrees with my take).

But since then the debate has become even more intense. Let's start with what Meta (Facebook) is saying.

The Verge obtained the following statement from Meta:

"Apple continues to evolve its policies to grow their own business while undercutting others in the digital economy. Apple previously said it didn’t take a share of developer advertising revenue, and now apparently changed its mind. We remain committed to offering small businesses simple ways to run ads and grow their businesses on our apps."

As The Verge notes, Apple didn't merely say that it didn't take a share of ad revenue, but even testified so under oath during last year's Epic v. Apple trial.

Meta is the largest company to be affected by Apple's about-face, followed by TikTok, but arguably the company for which this comes at the worst of times is Twitter. Elon Musk wants to turn its acquisition into a commercial success, and before he even takes control, Apple is already complicating matters. While his primary company, Tesla, is not affected by the new rules, it is the last man standing among major automakers against Apple CarPlay and Android Auto, and should actually fight for interoperability on fair, reasonable, and non-discriminatory terms. There are key decisions to be made in the EU now following the entry into force of the Digital Markets Act, and car makers are oblivious to their best chance to fend off the "digital carjacking" threat.

Apple's immoral earnings (from gambling) besmirch app developers' reputation

In yesterday's post on the new app rules, I compared Apple's app tax approach to that of a Roman emperor who defended a tax on public urinals by saying that money doesn't stink. Let's face it: Apple (like Google) shamelessly distributes anti-scientific material that promotes bogus medications and treatments, some of which have adverse effects and which, at minimum, dissuade the credulous from relying on evidence-based medicine, as I showed last year.

But now Apple is really going off the deep end by placing ads for gambling apps on the App Store pages of totally legit apps, as MacRumors has reported. I really have nothing to add to that great MacRumors article, which shows several developers' tweets, notably including Marco Arment, a legendary iOS indie who says "[t]he App sotre has corrupted such a great company so deeply."

I encourage you to open that MacRumors article and read all the tweets and the analysis.

Spotify sees updates rejected and says Apple's behavior hurts audiobook listeners, publishers, and authors

On the last business day before the Epic v. Apple trial kicked off in Oakland last year, the European Commission handed down a Statement of Objections (SO)--a preliminary antitrust ruling--against Apple in the Spotify case. Arguably, Spotify was in the pole position among formally complaining app makers at that point. After an SO, the EC's Directorate-General for Competition (DG COMP) gives the respondent the opportunity to defend itself again in writing, then typically holds a hearing (unless the issues are satisfactorily addressed), and after that one issues a decision, which can then be appealed to the EU General Court.

But it's been silent around that antitrust investigation ever since.

Yesterday, Spotify issued a press release in which its founder and CEO, Daniel Ek, vents frustration over the lack of progress:

"Almost four years. That’s how long it’s been since Spotify filed a complaint against Apple with the European Commission, and we are still waiting on a decision. And while we wait, Apple continues to dictate what online innovation looks like, doing serious harm to the internet economy, choking competition and the imagination of app developers."

On its Time to Play Fair campaign website, Spotify now has a section dedicated to audiobooks, which is the topic of the latest controversy. Spotify submitted a new version of its app that was designed to point customers to where they can buy audiobooks without Spotify being subjected to Apple's app tax. But Apple rejected that one as well as a slightly modified one, and only approved the update after Spotify complied with Apple's interpretation of its unilaterally-imposed rules.

According to Matthew Ball,Spotify would lose 70% of its revenue if kicked off iOS. As we all know, it competes with Apple Music, and as Epic Games' CEO Tim Sweeney explained:

"Apple's working to undermine Spotify's good reputation with their anti-Spotify PR campaign, touting that Apple Music (whose popularity is tilted towards high-income developed economies with higher subscription fees) pays artists more per song than Spotify."

Not only is Apple able to pay out more to artists on a per-song basis because of its affluent clientele, but Spotify would also be in a position to share more revenue with artists if it wasn't subjected to the infamous app tax. Furthermore, Spotify has only one business--music--and can't use a luxury goods business and certain monopoly rents to cross-subsidize.

While I really hope the Spotify case will lead to something that will help not only Spotify, I can't help but note that Spotify came out with this criticism of Apple's conduct right before publishing its Q3 shareholder report (PDF). After hours, its stock (SPOT) lost almost 7%. It looks like they want investors to know that their business could do a lot better if not for Apple's App Store monopoly abuse. But that takes us to the second question, which is whether Spotify is on the right track with its efforts to solve that problem.

It's been almost a year since the mastermind of Spotify's antitrust complaint left to become the top lawyer at Disney: the one and only Horacio Gutierrez.

I can see why Spotify's CEO would like the process in Brussels to yield results faster. Four years is a long time. But it's not easy for the Commission to take on Apple, a company that has the resources to pay for armies of lawyers outnumbering DC COMP officials--and which, directly as well as through law firms close to it, hires DG COMP officials away from time to time.

As Concurrences explained, interim measures are generally difficult to obtain from antitrust watchdogs, and over the last 20 years have become pretty irrelevant in the EU ("the Commission had let its interim measures power ‘fade into oblivion’ since 2001," with a recent merger case being a rare exception).

Spotify, like Epic and Match Group (Tinder), is a founding member of the Coalition for App Fairness. Given that the CAF is only about two years old, it has made a huge impact through lobbying. But it could do more, and it appears too focused on the 30% cut while everyone can see these days that other aspects of Apple's terms and policies draw even more attention. For instance, the CAF should analyze the new version of Apple's SKAdNetwork (version 4) and whether it has the potential to make Apple the only ad network operator on iOS that can deliver tangible and measurable value to advertisers.

