Wednesday, September 27, 2023
Antitrust class action against Qualcomm (originally related to FTC action) thrown out on summary judgment; same judge previously denied discovery of my communications with Microsoft
In January, I reported on the partial dismissal of an antitrust class action against Qualcomm in the Northern District of California (a case that was brought in the wake of the FTC's ultimately unsuccessful enforcement action against the chipmaker), and at the time I already wrote that the ruins of that complaint "[would] hardly survive summary judgment." In February I agreed with Qualcomm's arguments for not reopening discovery, as did the court. After the SJ motion was filed in April, I "I guess[ed] Qualcomm's motion [would] succeed." And that is what has just happened.
On Tuesday, "[a]fter carefully considering the briefing and conducting oral argument on August 3, 2023," Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California granted Qualcomm's motion for summary judgment in its entirety:
[フレーム]This here is a legal victory that should put all of that U.S. antitrust litigation from the late 2010s to rest (short of a successful appeal, but chances are so slim that I guess an appeal will not even be brought). In economic terms it is, however, pretty unimportant compared to the fact that Apple, due to its failure to make its own iPhone-grade baseband processor, had to extend the chipset purchasing agreement with Qualcomm by another three years (2024-2026), which presumably means that Apple exercised an option to extend its standard-essential patent royalty payments as well. In the alternative (if Apple had been able to replace Qualcomm's chips), Apple might have tried to renegotiate those SEP licensing terms.
Things are going well for Qualcomm, and ultimately I believe the company will be able to deal with whatever impact the proposed EU SEP Regulation--in whatever form it may or may not be passed into law--will have.
As for Judge Corley's reasoning, the key elements are that there was really not even the slightest substance to claims that an agreement with Samsung had any market foreclosure impact. And even with respect to Apple, there was no credible pass-through theory (of elevated costs). The final part ("Conclusion") of the order granting the motion to dismiss essentially says that the class-action lawyers made their strategic choices. The initial choices (very much about "No License, No Chips" and allegedly supra-FRAND SEP royalties) didn't work out when the Ninth Circuit reversed the FTC's trial win. Later on, they still tried to get something out of this by suing Qualcomm over exclusive dealing. They presented a new expert report "though the Court had expressly declined to reopen expert discovery." Judge Corley declined to "open the flood gates to prolonged do-over litigation" as opposed to the speedy, efficient, and just resolution that the Federal Rules of Civil Procedure seek to ensure.
This outcome makes sense to me. As I noted further above, I predicted that the shifting-sands case wouldn't make it to trial.
Class actions can serve useful purposes. They can raise issues and promote justice. However, the vast majority of class actions I see in the technology industry are just opportunistic attempts by lawyers to extract settlements from large corporations. Qualcomm probably could have "settled" that class action at a far lower cost than that of its world-class defense. But once you do that, others will come and sue you as well. Qualcomm made the right choice and has now (again, absent an unlikely reversal on appeal) defeated this class action (or, more precisely, consolidated set of class actions).
The order to dismiss the Qualcomm class action(s) came one day after Judge Corley also made a decision (in a class-action matter that does not involve Qualcomm but also followed an FTC action) relating in part to yours truly's communications with Microsoft:
[フレーム]Let me just refer you to an article about this odd sideshow of the Microsoft-ActivisionBlizzard merger case by Stephen Totilo of Axios Gaming.
Thursday, September 14, 2023
French publishers' U.S. antitrust class action against Apple is largely dismissed, making it economically irrelevant short of successful appeal: Northern District of California
Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California just denied in part--and in economic terms, almost completely--a U.S. antitrust class action brought on behalf of leading French publishers such as Le Figaro and L'Équipe (about that one, see my personal note toward the end).
Here's the decision, which I'll explain briefly:
https://www.documentcloud.org/documents/23977262-23-09-13-order-on-motion-to-dismiss-le-figaro-et-al-v-apple: Société du Figaro et al. v. Apple (case no. 4:22-cv-4437-YGR, N.D. Cal.): Order granting part and denying in part APple's motion to dismiss with partial leave to amend
[フレーム]The court gives the French publishers three weeks (until October 4) to amend their complaint, but they can only amend limited parts that won't change anything about the fact that there's no more serious money left for them to be made even if they won. But in order to turn this into something that has significant economic potential, they need a successful appeal.
In this first reaction, I'm not going to take a position on whether I agree with Judge Gonzalez Rogers. I disagreed with key parts of her Epic Games v. Apple ruling (which is now going to be appealed to the Supreme Court), but her dismissal of Pistacchio v. Apple, a class action over Apple Arcade, was well-reasoned (at least the market definition part).
The introductory part of the decision indicates between the lines a bit of an annoyance with the fact that certain class-action lawyers brought this case shortly after setting a U.S. developer class action against Apple over largely the same issues. This here looked like a double-dipping (as far as the lawyers--not the parties--are concerned). But that does not, in and of itself, render the entire case meritless.
The economically biggest part is that Judge YGR does not allow the French publishers to sue in U.S. court for damages relating to foreign sales. Those publishers obviously have some U.S. revenues, as there are French expats and other people who read one or more of those publications. But obviously most of the money they make is generated in France, followed by other French-speaking parts of the world (such as Québec).
If they go ahead now and take this to trial, the maximum damages award they could ever realistically hope for would still not offset litigation costs. A victory would be somewhat symbolic. The only value they could get value out of a win related to their U.S. revenues would be that this might persuade a French court to rule against Apple in a similar way. But is that going to be worth it? I doubt it.
Earlier this year I highlighted the problem that Apple doesn'T want to be liable in any jurisdiction. Epic Games experienced the same. If app makers sue outside the U.S., Apple says only U.S. courts have jurisdiction, and in the U.S., Apple points to the Foreign Trade Antitrust Improvements Act (FTAIA), which is a law that was enacted to prevent extraterritorial overreach by U.S. courts.
Based on this U.S. decision, the French publishers and others will find it easier to convince foreign courts that they have jurisdiction over App Store abuse claims relating to those non-U.S. markets, despite a choice-of-jurisdiction clause in the contract Apple imposes on app developers. So there may be something positive here.
Another potential strategy for the French publishers would be to bring in additional plaintiffs on the occasion of the amendment, which could be publishers with very substantial U.S. revenues.