Spotify relied on the European Commission while Epic took its chances in court. Epic was unfazed by last year's district court judgment. I remember a Tim Sweeney tweet according to which he read the decision that day, but also spent time coding and even found time for a hike. By now it's clear that the district judge got some key parts (including some important legal precedent) wrong. Epic can--and I believe will-- turn that case around.

The News & Observer quotes Vanderbilt antitrust professor Rebecca Allensworth, who thinks Epic has almost a 50% chance of reversal, and she would "almost never give such high odds for a reversal."

Technically, subscriptions are not at issue in Epic v. Apple (just item-by-item IAP). But if Apple can't defend its app tax on IAP, it won't be too hard for subscription businesses like Spotify to bypass the app tax, too.

The decision Spotify will have to make now is whether to continue to wait for the EU Commission or start some private litigation in one or more jurisdictions. I've said it on other occasions: those CAF companies might already have won spectacular decisions in Munich if they sued there. That forum could become one of the most important App Store venues in the world. Spotify would give the Commission an "excuse" for not staying on top of the Apple cases, however, if it sued (especially if it sued in the EU). Without non-public information on where the EU Spotify-Apple case stands, I don't know how much Spotify really has to lose at this point. And, frankly, I think Epic Games' EU complaint over Apple is the more important one as it would help the entire app economy and could solve a number of problems.

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Apple App Store critics lose another key player as head of Epic-Spotify-Tinder Coalition for App Fairness gets hired away by major brewery only three months after Spotify's top lawyer left for Disney

App distribution on iOS must open up--the question is just how, when, and where. In the Netherlands, Apple has just set the stage for another round of litigation with antitrust authority ACM by way of a new proposal it submitted this morning. In the U.S., its response to the Epic Games v. Apple Ninth Circuit appeal is due on Thursday. And while Apple is standing its ground, its adversaries are two strategic thinkers down compared to where they stood a few months ago.

In December it became known that Horacio Gutierrez, a former Microsoft IP chief whom I've known for well over a decade, was leaving Spotify to become Disney's top lawyer. Horacio was an incredibly effective and persistent advocate of the cause to open up app distribution on iOS. At Disney he's now going to have other priorities. Disney's relationship with Apple is hugely better than Spotify's.

And a few hours ago, Meghan DiMuzio--the first Executive Director of the Coalition for App Fairness (whose key members are Epic, Spotify, and Tinder operator Match Group)--confirmed on LinkedIn that she "couldn’t be more excited to join [brewery giant] Anheuser Busch to lead their corporate reputation efforts."

Formally, she worked at Forbes Tate, a major lobbying firm that effectively runs the CAF for Epic, Spotify, and Match Group. Her deputy Hannah Ricketts--also a senior director at Forbes Tate--recently explained the CAF's position on Apple's efforts to avoid giving app developers viable alternatives to its 30% tax (I disagree at least with respect to the situation in the Netherlands):

CAF deputy director, Hannah Ricketts, breaks down @downdogapp’s experience with @Apple’s anti-competitive practices in the #AppStore: pic.twitter.com/dqyk7CsN80

— Coalition for App Fairness (@appfairness) March 16, 2022

The career changes by Horacio Gutierrez and now also Meghan DiMuzio definitely weaken the Coalition for App Fairness, and it seems that the CAF's backers don't do enough to keep their key players on the team. But even Apple has a brain-drain problem as its long-time head of litigation Noreen Krall left a few months ago--just shortly after Apple's remarkable post-trial victory over Epic.

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Mixed news for Apple: App Store accusers lose their most effective voice as Spotify's top lawyer Horacio Gutierrez joins Disney--but State of California may support Epic Games on appeal

Yesterday I saw on LinkedIn that Horacio Gutierrez is leaving Spotify. He served as Spotify's Head of Global Affairs and Chief Legal Officer for six years after a long and successful career at Microsoft where he was basically the #2 lawyer (and would easily have become #1, but Microsoft already has the one and only Brad Smith). Now he is joining Disney as General Counsel and Secretary (press release on BusinessWire).

Horacio and I didn't always agree. We've known each other for well over a decade, and about each other for even longer as we were on opposing sides of the European software patent-eligibility debate in the early to mid 2000s. Even when we were partly aligned, we weren't of exactly the same opinion. But as an app developer (currently working on a new app, not a game this time) I'm profoundly disappointed because this means the App Store-critical movement loses the most effective and forceful advocate it ever had. There are some other people I consider similarly important, but at least for now they are acting in the background.

Disney also faces the gatekeeper problem of mobile ecosystems (Apple's and Google's "vice-like"--maybe they meant "vise-like"--grip that the UK's competition authority called out this month), but at least for the time being and probably for the foreseeable future, they're nowhere near as antagonistic as Spotify. Apple's insatiable appetite for grabbing additional revenue streams by leveraging the monopoly power it enjoys in its single-brand aftermarket make it a possibility that Disney, too, will feel as threatened by the app distribution duopoly as Spotify, but it's not sure to happen, and not on the horizon for now.

Horacio's career move is a great opportunity for him, possibly a childhood dream-come-true, but leaves a gigantic vacuum. This is the second major loss for the Epic-Spotify-Tinder Coalition for App Fairness this month. The first blow was when the CAF was stigmatized as a lobbying front that saw an amicus curiae brief rejected by the most influential regional appeals court of the United States, the Ninth Circuit (despite the normally rather permissive practice when it comes to accepting such submissions).

Spotify, which has to compete with Apple Music on the exact opposite of a level playing field, was the first major app developer to make a strategic (in that regard, Epic has room for improvement) effort to instigate antitrust investigations and legislative initiatives targeting Apple's abuse of its App Store monopoply. Spotify launched a website--Time to Play Fair--that raised issues hardly anyone out there was aware of. I doubt they reached huge numbers of people, but certainly some of the powers that be. Constant dripping wears away the stone, while Epic's more "explosive" and dramatic approach apparently wasn't to Judge Gonzalez Rogers's liking and may not be viewed favorably by the appeals court either.

Horacio started writing letters to Apple in which he (rightly, in my opinion) accused Apple of antitrust violations and demanded a change of behavior. At some point, parts of the correspondence were leaked by the parties (first by Spotify, then by Apple) to the media. Those kinds of exchanges are a prelude to formal antitrust complaint. Spotify brought an EU antitrust complaint against Apple a few years after Horacio had joined. In 2020, the EU launched formal investigations, and this year handed down a Statement of Objections (SO), which is like a preliminary ruling. I'm concerned that it's "too little, too late" if competition enforcement limits itself to cases in which Apple directly competes with other companies, and Spotify is a subscription business, so any remedies might ultimately not benefit those of us who rely on in-app purchasing. My next app will have a subscription model, but also IAP offerings.

Shortly before the Epic Games v. Apple trial, the United States Senate held a hearing on mobile app stores and the need for supplementary legislation designed to specifically address those issues (on top of generally strengthening antitrust enforcement, which is also badly needed). Horacio was clearly the most persuasive panelist, owing to the unique combination of Spotify being a prime victim of Apple's misconduct and Horacio being so strong. He was authentic and sophisticated at the same time--it was really great to watch his performance. He apparently anticipated Epic's defeat when he stated clearly that litigation under current U.S. antitrust law was not going to bring about a solution, and especially not soon enough.

Epic's Tim Sweeney has also done great things. He apparently can't deal with people putting the finger in a wound for the sake of accurate analysis, which is why he unfollowed me on Twitter after I started explaining the narrow scope and uselessness of Epic's consolation-prize UCL injunction and predicted precisely what was going to happen (clarification of scope by district court and stay by appeals court). That's OK. I continue to like and share tweets of his that I agree with, and I wish him luck, but some mistakes have been made by Epic that the Fortnite maker can't correct anymore. In fact, Mr. Sweeney himself made a far stronger argument in some Twitter debates against Apple's "Progressive Web Apps" smokescreen than Epic did in court. It has helped and continues to help that Mr. Sweeney draws attention to Apple's behavior and double standards. But Horacio was the far better chess player in the competition policy arena and the kind of advocate who can convince politicians and regulators of the need to take action.

The Coalition for App Fairness needs a new strategic leader whose primary challenge it will be to make the CAF a credible voice of many developers even though there is no indication that anyone other than Epic, Spotify, and Tinder company Match Group has contributed substantial funding or has much of a say. It has to define its focus more broadly than just dealing with the 30% cut, and it also needs to find outside counsel capable of taking on Apple. As a motion to quash subpoenas shows, the CAF was at some point represented by the Kanter Law Group, the law firm of Jonathan Kanter, who is now the U.S. antitrust chief (official title: Assistant Attorney General, Antitrust Division, DOJ).

Let me also report on a new development in the Epic Games v. Apple appellate proceedings: the State of California will file an amicus curiae brief with respect to the California UCL injunction, but has explicitly indicated it may support Apple, Epic, or neither party, depending on what exactly the scope of Apple's cross-appeal is going to be. The briefing schedule is as follows:

"First cross appeal brief due 01/20/2022 for Epic Games, Inc.. Second brief on cross appeal due 02/22/2022 for Apple, Inc.. Third brief on cross appeal due 03/24/2022 for Epic Games, Inc.. The optional cross appeal reply brief is due 21 days from the date of service of the third brief on cross appeal."

Normally, this means a stakeholder supporting Epic would have to file in late January, and an Apple amicus would have to file on March 1. However, the state of California wants to await Apple's brief and then decide. Should it side with Epic, then it wants to support Epic's second appellate brief (which will be Epic's response to Apple's UCL cross-appeal). That makes sense and I'm sure the motion will be granted.

It's going to be a tough call for the State of California. On the one hand, Apple is the state's most important and iconic company (though all the worldwide noise around App Store monopoly abuse threatens to adversely affect Apple's image at least in certain circles). On the other hand, California is a progressive state that would like its state UCL to be strong and to have a broad scope. And if California had already decided to support Apple, the Golden State wouldn't have to request this extension as the motion changes nothing about the briefing schedule in that event (to support Apple, California would have to file by March 1 one way or the other). They need the extension only to preserve their ability to support Epic or neither party, which they'd normally have to do in late January. So it does look a little bit like Epic may actually get some support from the State of California for competition policy reasons, but if so, it would only relate to a secondary issue (anti-anti-steering). In an even better scenario for Epic, the State of California would make points in the UCL context that also have persuasive impact on the Ninth Circuit in connection with the (infinitely more important) federal antitrust claims.

Finally, here's the procedural motion by the State of California:

21-12-22 Motion by State of... by Florian Mueller

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Apple gets injunction stayed as predicted AND deals major blow to Epic-Spotify-Tinder Coalition for App Fairness: U.S. appeals court denies motion to file amicus brief

Epic fail.