When I first commented on the French publishers' U.S. class action, I found one part of the complaint particularly intriguing: they raised the issue of App Tracking Transparency (ATT), a money and power grab by Apple under the pretext of privacy. Judge Gonzalez Rogers allows the plaintiffs to amend their ATT claim if they bring an amended complaint. That may now be another reason to widen the class definition and include publishers with substantial U.S. sales (an amendmend that Apple would presumably oppose, but the plaintiffs could try to get it approved by the court). For publishers, ATT is a huge problem. So maybe the focus will change a little bit. However, the alternative would be to drop this one and bring a new one with U.S. publishers (or UK and other publishers with substantial U.S. revenues) on board from the start, and with a focus on ATT.
I guess something will happen. I don't expect this complaint to just be dropped at this stage without an appeal, amendment, or a new complaint with an ATT focus (or even a combination of two or more measures of that kind).
Personal note: As I mentioned L'Équipe: while I currently have no paying subscription to any media outlet, simply because there are too many around the globe that are relevant to me at different times, L'Équipe is actually one of two publications I plan to subscribe to for the purpose of brushing up my French. I actually learned most of my Spanish from sports newspapers AS, Marca, and Sport. If I subscribed to it through their Android apps, Google would tax my subscription fees...
Wednesday, September 6, 2023
Three dozen U.S. states are about to settle Android app store antitrust case with Google, leaving Epic Games and Match Group as two remaining plaintiffs: San Francisco trial starts in November
At 6 PM Pacific Time on Tuesday, Google, approximately three dozen state attorneys-general, and consumer class-action lawyers filed a "stipulation and [proposed] order re deadlines in consumers' and states' actions in light of tentative settlement" in connection with the Google Play (Android app store) antitrust litigation in the Northern District of California that resulted from the procedural consolidation of multiple parallel actions. The settlement was reached the same day and is subject to certain approvals (by the state attorneys-general, which should be a formality unless there was more political resistance than I can imagine, and Google parent Alphabet's board of directors, which should be even more of a formality), after which it needs to be blessed by the court, which is also unlikely to pose a major hurdle. The plan is for a long-form settlement agreement to be submitted to Judge James Donato in about a month.
The terms have not been announced yet, not even in broad lines.
The United States District Court for the Northern District of California will hold a trial starting November 6. With the states and the consumer plaintiffs out (and developer class actions--which achieved nothing of major value to the developer community at large--having settled long before), this means that there will be only two plaintiffs: Epic Games, which brought the complaint in August 2020 after Google ejected Fortnite from the Google Play Store, and Match Group (Tinder).
First, the notice of a tentative settlement (this post continues below the document):
[フレーム]It is not surprising that the class-action lawyers would settle with Google: in the end they just want to get paid. The far bigger win for Google here is that the three dozen U.S. states are also prepared to drop the case. Governmental support would have been very useful for Epic and Match at the trial. A settlement with only the class-action lawyers would have been of little value to Google if the state AGs had continued to sue on behalf of their citizens. The consumer class might not even have been certified in the end.
Given the fundamental problems surrounding app distribution on Android, it is hard to imagine that the settlement will solve the most pressing problems. But we will know for sure only when the exact terms have been announced. It's unlikely but not impossible that the state AGs negotiated something of value.
The only advantage this development has for Epic and Match is that the trial will be streamlined. The trial structure was threatening to become very complex, and now the focus at the pretrial conference on Tuesday will be on how to proceed with an Epic & Match v. Google trial. I don't think a trial that will be interrupted by the Thanksgiving holiday is a good idea, but it probably won't be postponed in light of the impending settlement.
Epic and Match may still government support: the DOJ, which supported and may continue to support (at the certiorari stage) Epic's appeal of the decision in the parallel Apple case, could file amicus briefs later on.
On Tuesday morning by Pacific Time, all the parties filed a joint pretrial statement highlighting the differences between their positions. There was no mention of a settlement in that filing: it was totally adversarial. But a settlement was mentioned as a hypothetical possibility in footnote 4:
"Further, while all Plaintiff groups expect to be at trial with the experts they disclosed to Google, there are circumstances that, at least theoretically, could change these plans (e.g., a settlement, a pending Daubert motion, etc.).
Here's that document:
[フレーム]Thursday, April 20, 2023
Microsoft wants private U.S. lawsuit over Activision Blizzard purchase thrown out for good as transaction benefits gamers; politicians take FTC to task; and all eyes on London after another clearance
This post covers several developments related to Microsoft's purchase of Activision Blizzard King ("ABK", NASDAQ:ATVI), all but the first of which I've previously commented on via Twitter:
Microsoft's renewed motion to dismiss private lawsuit in California focuses on lack of standing and irreparable harm, and agreements that actually expand access to Call of Duty; calls lawyers--not "gamers"--the actual plaintiffs
My previous post on Microsoft-ActivisionBlizzard discussed Microsoft's latest cloud gaming deal (with British Telecom subsidiary EE) as well as an amended complaint by class-action lawyers in a private lawsuit that can be described as a "gamers' lawsuit" only if the term is put in quotes.
Sony appears increasingly desperate. Regulator after regulator after regulator has dismissed its console market theory of harm, and no regulator that respects itself will cling to it until the bitter end. As Sony's regulatory capture strategy keeps failing, it steps up its involvement with the private lawsuit. The first sign was that it volunteered material to the class-action lawyers (without simultaneously informing Microsoft) beyond the proverbial call of duty. In fact, some of those documents are--as my previous post on this topic showed--charts that the class-action lawyers used to spruce up their complaint.
While the original complaint was a cheap imitation of the FTC's complaint (and filed shortly after that one, but almost a year after the acquisition had been announced), the amended complaint is a mix of that FTC-based copycat work and Sony talking points. The new parts of the amended complaint were hardly written by the same author(s): different kind of legal reasoning, different writing style, different terminology (for instance, "acquisition" instead of "merger"), and even a different font size and a different numbering of the prayers for the relief (now numbers, previously letters). It will be hard to prove that Sony's outside counsel ghostwrote part of it, but that's just what may have happened.
On Friday, lawyers for Sony (from the Cleary Gottlieb firm as always) entered their formal appearances in the San Francisco litigation, and a few hours later, Microsoft's lead counsel from the FTC case, Beth Wilkinson, submitted her pro hac vice motion. It was hardly a coincidence that Microsoft responds to Sony's increased involvement by bringing out the big guns. It was also known from a recent status report that a discovery dispute between Microsoft and Sony might arise from Sony's suspiciously forthcoming document productions to the class-action lawyers, though discovery matters--unless they have major ramifications--are typically left to non-lead counsel. Another possibility was and remains that the process is nearing the point at which the FTC will also have to move for a preliminary injunction. While the FTC was first to bring a complaint (which the class-action lawyers then piggybacked on), the private litigation is ahead in terms of a request for a preliminary injunction.