By that wordplay I don't mean the order by the United States Court of Appeals for the Ninth Circuit granting Apple's motion to stay the consolation-prize injunction under California Unfair Competition Law (UCL) that the district court had granted Epic Games. Anything else would have been a major surprise. I explained on a few occasions that Apple handily met the criteria for a stay. In fact, I got a 3 out of 3 for my predictions in this context: I said the district court would clarify the narrow scope of the UCL injunction (as it did, though people are free to still pretend to be obtuse), and would uphold its own injunction, but the appeals court would stay it. Actually, it's even 4 out of 4 as you'll see further below in the context of an amicus brief Apple successfully opposed.

The order granting Apple a stay (that will practically be in effect for a couple of years) is terse and doesn't take a position on whether Apple's conduct raises competition concerns or not. However, a binary outcome is now most likely as the federal appeals court for the West Coast cites California's Chavez case law, according to which the failure of a theory under federal antitrust law (Sherman Act) spells doom for a California UCL claim on the same basis. I continue to wish Epic luck with their own appeal (of the rejection of nine of Epic's ten counts), though the hurdle is high and Epic has made some mistakes that it's too late to fix now. My guess is that the appeals court will not overturn the district court's finding that Apple is not a monopolist, and Epic's failure to prove something that is so obvious to me--that so-called Progressive Web Apps are not a viable alternative to native apps--is not the only issue but that one alone is probably sufficient all by itself to make Epic lose again.

But the real #epicfail here--which has significant implications beyond Epic Games v. Apple has apparently not been noticed yet by others reporting on the case. The largest and most influential U.S. regional appeals court denied a motion by the Coalition for App Fairness and some of its members to submit an amicus brief in support of Epic's opposition to Apple's motion, and the denial of an amicus motion is nothing short of a nightmare for any advocacy group (this post continues below the document):

21-12-08 Order Denying CAF ... by Florian Mueller

This is a 4 out of 4 for me as I wrote last Thursday that I agreed with Apple's opposition to that amicus brief submission.

U.S. courts--and especially appeals courts--normally have a permissive approach toward amicus briefs, above all in high-stakes high-profile cases like this one. It rarely happens that they tell stakeholders they are unwelcome to join a proceeding as "friends of the court" contributing potentially useful information. Here, however, a filing by the Coalition for App Fairness (whose three key members are Epic, Spotify, and Match Group, which is best known for Tinder) and four of its members (Match Group, Tile, Basecamp, and Knitrino) has been flatly rejected by the Ninth Circuit.

As a result, the CAF now faces a credibility issue in any other App Store cases around the globe in which it may try to support Epic or even another one of its large members. Even if other courts ultimately allowed the CAF to join other cases, Apple would point to the Ninth Circuit decision, which at a minimum would diminish the credibility of anything the CAF would say on Epic's behalf. The CAF has now been stigmatized as part of an Epic anti-Apple initiative designed to raise issues regardless of whether those were "organic or manufactured" as the evidence shows.

The CAF and its members even sought to defend their motion by filing a reply brief shortly after Apple's opposition--but to no avail.

What I hope, however, is that courts will apply the same standard at the merits stage when ACT | The App(le) Association intervenes on Apple's behalf, claiming to represent small app developers though it's unclear whether any small app developer ever paid a cent in membership dues to ACT--while Apple is a major financial backer of that lobbying front. Compared to ACT, the CAF is like 100 times more credible--even if not credible enough in the Ninth Circuit's eyes.

The appeals court did not state a particular reason for denying the motion. But again, this is an unusual decision. It means that the CAF was unable to overcome the credibility issues Apple had raised, despite the considerable effort it made. The stay of the injunction was expected: the hurdle for that was relatively low. However, the denial of that amicus motion is unusual, and I suspect some people in Cupertino are really excited about it.

I wish to thank Richard Hoeg of Hoeg Law, who runs a YouTube channel named Virtual Legality. In a video he posted yesterday, Richard recommends my blog (click here to get directly to that part of the video) while clarifying that my take on Apple's App Store policies differs from his in the sense that I'm more critical of Apple's App Store governance (which is true). This shows again that people can agree at a rational and analytical level regardless of their personal preferences and opinions. His commentary on Epic v. Apple is always insightful--and I say that because I mean it, not just to reciprocate his shout-out for this blog.

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Today is the first anniversary of app developers' D-Day: #FreeFortnite -- Apple will lose if it doesn't change course and present real solutions

August 13, 2020. One year ago, to the day. At 2 AM local time, Epic Games CEO Tim Sweeney threw down the gauntlet to Apple by email, telling Tim Cook that Epic would from there on out refuse to comply with Apple's in-app payment rule and expressing "the firm belief that history and law are on [the Fortnite maker's] side."

The timing of the email was deliberate. This way, it was going to take a few hours before Apple would see this (and the fact that Epic activated a "hotfix" that presuambly was just a simple server-side value) and made an alternative payment system available in Fortnite. Apple kicked out Fortnite. So did Google, where Epic did the same thing. Epic filed its private antitrust complaints in the Northern District of California that day.

At the end of closing argument in Epic Games v. Apple (in late May), Judge Yvonne Gonzalez Rogers jokingly said she'd try to hand down her judgment by today. She later clarified that she just said so because of the first anniversary of the dispute, but cautioned that this important decision might take time given the complexity of the case.

Looking at the landscape a year after the launch of the #FreeFortnite campaign, it really does seem that the days of Apple's App Store monopoly abuse are numbered.

That's the way it should be according to common sense. Just imagine how totally absurd the current situation is: developers may spend what is a lot of money for them (even if not for the richest company in the world) on the development of an app, and they won't know whether they may actually publish it on iOS until it's done and they submit it to Apple's app review department. Apple's app review is intransparent, and some of the rules are neither fair nor reasonable, and they are not even clear, which results in an inconsistent application all the time.

Apple's abusive conduct is by far the worst that any company has ever done in the history of the technology industry to innovation and creativity. Forget about the IBM mainframe monopoply or the peripheral issues over which the EU imposed a huge fine (by the standards of the 2000s) on Microsoft. No company has ever shown as much disdain for the software developer community as Apple, which is closely followed by Google, though Android is the lesser evil than iOS, and Google is still nerdier, which I like despite everything that I criticize them for.

I wonder what must be going on in the minds of the people who make their company a tyrannical version of "Judge Dredd" (prosecutor, judge, and executioner) over developers' investment of time, energy, and money. Is it just hubris? Do they really believe they know better than everyone only because the late Steve Jobs did the right things at the right time, and because they've built an unprecedent tech empire on that basis, which is of course a huge achievement?

Even the brilliant Tim Cook was checkmated by Judge Gonzalez Rogers when she examined him in May. The facts forced him to acknowledge that the only reason for Apple's 15% cut (small business program) was little more than a response to antitrust pressures. The most important admission was that he, as Apple's CEO, doesn't even get reports on how satisfied developers are with how Apple is treating them. The judge mentioned a survey according to which 39% of developers are dissatisfied, and that's actually flattering for Apple because one could easily ask questions that would lead 99% of developers to confirm that there are real issues.

Let that sink in. The CEO of one of the two companies that have like 1,000 times more power over developers than even Microsoft ever had doesn't even care to know whether developers feel they're being treated fairly. The court knows why: because Apple has to compete with other phone makers for users, but then there's the app aftermarket in which Apple doesn't have to compete for developers. It's a two-sided market in which there's practically no competition at all on one side.

Epic is one of the largest and most profitable game makers. They knew that they weren't necessarily going to be "sympathetic" at the time they launched their #FreeFortnite campaign. I wasn't totally sold in the beginning, but what I immediately liked about Epic's initiative was that they were raising a broader issue than Spotify, which I feared was just going to improve the situation for those who compete with Apple's subscription services (i.e., just a very few players). Still, I do have to give credit to Spotify's Horacio Gutierrez, a former Microsoft IP chief. He had been fighting against Apple's abusive behavior for years, and raised awareness for the issue in important circles. Arguably, Epic was standing on the shoulders of this giant when it launched its fight for app developers' essential freedoms a year ago--and just on the last business day before the Epic Games v. Apple trial, the European Commission handed down its Statement of Objections based on Spotify's complaint.

Shortly after Epic's complaints, Epic, Spotify and others (with the most significant third player being Match Group, which is known for the Tinder app) founded the Coalition for App Fairness. Again, I wasn't initially sold, but I watched the further developments with an open mind and less than a year later I think--in light of the recent announcement by three United States Senators--that the CAF may go down in history as one of the most impactful and important policy efforts in the history of the tech industry.

The tide has turned. Apple may be losing this war much more quickly now than it would have considered realistic when this started a year ago. Legislative, regulatory and judicial developments reinforce each other. Apple and its army of loyalists (though I sometimes wonder how many of those Apple apologists on Twitter are simply Apple employees) can't explain away that the current situation is unsustainable and has to be brought to an end. The sooner, the better for the world in economic and other terms.

I noted on Twitter today that Apple may already have had more negative news cycles--not just in a quantitative but also a qualitative sense--in 2021 than in the decade(s) before. It becomes clearer and clearer that Apple is doing harm now that does not constitute the kind of "creative destruction" under Steve Jobs. Now it's just destruction for Apple's economic gain, with zero benefit to innovation. Ad tracking is an example. Apple has done and continues to do enormous harm to both advertisers and app developers selling their inventory, but third-party app stores can also remedy that problem.

Privacy is a mix of a policy pretext, marketing mantra and PR stunt for Apple. If it's about Apple selling you music, you should consent to GPS tracking. If it's about governments containing the COVID pandemic, Apple doesn't even allow that an app asks users to scan a QR code at the entrance of a venue. Applying such double standards is the "best" way for a company to lose its credibility with decision makers and opinion leaders.

Another example is that Apple seeks to justify its COVID app (mis)guideline with public health concerns while selling homeopathy crap. Homeopathy is fake science, bogus medicine--but never mind as long as Apple can make money with it.

A year after #FreeFortnite and the Nineteen Eighty-Fortnite video (which has almost 8 million YouTube views by now and even understates the problem), and less than a year since the Coalition for App Fairness was founded, the noose is tightening and change is coming.

Apple can counterlobby, defend, appeal. That's what it's currently focusing on. The alternative would be for Apple to realize that

• it can do even better if it unleashes the app developer community's creativity,

• it can still do well even with competition in the app distribution aftermarket, though it will face challenges, and

• if Apple decided to make amends and engage constructively, it might do better than if it just kept opposing the structural change that is inevitably needed. Apple could--if it wanted to--go from app developers' worst enemy to one of app developers' best friends. They could focus on making the cake bigger rather than just focusing on their share and their control. But such ideas as my "contribute-back" licensing proposal aren't going to get traction, realistically. Apple looks set to hold out until the bitter end, because they think it's most profitable.