The first public filing submitted by (not only, but also) Mrs. Wilkinson is Microsoft's renewed motion to dismiss:
[フレーム]As the complaint has been modified, so has Microsoft's strategy for seeking dismissal. But before I discuss the current attack vectors, it's important to understand the interdependencies between the motion to dismiss ("MTD") (by Microsoft) and motion for preliminary injunction ("PI") (by Sony's new friends, the class-action lawyers) briefing processes. Both motions will be briefed near-simultaneously and heard together:
| MTD | PI | |
|---|---|---|
| motions | Apr 19 | Apr 21 |
| opposition briefs | Apr 28 | May 5 |
| reply briefs | May 3 | May 8 |
| hearing | May 12 | May 12 |
In between, there will also be another status conference (case management hearing) on April 27.
These are the overlaps between MTD and PI:
If the MTD succeeds, the PI is dead by definition (which is exactly what happened in the last round).
The absence of irreparable harm to the "gamers" who act on the class-action lawyers' (and by now potentially also Sony's) behalf appears to be the basis on which Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California will presumably deny the PI motion. But the plaintiffs' failure to establish an entitlement to a permanent (i.e., post-trial) injunction is also an independent basis for dismissal of the complaint.
The standards differ in nuances. For instance, the PI motion must show an "immediate" danger, but then the analysis of other aspects will be less elaborate.
The class-action lawyers--potentially with help from their Sony-counsel friends--now know Microsoft's "no irreparable harm" argument (which was foreseeable from the beginning: even if the gamers were right, they'd just have to buy an Xbox (half of them already own one) and pay a little more for games and subscription services, which is just monetary damage) from the MTD. They can try to address it in their PI. But whatever they say in the PI briefing process can be used by Micosoft in its May 3 reply brief in support of the motion to dismiss.
Judge Corley interestingly decided that Microsoft's opposition to the PI motion could focus exclusively on the absence of irreparable harm, and on the amount required for a bond. I'll say a few things about the bond further below. The merits don't seem to matter. It's possible that Judge Corley will--unless the motion is deemed ripe for outright dismissal, in which case the PI motion goes away at any rate--take the position that it's too early for the court to resolve all the factual questions, but even if those were (for the time being) considered a wash, the plaintiffs couldn't obtain a PI. Still, even if any of Microsoft's attacks on the theories of harm fell short of what is needed for outright dismissal, they could influence the judge's probability assessment, even if only informally.
Now let's talk about the MTD's attack vectors, and then finally the question of the bond.
The first complaint was so pathetic that Judge Corley was able to dismiss it simply because the plaintiffs' lawyers failed to plausibly allege that Microsoft would make Call of Duty exclusive to its platforms despite forgoing revenue opportunities on the PlayStation and other platforms. A foreclosure theory requires not only that foreclosure would have certain effects but also that there would be an incentive (and not, as here, strong disincentives) to engage in foreclosure.
The amended complaint still doesn't seem to make a plausible case for that, though I can't know for sure because it's heavily redacted (I base this assumption on a combination of the publicly accessible parts as well as what happened in some regulatory processes). But the MTD stage is not the one at which purely factual deficiencies (except in narrow contexts, such as with respect to jurisdictional issues) can be addressed by the court.
Microsoft now has three attack vectors:
The starting point of the analysis is whether the plaintiffs (the "gamers", though the lawyers are the real plaintiffs and now appear to be supported by Sony in whatever ways) have standing. Are they legitimately in a position to sue?
At the very end, if they were to have standing and to prove harm, there would be the question of whether they're entitled to an injunction. And that is closely related to the standing question. Whether they are actually harmed has bipolar relevance.
In between those two poles, there all the merits-related questions. Even though we're at the MTD stage where the hurdle is relatively speaking the lowest that the plaintiffs face, Microsoft argues the court can also throw out the amended complaint's horizontal and vertical theories.
In one respect, the amended complaint already conceded that they lacked standing: the class-action lawyers dropped the labor market theory, which was an attempt to differentiate their case from the FTC complaint. But now the magic term is "distant conjecture" as Microsoft's lawyers describe the fact that the plaintiffs cannot show any concrete (not abstract), imminent, and particularized (affecting them personally) harm. The amended complaint argues that somewhere further down the road--with development cycles for such games being in the 6-10 year range--the alleged anticompetitive effects might kick in. They say that they may buy future versions of Call of Duty or some future games. But courts have thrown out antitrust complaints that failed to provide reasonably specific dates on which the alleged harm would occur.
The standing part may succeed unless Judge Corley decides to take a permissive position at the MTD stage as merger cases are inherently prospective.
Absence of irreparable harm and therefore no entitlement to an injunction would be sufficient to dispose of the complaint, and if I had to bet money on one--and only one--of the MTD's attack vectors, I'd pick this one.
The merits-related argument for dismissal of the horizontal theory (consolidation among competitors) is about the plaintiffs' failure to define a relevant market for Triple-A Games. The numbers they provide are sales figures for publishers, and they don't clearly show what games are inside or outside a boundary. They don't how substitutability. The MTD's merits-based argument against the vertical foreclosure theories has three parts:
Microsoft argues the amended complaint fails to explain why its multiple access agreements (Nintendo, Nvidia, Boosteroid, Ubitus, EE) and the offer to Sony don't show that Microsoft neither has the ability nor an incentive to engage in foreclosure. Microsoft uses those agreements as another hurdle for the plaintiffs: they must make a plausibility showing that overcomes the significance of those contracts and the offer to Sony.
Intellectually, that makes sense. Practically, it will depend on whether Judge Corley believes the plaintiffs just need to make an initial plausibility showing (an MLex report on the most recent status conference suggests she believes the plaintiffs have met the initial hurdle) and Microsoft's counterargument would then be resolved later--or whether she says Microsoft's access agreements are an important fact to be considered and addressed now (and not just later, such as on summary judgment).
The access agreements also complicate things for the plaintiffs' argument concerning the multi-game subscription and cloud gaming markets: right now, Call of Duty is not available on various platforms where it will become available thanks to the transaction, so the deal is actually good for gamers (such as the nominal plaintiffs).
The distant conjecture argument comes into play again in connection with antitrust harm. Microsoft says that instead of pleading facts that show antitrust harm, the amended complaint just makes conclusory statements.
Dismissal was very likely last time; it's still rather likely based on lack of standing and/or irreparable harm. The arguments about the middle part (horizontal and vertical foreclosure theories) may succeed in requiring the plaintiffs to amended their complaint once again, but the definitive dismissal that Microsoft is requesting now is more likely to happen based on lack of standing and/or irreparable harm.