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Apple raised its effective App Store commission rate in certain geographic markets to (respectively) 31.4%, 32.1%, and 35.25% in September

After this post, I'll (have to) take a break from blogging about App Store antitrust matters for a few weeks or maybe even months, as I'll explain further below. Before I do that, I'm going to share several thoughts and pieces of information in this post. You can click on any of the links below to go straight to the part you're most interested in:

1. Effective App Store commission ("App Store tax") rate peaks at 35.25% (plus annual developer program fee plus Search Ads) -- a relative increase by 17.5%

2. IP-related issues surrounding web apps

3. Recent United States Senate hearing: mixed blessing for Epic's case

4. Statement of Objections from the European Commission's Directorate-General for Competition (DG COMP) in the investigation instigated by Spotify

5. Taking a break from commenting on app store antitrust cases

 

1. Effective App Store commission ("App Store tax") rate peaks at 35.25% (plus annual developer program fee plus Search Ads) -- a relative increase by 17.5%

In its proposed findings of fact and conclusions of law, Epic Games debunks Apple's claim that it has not been able to increase (or even maintain) its App Store commission rate due to competitive constraints (though in reality any reductions were motivated by antitrust-related reasons):

"92. Moreover, contrary to its claims, Apple has repeatedly increased prices after developers and consumers were locked in, including by requiring use of Apple’s IAP to process payments for in-app digital content (2009); requiring IAP for subscriptions (2011); and charging developers for search ads (2016). (Findings of Fact ¶¶ 23, 123.)"

The ability to increase prices without losing market share is characteristic of a monopolist. Sometimes, monopolies are identifiable just on that basis. In those cases where a monopolist could have increased prices, but did not do so, a SSNIP test is performed by economists on a hypothetical basis (such as by conducting a survey): Small but Significant Non-transitory Increase in Price. Generally, "small but significant" means 5%-10%, and plaintiffs often argue that they can establish even greater market power than what it takes to command a 10% increase.

Epic's examples all make sense. It's true that Apple extended the scope of applicability of the 30% commission (the Small Business Program just came recently for antitrust reasons and has nothing to do with market dynamics whatsoever) to other types of payments, as the testimony in this case confirms. Search Ads are indeed another indirect price increase, as many app developers pay for the discoverability of their apps on the App Store by promoting their apps above the organic search results that may favor a competitor--which in turn often forces the affected competitor to place Search Ads only to maintain the top spot.

But Epic's list of de facto price increases is not even exhaustive. (Can't blame them as they need to focus and Apple's sophisticated tactics raise so many issues.)

The FT's Tim Bradshaw highlighted another problem in September:

Apple is making App Store developers swallow the controversial new digital services taxes in the UK and France, per email to iOS devs today. Despite most headlines describing them as a tax on “Big Tech”, it’s the little guys that end up paying. pic.twitter.com/jWQJ0VFsX4

— Tim Bradshaw (@tim) September 1, 2020

At around the same time, other people commented on it as well, and one website had to backtrack because they made it sound like Apple passed 100% of those digital services taxes on to developers. There should have been much more outrage, and in some jurisdictions developers could even have brought complaints over this particular issue. But it went almost unnoticed, probably because too few people--if any--thought it through in every detail.

Once one has thought it through, it's crystal clear: many (if not most or even all) third-party developers end up having to pay digital services taxes ("DST") only because of Apple's tying (of the payment system to the App Store as the only access route to iOS users), and wouldn't owe those taxes otherwise.

In Turkey, DST is 7.5%; in France and Italy, 3%; and in the UK, 2%. More countries will follow. In fact, President Biden is open to a global agreement on DST.

Apple treats DST like VAT (Value Added Tax) or sales tax (which is simply the same when it comes to a business-to-consumer transaction), which belongs to neither Apple nor developers, and subtracts both VAT and DST from what customers pay before splitting the income with developers. It appears that most people haven't figured out yet why that is inappropriate, unfair, and indicative of Apple's market power:

• VAT is a concept that's about 100 years old, while DST wasn't even foreseeable when the original App Store terms were set in 2008.

• VAT is charged on broadly defined product and service categories (such as having one rate for food, another for non-food), while DST relates to narrowly defined types of services, such as app stores and online advertising. Typically, DST does not apply to games, so even Epic's Fortnite would not be affected if they could just use a payment service of their choosing for in-app purchases.

• The thresholds for DST are extremely high, while countries exempt companies from VAT only if their sales are below negligible de minimis thresholds. The whole idea of DST is to tax only large and rich digital gatekeepers, which is why lawmakers always "gerrymander" the thresholds. DST typically comes with a global and a domestic threshold, and applies only to those who meet both, with "local heroes" typically failing to meet the global one.

• While both VAT and DST are charged as a percentage of sales, VAT is a consumption tax and DST is meant to be a tax on (huge) profits.

• Therefore, VAT is meant to be ultimately paid by consumers (as an indirect tax), while DST should be paid by "GAFA" (Google, Apple, Facebook, Amazon).

Australia is a special case: it applies VAT (called "Goods and Services Tax" (GST) down under) to digital services (not just specific types of marketplaces), with a threshold of A$75,000. There are probably some developers who do not benefit from Apple's Small Business Program (worldwide revenues in excess of 1 million), but wouldn't have to charge VAT in Australia.

The situation in Turkey is different from that in France, Italy, and the UK because Apple raised consumer prices accordingly. But that doesn't mean the effective commission rate didn't increase as well--and just delivers additional proof of Apple's market power over consumers even in a market with a low iOS market share compared to Android.