In the PI part of the May 12 hearing, the bond that plaintiffs would have to post in the (totally hypothetical, in my view extremely unrealistic) event that they were to obtain a PI is also going to be key. As Microsoft's MTD mentions, the harm that it would suffer would include--but not be limited to--the breakup fee in the merger agreement. If Microsoft couldn't close the deal by July 18, it would owe ABK 3ドル billion.
I've seen some curious and partly even absurd speculation on the internet about what the amount of the bond would be. While the amount of the bond has to be "proper", it does not mean that the plaintiffs' ability to afford a bond would play any role. It's strictly going to be about the damages that wrongful enforcement (if the injunction--which I never expect to come down anyway--got overturned) would inflict. Legal fees with respect to the injunction would be a small amount and are typically hard to recover in the U.S. (unlike in "loser pays" jurisdictions like Germany). But Microsoft would suffer harm in various ways going beyond the 3ドル billion breakup fee. Let's see what Microsoft will argue in its May 5 opposition brief to the PI motion, but I could see credible theories adding many more billions. However, what I don't see is that the bond would cover ABK's shareholders. At least I haven't seen anything like that in all of the cases I've watched, and while defendants have occasionally tried to make such an argument, I'm not aware of a case in which such a theory got traction. (Apparently Israel is the only common-law jurisdiction where it might work.)
The bond would not necessarily set a ceiling for the damages (though that argument is also occasionally made). It would just serve the purpose of ensuring that Microsoft gets paid up to the amount of the security even if the plaintiffs were to go bankrupt.
With billions at stake, it's impossible that ten random gamers and two relatively small class-action firms could afford that amount. Practically speaking, no bank or insurance company would cover that amount at a low cost. Instead, when amounts are this high, if you want to get a bond you actually have to deposit the money in a bank account. You effectively put the money in escrow with the issuer of the bond.
Should they claim they can afford it, then they're either dreamers or someone deep-pocketed is backing them just to "troll" Microsoft. That one would be Sony and/or Google.
Microsoft's MTD subtly reminds us that those "gamers" are not the real plaintiffs:
"In an analogous case where the plaintiffs sought to enjoin an airline merger on the theory that it would result in higher ticket prices and diminished service, the court found that the plaintiffs had failed to allege irreparable harm because they had 'not demonstrated that the remedies available at law, such as monetary damages, would be inadequate.' Taleff v. Sw. Airlines Co., 828 F. Supp. 2d 1118, 1123, n.7 (N.D. Cal. 2011). Here, too, Plaintiffs allege higher prices and a vague notion of reduced quality. They have not demonstrated that the remedies available at law would be inadequate."
I've looked up the Taleff v. Southwest Airlines complaint, and unsurprisingly the "gamers" formally suing now over the ABK deal were not the nominal plaintiffs then. But the Alioto law firm, which is one of two firms challenging the acquisition of ABK now, was counsel of record. Microsoft didn't capitalize the term "Plaintiffs" in a context that unambiguously refers to the "gamers" in the present case, but the reference to another case where one of the same firms failed to block a merger is telling. It's a law firm that will always find someone who will claim to be harmed as a consumer. And in the end they tend to lose...
Congressional Republicans, think tanks, advocacy groups question FTC's overall direction and particular stance on Microsoft-ABK
A Congressional hearing was held to discuss the FTC's request for a budget increase by hundreds of millions of dollars. The FTC's chair, Lina Khan, faced tough questions particularly from Congresswoman Diana Harshbarger (R-Tenn.) about her agency siding with Sony. And Republicans generally questioned her leadership style, as do some commentators and think tanks. Very recently, the Federalist Society also disagreed with the FTC's approach to Microsoft-ABK.
On Twitter I've already taken clear positions, and I just want to repeat them here:
I want strong competition enforcement in the tech sector, so I'm not against Mrs. Khan's agenda in general.
I just disagree with the FTC's positions on Microsoft-ABK, and in particular I think it's high time they rejoined the antitrust mainstream by dismissing Sony's console market theory of harm like six regulators have done in their final clearance decisions and the EC and the CMA did prior to final decisions.
One cannot blame her for not being able to speak out in detail on a pending case. She wasn't being evasive without a reason.
Mrs. Khan is right that it's the FTC's job to listen to all parties who provide relevant input, which includes market leaders--even foreign-based ones. It would be pure populism to dispute that duty, and unfair to doubt that the FTC reached its independent conclusions. That said, the FTC should recognize now that Sony's theories and arguments ring hollow. The CMA did a very honorable thing--which in my view shows strength, not weakness--by modifying its previous assessment. Why can't the FTC do that, too? It would be the right thing to do for all intents and purposes.
I agree with games YouTuber Destin Legarie that "the FTC is trying to do a lot of good and has accomplished a lot for consumers."
Competition Commission of South Africa finds unconditional clearance is warranted
I just mentioned that six regulators have cleared the deal. The first five were (in chronological order) Saudi Arabia, Brazil, Serbia, Chile, and Japan. The latest is the Competition Commission of South Africa (CCSA), which on Monday announced (PDF) the following:
The Commission has recommended that the Competition Tribunal (Tribunal) approve the proposed transaction whereby Anchorage intends to acquire Activision, without conditions.
The primary acquiring firm is Anchorage, a company registered in accordance with the General Corporation Law of the State of Delaware. Anchorage is a wholly owned subsidiary of Microsoft. In South Africa, Microsoft controls Microsoft (S.A.) Proprietary Limited (“Microsoft South Africa”) and Microsoft 1968 South Africa Proprietary Limited (“Microsoft 1968”). Anchorage does not control any firm/s in South Africa, whether directly or indirectly. Anchorage, Microsoft and all firms controlled by Microsoft are collectively referred to as the “Acquiring Group”.
The Acquiring Group, through Microsoft, is a global technology company active in the provision of several IT-related services. Relevant to the proposed transaction are its gaming activities, which involve the development, publishing, and distribution of games for PCs, consoles, and mobile devices through Xbox Game Studios. Microsoft also publishes games that are developed by other game developers. Microsoft offers Xbox gaming consoles and the Surface series of personal computers.
The primary target firm is Activision, a company registered in accordance with the General Corporation Law of the State of Delaware. Activision is not controlled by any single firm or shareholder. Activision does not control any firm in South Africa. Activision and all the firms it controls shall be referred to as “The Target Group”.
Globally, Activision develops games for PCs, consoles, and mobile devices and publishes them in most countries around the world. Activision does not own any console (such as PlayStation or Xbox) but its games can be played on both of these consoles. One of the popular games developed and published by Activision is Call of Duty.
The primary competition concern in this transaction arose from the (vertical) concern that Microsoft may, post-merger, restrict the distribution of Call of Duty to the Microsoft console, Xbox, or make Call of Duty available on terms that exclude or undermine the ability of other console manufacturers to compete.
The Commission found that the proposed transaction is unlikely to result in significant foreclosure concerns as the parties do not have the ability and incentive to foreclose competing game distributors, particularly Sony (Playstation) and Nintendo (Switch). Furthermore, the merging parties have made undertakings to continue supplying Call of Duty games to other console manufacturers.
Therefore, the Commission found that the proposed transaction is unlikely to result in a substantial prevention or lessening of competition in any relevant markets. The Commission further found that the proposed transaction does not raise any substantial public interest concerns.
The passage that refers to Microsoft's "undertakings" could be misunderstood, but the first paragraph leaves no doubt that the CCSA did not impose any remedies. It merely took note of relevant facts, but the clearance is unconditional.
As the Monday announcement says (I quoted its key parts on Twitter), this is a recommendation to the Competition Tribunal of South Africa. It is hard to imagine, however, that this wouldn't be the final outcome. The process was similar in Brazil, by the way, where the initial clearance decision by CADE also had to be--and indeed was--adopted by another decision-making body.
UK Competition & Markets Authority's decision deadline nears--and coincides with Microsoft's participation in Downing Street No 10 games industry event
The UK CMA's decision date is April 26: next Wednesday. They could also announce their decision a day or two ahead of schedule, but for practical reasons I can't imagine it would still happen today or tomorrow.
The fact that there'll be a games industry event at the prime minister's office on the same day (26th), with Microsoft participating, appears purely coincidental to me:
Microsoft is showcasing at a games industry event inside 10 Downing Street on April 26. The same day as the UK CMA decision on ABK. pic.twitter.com/z7XPdo6abK
— Xbox News (@_XboxNews) April 19, 2023
Some people have also noticed Microsoft ads at London tube stations, promoting the fact that the deal will bring Call of Duty to 150 million more gamers. Some made it sound like Microsoft must be very confident; others speculated that Microsoft was trying to sway the CMA. I would say that those ads (seen together with UK newspaper ads Microsoft placed earlier this year) show the company's commitment to this transaction, and obviously the UK decision is going to very important now. I had faith in the CMA process even when many other commentators didn't, and I hope and trust I won't be disappointed.
On some other occasion I'll discuss the CMA's market test of remedies proposed by Google in the Android app distribution context, an antitrust topic that takes us to the final part of this post:
Google's procedural agreement with Epic Games and Match Group reflects ABK's stronghold in mobile gaming
Yesterday I noticed (and discussed on Twitter) a stipulation that Epic Games, Match Group (Tinder), and defendant Google filed in their antitrust litigation in the Northern District of California over the Google Play Store. It relates to the per se Sec. 1 violation claim I discussed on earlier occasions, such as in November when it became known that Epic and Match were allowed to amend their complaints accordingly and that Google had paid ABK 360ドル million primarily for the purpose of ensuring ABK's games would remain on the Google Play Store and not be made available through an ABK app store. May I refer you to my earlier writings (with the previous link being a good starting point) on that topic. In a nutshell, per se violation means that if Epic and Match prevailed on showing anticompetitive conduct, there would be no rule-of-reason analysis where Google could present justifications like "privacy" and "security" (which wouldn't be procompetitive justifications anyway).
The enormous importance of ABK as a mobile game maker was now shown again by the agreement between plaintiffs Epic and Match and defendant Google I mentioned:
With respect to Count 4 of Epic’s Second Amended Complaint and Count 6 of Match’s First Amended Complaint, Epic’s and Match’s per se claims are limited to Google’s agreements with the following developers: Activision Blizzard, Inc., RiotGames, Inc. and Supercell.
Neither Epic’s nor Match’s counsel will argue or assert or seek to elicit testimony uggesting that any Games Velocity Program or Apps Velocity Programagreements other than those entered into with Activision, Riot and Supercell were horizontal agreements not to compete that were intended to, and did in fact, prevent the launch of an app store on Android by the counterparty to such agreement andthat are per-se illegal under Section 1 of the Sherman Act. For the avoidance of doubt, nothing herein shall prevent Epic or Match from arguing to the jury that anyo r all GVP and AVP agreements are vertical agreements in restraint of trade thatviolate Section 1 and/or Section 2 of the Sherman Act (or any antitrust or unfair competition state statute).
Google entered into "Project Hug" agreements with about two dozen game makers at the time. ABK got the largest amount. As I've also explained on Twitter, it would be wrong to focus only on King (Candy Crush) when discussing Microsoft's statement that the acquisition of ABK is mostly about gaining a foothold in mobile gaming: mobile versions of various Activision (Call of Duty) and Blizzard games are also very popular. But, of course, Candy Crush is the mobile game that has reached the broadest possible audience, including me (well above level 1,400 as I mentioned on other occasions, though I've only played a few more levels this year).
The effect of that Epic-Match-Google stipulation is that ABK, Riot Games (League of Legends), and Supercell (Clash of Clans, Hay Day) will be the three game makers with respect to which Epic and Match will argue that Google entered into agreements that constituted per se violations of Sherman Act Sec. 1. The other 20 or so "Project Hug" agreements will also be relevant, but not on a per se basis.
ABK firmly denies that the related agreement with Google was anticompetitive. While I agree with ABK on a number of other questions, I respectfully disagree on this one and side with Epic and Match. I don't view ABK as a culprit here: Google masterminded those agreements and signed them with two dozen game makers. I can see why ABK doesn't want to be liable for anything, but to me it's very clear (also based on some of the testimony and evidence already shown by Epic and Match) that the purpose of the deal was to cement Google's Android app distribution de facto monopoly. Those deals also related to cloud services, YouTube ads etc., but in my view those other elements were just fig leaves and the Google Play Store is what Google really cared about.