If we focus--for simplicity's sake--just on the four DST jurisdictions I've already mentioned (with a combined population of roughly a quarter billion people), and on the period before Apple's Small Business Program, this means Apple raised its App Store tax to 35.25% in Turkey (30% + (70% times 7.5%)), a relative increase of 17.5% (way above the SSNIP range); to 32.1% in France and Italy (relative increase: 7%, about the middle of the typical SSNIP range); and 31.5% in the UK (relative increase: 4.67%, pretty close to the lower end of the SSNIP range.

Apple makes things look "equitable" by deducting DST, then splitting the remainder. But there are three arguments against it, any single one of which is reason enough for Apple to internalize 100% of DST:

1. Contractual: DST wasn't foreseeable when Apple set its original App Store terms (i.e., at a time when Apple claims it didn't have market power).

2. Policy (legislative intent): Lawmakers wanted "GAFA" companies to internalize those taxes. For example, the UK government says:

   "The measure is expected to have an impact on a small number of large multinational groups by bringing into scope of Digital Services Tax the proportion of their revenue that is derived from UK users of social media, search engines or online marketplaces." (emphases added)

   Could lawmakers have worded their DST laws more clearly to achieve that effect? Well, even if they had done a better job, companies with market power would always find a way to offload that tax burden onto those who are dependent on them, or on consumers (as Apple did in Turkey), so even the best DST law wouldn't work without effective competition enforcement.

3. Liability: The simplest and therefore strongest point is that even Epic wouldn't pay DST on Fortnite revenues in a jurisdiction that applies it to marketplaces such as app stores if not for the mandatory honor to use Apple's payment system.

The extent to which a given developer is impacted by that de facto commission hike varies greatly. Developers who generate all or almost all of their sales in non-DST jurisdictions are not affected for the time being, though DST is getting adopted in ever more places. On the other end of the spectrum there are companies that generate all or almost all of their IAP revenues in a country like Turkey or the UK, be it because the functionality and/or content of their apps is of interest only to customers in those target markets or because they just happened to get more traction there.

To sum it up, the effective App Store tax that a developer pays on a particular IAP transaction is the percentage of ex-VAT (and ex-sales-tax) proceeds from users that the developer would additionally keep if it could charge end users directly. Apple clearly has the power to increase that rate to developers' detriment.

2. IP issues surrounding web apps

In a recent post I mentioned one of Apple's least convincing claims, which is that native IOS apps (the ones you download from the App Store) face competition from an alternative called web apps (or sometimes "progressive web apps").

While Apple's defenses against Epic are partly based on Apple wanting to be free to commercialize its intellectual property rights (in a transparent attempt to match the FTC v. Qualcomm pattern), the suggestion that developers could offer web apps instead of native apps shows that Apple has very little respect for developers' IP. Epic's proposed findings of fact and conclusions of law explain various shortcomings of web apps. I'd just like to add a couple of IP-related ones, and a commercial one, that I couldn't find in the publicly accessible part of the record:

• Web apps are like "open source" software: you get highly human-readable code in a scripting language. Obfuscation would be theoretically possible, but practically one couldn't afford it because it would reduce the performance and bloat the file size. Web apps already start slowly because they need to be downloaded every time they're used, and if obfuscation icnreases the file size, it takes even longer.

  In theory, anything can be reverse-engineered. In practice, native apps are hugely more time-consuming to reverse-engineer.

  The IP issue facing developers is that if you essentially publish your source code, others can easily infringe your copyright, and you give up your trade secrets. The protection of software source code by trade secret was actually the only IP protection prior to the extension of copyright law to software (and software patents came even later).

• There's also a defensive problem: source code is easily inspected, so web apps make it easy for "patent trolls" to identify targets for their infringement allegations (whether or not those would have merit).

• The non-IP issue I wanted to raise is that--at least when I checked a few months ago--major ad networks don't support in-app advertising on a WebGL/HTML5 basis. One can display ads outside of a window in which a WebGL app runs, but that causes other problems. Also, developers can partner with web game aggregators/portals that provide APIs and sell the ad space, but then a game must be published on those third-party sites and we're no longer talking about a web app with an icon on the home screen.

3. Recent United States Senate hearing: mixed blessing for Epic's case

Last week, the Subcomittee for Competition Policy, Antitrust, and Consumer Rights of the United States Senate held a hearing on app store competition issues. There was strong bipartisan support for combating the abuse of mobile app store monopolies. From the far left (by Senate standards) to the far right (again, by Senate standards), senators are sympathetic to developers' concerns.

Apple didn't like it at all that the hearing was going to take place so close in time to the Epic Games v. Apple trial, but ultimately provided a witness.

In some ways, maybe even in many ways, that hearing was really great for Epic's purposes. But there is a potential downside:

Senator Amy Klobuchar (D-Minn.) seeks not only to overhaul U.S. antitrust law in general but also to enact some app-specific legislation, and her position is that current U.S. antitrust law (in the combination of the statutes and how the courts interpret them) is too weak to address this issue. Epic's partners in the Coalition for App Fairness, particularly Spotify, strongly agreed with her. Sen. Klobuchar had previously lamented the state of affairs of U.S. antitrust case law in Justice Amy Coney Barrett's confirmation hearing.

Spotify's written testimony (PDF) also calls on lawmakers to "enact targeted prohibitions that will stop abusive conduct by app stores." This is a typical case of conflicting goals: you obviously can't ask for new legislation and praise existing legislation as being suitable-to-task.