Tuesday, April 11, 2023
Microsoft signs next 10-year cloud gaming deal; Sony provided charts to spruce up the so-called gamers' lawsuit over Microsoft-ActivisionBlizzard, and its lawyers may have ghostwritten the new complaint
In the latest news concerning Microsoft's acquisition of Activision Blizzard King, Microsoft's Xbox executives announced this morning a 10-year cloud gaming agreement with UK internet service provider EE:
Great to share yet another example of how the video game industry can bring new opportunities to UK businesses and industries. 💚🎮💫 https://t.co/OOojWog7Xx
— BondSarahBond🎮 (@BondSarah_Bond) April 11, 2023
Microsoft has previously entered into such agreements with Nvidia, Boosteroid, and Ubitus. The fact that EE is a British company makes the timing particularly interesting. According to the Policy and Regulatory Report (PaRR), the UK Competition & Markets Authority (CMA) will likely send its draft decision and remedies working paper to Microsoft and ABK this week. Thereafter, the parties get five working days to respond, and then the ruling will be finalized.
In other Microsoft-ABK news, the class-action lawyers behind the so-called gamers' lawsuit in the Northern District of California just filed their amended complaint after the original one got thrown out as a result of a Microsoft motion to dismiss. I mentioned that dismissal in a recent post. Originally those lawyers, who have lost numerous merger cases of a similar kind, told Ars Technica they wanted to file about two weeks ago, but instead they exhausted the deadline (formally 20 days, but practically 21 because of the weekend) until almost literally the last minute: they filed only a very few minutes before midnight Pacific Time. First, the document:
[フレーム]They've given up on their labor market theory, which was an attempt to differentiate their theories from those pursued by the FTC in its in-house adjudicative proceeding. They lacked standing because the plaintiffs may be able to claim that they play games, but not that they're gamne industry employees.
Those lawyers have lost various merger cases as the following excerpt from a filing by ABK shows (click on the image to enlarge):
The new complaint they filed last night might still be dismissed (in whole or in part), but it's going to be harder than last time because now they've tried hard to present facts that they hope meet the plausibility threshold.
Since the original complaint in December, a number of documents have been released by regulators, particularly the UK CMA's provisional findings and responses to them. Also, the class-action lawyers have received some material as a result of initial discovery. The court's original idea was to just give them access to material from the FTC proceeding until they would potentially obtain a preliminary injunction (and their motion for a PI was never adjudicated as a result of the dismissal).
Only one party "jumped" to provide material to them, and that one is Sony. To Microsoft's surprise, as Stephen Totilo of Axios noted on Twitter:
Updates in "gamer lawsuit" meant to block Microsoft-Activision deal
— Stephen Totilo (@stephentotilo) April 10, 2023
- After initial dismissal, amended suit to be filed today
- Gamers' lawyers were to depose Nintendo of America pres. Doug Bowser, but Nintendo refused after dismissal
- Sony's been sharing docs, to M's "surprise" pic.twitter.com/TOOsWPOXmZ
I, too, had noticed that paragraph in a recent case management statement, but wanted to wait and see how significant the information volunteered by Sony was. Now I believe that Stephen Totilo was on to something.
Sony has not just complied with a discovery request but gone beyond the proverbial call of duty. For instance, the new complaint incorporates charts provided by Sony. The charts themselves are redacted, but a separate filing indicates that Sony provided them (click on the image to enlarge):
The document is also stylistically distinct from the original complaint. There is a possibility of Sony's outside counsel having ghostwritten some or all of the new passages. I've also noticed that the font size has changed, which is not conclusive evidence but makes it a possibility that someone other than the author of the original document created the new one.
The "arguments" just echo Sony's, including stories that regulators have rejected.
The plot is thickening that Sony--which is desperate because it's apparently not going to find a regulator that wants to block the deal. It's possible that Sony is now--as a last resort, sort of a Hail Mary--hoping that those class-action lawyers in California can somehow prevent the acquisition from consummating.
Yes, this is speculative. But there are certain indicia.
Saturday, April 8, 2023
Qualcomm moves for summary judgment against ruins of class action that piggybacked on FTC lawsuit -- Judge Corley mentioned possibility of new class action over exclusive dealing
Class-action lawyers tend to be persistent even when they're losing. They hope until the end that they may get paid. But some large companies--and Qualcomm appears to be one of them--are unwilling to settle for nuisance value. They just defeat them.
Coincidentally, Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California presently has two ultra-flimsy class actions piggybacking on FTC lawsuits before her: the one against Qualcomm I'm discussing here, and one over Microsoft-ActivisionBlizzard, which I tweeted about this morning.
In January, Judge Corley further narrowed the scope of the Qualcomm action. It's now down to an exclusive-dealing claim (the Qualcomm-Apple agreement that allegedly kept Intel out of the high-end baseband chipset market), and even that one can only be pursued under California state law, not federal law. The class-action lawyers hoped to get access now to Qualcomm's 2019 settlement agreement with Apple--which they haven't seen because discovery closed in 2018--but that's after the class period. Judge Corley held a hearing on February 23, 2023, where she said she was "not inclined to reopen discovery."
In my commentary on the last order to dismiss certain claims, I already said that the remainder of the case "will hardly survive summary judgment." Actually, if it was up to Qualcomm's lawyers, it wouldn't even have reached the point of a summary judgment: they'd have preferred to defeat the remainder of the case through a motion for judgment on the pleadings. But Judge Corley didn't like that notion, given that the usual purpose of judgment on the pleadings is to obviate the need for discovery--and here, discovery closed years ago ("the record is full"). It's more efficient for the court this way, given that if a judgment on the pleadings was successfully appealed as premature (for failure to consider anything in the record), the case would be remanded and she'd then have to adjudicate a motion for summary judgment.
Yesterday (Friday), Qualcomm filed its motion for summary judgment:
[フレーム]Talking about different types of pretrial motions, large parts of that motion look at first sight like a Daubert motion for taking aim at law professor Elhauge's expert testimony--and quite extensively so. But the argument is not about his testimony being unreliable. It's about relevance to the questions to be decided. The expert testimony was optimized for the original theory, which was that Qualcomm abusively raised standard-essential patent (SEP) royalties to supra-FRAND levels, while the class-action lawyers are now trying to keep the case alive by arguing that Qualcomm's exclusive deal with Apple shut Intel out of the market and thereby made chipsets more expensive. As Qualcomm describes it, the class-action lawyers have "flipp[ed] from arguing that Qualcomm was undercutting competitors on chip prices to arguing that Qualcomm was overcharging OEMs." Here's my favorite sentence from that document:
"In short, there are gaping voids where one would expect evidence of causation to be."
The problem is even more fundamental than shifting from "undercutting" to "overcharging": until the case got destroyed for the largest part, the class-action lawyers insisted on a holistic perspective and the alleged interdependencies and mutually reinforcing effects of Qualcomm's various practices--all of that for the ultimate goal of arguing that the combination of multiple intertwined aspects of Qualcomm's conduct made SEP licenses more expensive. Qualcomm says in its motion for summary judgment that they can't pursue exclusive dealing as a standalone claim now that it's all that's left in the case (and again, for the avoidance of doubt: even that one is already dead under federal law).