It would have been preferable for the app developers who testified on that occasion to state clearly that they believe Epic is going to win its case against Apple, but any litigation comes with risks and new legislation might provide a faster solution, especially with respect to Google (Epic's case against Google is trailing far behind the Apple case). Some of what was said by the #1 antitrust expert in the Senate as well as by certain witnesses could be interpreted as expressing doubts concerning Epic's chances in court against the major mobile app store operators.

It's a typical defense not only in antitrust cases to say that a plaintiff should "direct to Congress" certain complaints or concerns. Sometimes courts say so in their written opinions. There is a risk here that the judiciary will effectively refer Epic to the Capitol.

4. Statement of Objections from the European Commission's Directorate-General for Competition (DG COMP) in the investigation instigated by Spotify

It's great news that the European Commission's DG COMP yesterday announced its Statement of Objections (SO) against Apple's App Store rules for music streaming providers, further to a complaint brought by Spotify. While the scope of that particular investigation and the market definition used in that case are relatively narrow, there can be no doubt about the Commission's--and particularly Executive Vice President Margrethe Vestager's--determination to address app store issues beyond just music streaming.

The timing of that announcement added insult to injury: precisely the work day before the start of the Epic Games v. Apple trial. It's like a pretrial amicus curiae brief.

I recommend this analysis on the Platform Law Blog. Dimitrios Katsifis of Geradin Partners explains the progress this represents as well as its limitations, and encourages additional action by national competition authorities.

While Mr. Katisfis makes strong points, I actually think it is a smart strategy by the Commission to tackle the app store problem step by step, cracking one nut at a time and gradually expanding the scope of the case law. Piecemeal tactics and progressive approaches have worked in similar contexts (such as the enforcement of the GPL free and open source software license).

5. Taking a break from commenting on app store antitrust cases

Originally I intended to follow the Epic Games v. Apple bench trial by telephone (I got the dial-in number for journalists). If the day had 34 hours, not 24, I'd still do it. But it's difficult for me to set my priorities for this month with all that's going on.

I don't want to write too much about my own complaints against Apple and Google, but suffice it to say that there is a competition enforcement agency that originally gave me six weeks to reply to Apple's response to my complaint, and in order to be able to obtain relevant data from some recent filings, I requested (and was thankfully granted) a two-week extension until May 10. At the same time, there are some things going on with respect to standard-essential patents that require my attention in the coming weeks.

The Epic v. Apple trial would be fascinating to follow in some ways, but ultimately the decision will be made by the Supreme Court, which is almost certain to hear the case (and if not, then by the Ninth Circuit, but not by the trial court).

Judge Yvonne Gonzalez Rogers said at a recent pretrial conference that there won't be any surprises: the parties have already told the court what they believe their strongest legal arguments and facts are. Now it's about whether they can deliver proof.

If Epic wins, which I hope it will though I'm not going to make a prediction at this stage, it will help the developer community at large. I really feel that Epic's sacrifice for this cause would deserve a lot more credit, but that's another story.

The hurdle is very, very high (see the section on the Senate hearing). Epic made a rather ambitious jurisdictional choice. If I were in their shoes, I'd have sued in Europe, especially the largest European market (Germany), where Google's market share is so high that market definition can be won very easily--and both statutory and case law are far more favorable. But Epic wanted to go straight for the grand prize. They are trying to succeed on Broadway or in Hollywood on the first attempt. Should Apple be let off the hook in the U.S., it won't mean that Epic was wrong nor is it likely that one could blame Epic's second-to-none lawyers. One would have to attribute it to what Sen. Klobuchar said at Justice Barrett's confirmation hearing about the U.S. theoretically having broad antitrust statutes that the courts apply very narrowly.

Epic has the stronger arguments. Apple has little more than pretext to offer, and its relatively strongest point is that other digital app stores also charge 30%, though the reduction from 30% to 12% of the commission charged by the Microsoft Store shows that competition works wonders. Apple is going to basically equate the iPhone to the Xbox, despite several fundamental differences in usage patterns and the availability of other computing devices (where there is an Xbox, there is also a number of other gadgets, but sometimes an iPhone is the only device people carry with them). Apple will, as I mentioned further above, try to match the Qualcomm pattern (not their words, but basically saying: "we're just commercializing our IP and should be free to do so as we see fit"), and to benefit from the Supreme Court's American Express decision on two-sided markets. All of that is transparent based on the proposed findings of fact and conclusions of law.

I can't imagine any developer out there wouldn't want Epic to win. I believe they can prevail, even under U.S. antitrust law as it stands. But if Epic lost, it would be a huge mistake to consider Epic Games v. Apple to be the heart of the resistance against app store abuse. Arguably, Spotify is currently in the pole position, as the SO will almost certainly result in a Commission decision, which Apple will then appeal to the CJEU.

There'll be plenty of press coverage for you to get the key "soundbites" from that trial. I'll look at this at a later stage, possibly only when the district court hands down its judgment. My positions on this topic haven't changed, nor would they.

[Update on May 3] The start of my final pretrial Twitter thread (and likely my last Twitter commentary on the issue for about a month):

(1) For the reasons I explained in my latest post, I have to focus on my own #AppStore issue and other priorities and obligations, so to my dismay can't follow the #EpicGames v. #Apple trial in real time because it's huge. This is likely my final thread on the topic for a month.

— Florian Mueller (@FOSSpatents) May 3, 2021

[/Update]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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