At the February 23 hearing, Judge Corley already discussed this problem with the class-action lawyers:
"Well, why not file a new lawsuit? I mean, you had a theory, as I understand it. It was all intertwined. It was all intertwined and it was based, in part, on the FRAND theory, which the Ninth Circuit rejected. Okay. I mean, that’s just what happened. But that -- you could have pursued -- and maybe you’ll tell me and you’re going to say that the evidence is there to support the claim, so maybe you did. You could have pursued a separate exclusive dealing theory that was not dependent upon the FRAND, but maybe you chose not to. Okay. That was just a strategic choice."
There are four named smartphone customers in the current class. The class-action lawyers could just find some others (on whom the decisions in the present case will not be binding) and bring a new complaint, as Judge Corley also explained at the hearing.
In that case they would also get to look at more recent documents, potentially including the 2019 Qualcomm-Apple contracts.
For now, the class-action lawyers don't want to give up on whatever little is left of their original case. But I guess Qualcomm's motion will succeed. Will they choose to file a new lawsuit to pursue a standalone exclusive-dealing claim? I doubt it. They know that the FTC--despite support from Apple (the two had a mutual interest agreement in place)--failed to prove that Intel was ready to compete with Qualcomm at the relevant time (and in 2019 Intel even left that market, sold the chipset business to Apple, and Apple still can't make its own baseband processors for the iPhone). A follow-on class action with a standalone exclusive-dealing claim would be doomed to fail as well.
Wednesday, March 15, 2023
Activision Blizzard acquisition won't close before May 22, Microsoft is prepared to stipulate in San Francisco court
Ahead of a motion-to-dimiss hearing and case management conference on Thursday, Microsoft and the lawyers who are the driving force behind the so-called gamers' lawsuit in the Northern District of California have filed a joint case management statement. Those lawyers are, by the way, frequent losers in such merger cases as I'll show further below.
You can find the document at the end of this post. Here are a few tidbits:
Microsoft is now prepared to extend an existing stipulation not to close the merger before May 1 (which the court accepted) by three weeks to May 22, 2023.
Microsoft recalls that "[t]he regulatory review process in the EU, UK, and several other jurisdictions must be cleared (in addition to defeating the FTC’s promised preliminary injunction motion) so that the merger can close before the drop-dead date in the merger agreement of July 18, 2023."
The lawyers adverse to Microsoft don't want any of that. They obviously wouldn't talk about their real motivation, part of which is that the court won't let them conduct their own discovery until after the preliminary injunction decision (so far, they get documents from the FTC proceeding--already "totaling over 13.3 million pages of documents of 4,285 gigabytes of data").
If the past is any indication, Judge Jacqueline Scott Corley--whose court is the single most important U.S. federal district court for the technology industry--is going to be receptive to the idea of pushing back the preliminary injunction hearing, which is currently scheduled for April 12. Any postponement entails the possibility of a hearing never having to happen at all; at least it means other--objectively urgent--items get resolved sooner. The strongest argument is that things remain in flux, as evidenced by Microsoft's announcement yesterday of a 10-year deal (involving Call of Duty) with cloud gaming platform Boosteroid--with more such announcements apparently to come in the weeks ahead.
Microsoft's summary of the status of the European Commission's merger review states the exact date on which the EC's Statement of Objections was received: January 31.
I don't want to read too much into the following, but it is worth nothing that Microsoft says "potential remedies [that are being discussed with the EC] "may or may not be necessary." According to media reports, it was already known that no divestiture remedies were going to be required by the EU's antitrust enforcers. But the three words "or may not" indicate that it is not even a given that any formal remedies will be imposed. In that scenario, the EC could--as it has in other cases including one in which I actively participated over a decade ago--grant clearance based on public statements and such facts as the license agreements that have been concluded by the time the decision is made. I said one shouldn't read too much into it because Microsoft's U.S. lawyers may merely have chosen that wording based on the fact that the EC theoretically could clear with or without formal remedies, regardless of whether a formally unconditional (though based on facts that are tantamount to remedies) clearance is likely to happen. It is known that Microsoft is prepared to address any concerns, and the question is then what exactly a regulator requires. There is always the possibility of appeals (as Microsoft's president mentioned in yesterday's Wall Street Journal), and with a view to an appeal a party would want to preserve its argument that it is actually entitled to unconditional clearance.
The part about the CMA says nothing new (see my March 8 post on the UK merger review), and doesn't talk about the possibility of unconditional clearance.
The plaintiffs' lawyers subpoenaed Sony, and Sony Interactive Entertainment CEO Jim Ryan isn't too interested in talking to them: he could have authorized U.S. lawyers to accept the subpoena on his behalf, but instead he wants to be served in his country of residence, the UK, which would take some time. While I have criticized Sony for not being as cooperative with the FTC as they should be, I don't blame them for not wanting to talk to those class-action lawyers from California.
Activision Blizzard has brought a motion to quash their subpoena. In that one, they ridicule the track record of those lawyers ("counsel with a long history of unsuccessful challenges to high-profile mergers just like this one") and provide a long list of failures of those lawyers:
"In recent and past years, Plaintiffs’ counsel has filed a series of unsuccessful, eleventh-hour challenges to high-profile mergers that either had closed or were about to close. See, e.g., Bradt v. T-Mobile US, Inc., 2020 WL 1233939, at *1 (N.D. Cal. Mar. 13, 2020) (denying motion to enjoin merger pending appeal after plaintiffs lost motion for temporary restraining order); Dehoog v. Inbev, 2016 WL 5858663, at *1 (D. Or. Oct. 3, 2016) (dismissing antitrust challenge to merger of Anheuser-Busch InBev and SAB Miller), aff’d sub nom. DeHoog v. Anheuser-Busch InBev SA/NV, 899 F.3d 758 (9th Cir. 2018); Taleff v. Sw. Airlines Co., 828 F. Supp. 2d 1118, 1125 (N.D. Cal. 2011) (dismissing antitrust challenge to merger of Southwest Airlines and AirTran); Cassan Enters., Inc. v. Avis Budget Grp., Inc., No. C10-1934-JCC, slip. op. at 6 (W.D. Wash. Mar. 11, 2011) (dismissing antitrust challenge to Avis’s proposed acquisition of Dollar Thrifty); Malaney v. UAL Corp., 2010 WL 3790296, at *15 (N.D. Cal. Sept. 27, 2010) (denying motion to enjoin merger of United Air Lines and Continental Airlines), aff’d, 434 F. App’x 620 (9th Cir. 2011), cert. denied, 132 S. Ct. 855 (2011); Golden Gate Pharmacy Servs., Inc. v. Pfizer, Inc., 2009 WL 3320272, at *2 (N.D. Cal. Oct. 14, 2009) (dismissing antitrust challenge to merger of Pfizer and Wyeth); Ginsburg v. InBev NV/SA, 649 F. Supp. 2d 943, 952 (E.D. Mo. 2009) (dismissing antitrust challenge to InBev’s acquisition of Anheuser-Busch), aff’d, 623 F.3d 1229 (8th Cir. 2010); Madani v. Shell Oil Co., 2008 WL 7856015, at *4 (C.D. Cal. July 11, 2008) (dismissing antitrust challenge to joint ventures between Shell and Texaco), aff’d, 357 F. App’x 158 (9th Cir. 2009); Am. Channel, LLC v. Time Warner Cable, Inc., 2007 WL 1892227, at *7 (D. Minn. June 28, 2007) (dismissing antitrust challenge to Time Warner’s acquisition of Adelphia)."
There are many better class-action law firms in the United States. It is telling that no high-profile firm is challenging the merger. Only some habitual losers are. (I was just talking about class-action firms, not about a government agency that has also been losing a bit too often lately and may or may not bring its own PI motion.)
I read between the lines that those class-action lawyers are costing Microsoft's counsel a lot of time, which has cost implications. The class-action lawyers say they don't want to engage in alternative dispute resolution (typically mediation), and that's because it would slow down things. But I'm sure that all they want is a settlement, and increasing the cost of Microsoft's defenses appears to be part of their strategy.
Here's the joint filing:
[フレーム]Friday, February 17, 2023
Qualcomm opposes class-action lawyers' attempt to obtain its 2019 contracts with Apple
About a month ago, Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California further narrowed the class-action lawsuit against Qualcomm that sought to piggyback on FTC v. Qualcomm. By now, the case is down to exclusive-dealing claims under California state laws. There are no more Sherman Act claims, and no more claims that are specifically about the licensing of FRAND-pledged standard-essential patents (SEPs).
The question is where to go from here. Qualcomm would obviously like to get rid of the remnants of that litigation at the earliest opportunity, and I could easily picture a summary judgment motion succeeding. The class-action lawyers' last chance to extract any fees from Qualcomm is to make the continuation of this litigation costly for Qualcomm in different ways. A filing that was made about an hour ago shows that they are now primarily betting on Qualcomm's desire to keep the terms of its 2019 settlement with Apple under wraps. Here's the joint case management statement the parties just filed to state their divergent positions:
[フレーム]The class-action lawyers have made an about-face in the sense that the case was originally about Qualcomm allegedly charging supra-FRAND SEP royalties, and now it's about Qualcomm's discounts to Apple (and potentially other device makers, but the plaintiffs can't name any) that were subject to certain exclusivity arrangements. The class-action lawyers say those discounts were actually just "loyalty penalties" (meaning that Qualcomm could claw them back in the event of disloyalty).
The following sentence shows how the focus has changed:
"Specifically, Plaintiffs’ experts are likely to focus on the chipset overcharge caused by Qualcomm’s exclusive dealing, instead of the overcharge caused by Qualcomm’s licensing practices, which heretofore had been the focus in both Plaintiffs’ and the FTC’s case."
After all these years, they now ask for "limited, additional discovery related to their exclusive dealing claim and to submit expert reports, which will focus entirely on Plaintiffs’ exclusive dealing claims and the antitrust impact those exclusive deals had on consumers." As Qualcomm puts it, "Plaintiffs request to re-open fact discovery for nine months, followed by several months of expert reports and expert discovery, and eventually briefing on the certification of some class, in an attempt to manufacture a claim where none currently exists."
This is how the class-action lawyers seek to justify that request:
"Qualcomm’s 2019 Agreement with Apple: Plaintiffs request that Qualcomm produce its 2019 agreements with Apple (including its settlement agreement, license agreement, and chipset supply agreement). Among other things, based on the public statements describing this agreement, it appears relevant to showing the extent to which Intel was truly foreclosed by Qualcomm’s prior exclusive dealing, thereby requiring Apple to return to Qualcomm for chipset supply even after initially awarding some of its chipset business to Intel."
To me that passage is a non sequitur. What I suspect is that they primarily hope Qualcomm doesn't want to take the risk of that agreement being discussed in public filings and potentially a trial. A secondary motive may be that they hope to find something in those 2019 Apple-Qualcomm contracts that would enable them to develop a new theory, such as in a whole new complaint. They are also talking about the possibility of a third amended complaint, though--as Qualcomm notes--Judge Corley already said last year that the Second Amended Complaint was going to be the last one.
I'd certainly be curious to find out more about the terms of the Apple-Qualcomm settlement, but I think Qualcomm has strong arguments against a reopening of discovery in this multi-year litigation, given that the contract was concluded AFTER the class period.
Tuesday, February 7, 2023
Credit card issuers' Apple Pay antitrust complaint at risk of dismissal in Northern District of California over market definition, but appeal could succeed if Epic Games prevails on market definition
The class-action antitrust lawsuit in the Northern District of California over Apple Pay was amended in October (which I also considered advisable, if not necessary, based on Apple's first motion to dismiss). Then Apple brought another motion to dismiss, and a few hours ago filed its reply in support of that motion:
[フレーム]The hearing will be held in two weeks, and given the current situation in the Northern District of California, there is a fairly high probability of Apple's motion succeeding. A dismissal by Judge White is fairly possible, even with prejudice, but if it happened, it wouldn't necessarily be the final outcome.
If we look at the issue in practical terms, there obviously are many and--as compared to the average citizen--rather affluent people who want to use their iPhones for convenient and contactless mobile payments. They could pay cash, but that wouldn't be contactless. If they use contactless cards that come with NFC or RFID chips, they will sometimes be prompted to enter a PIN for security reasons, such as when payments exceed a certain amount. Also, it's easier to lose (and not notice the loss of) a credit card than of one's phone. Customers could buy a second smartphone--an Android phone--and use it for payments, but they're not going to spend that money, much less will they want to carry a second phone with them just to have more choice among contactless mobile payment systems. Therefore, the best practical choice they have is Apple Pay, but it is not because Apple did a better job: it's because Apple makes Apple Pay the only game in town by not allowing other apps to make use of the iPhone's NFC chip for mobile payment purposes. An aftermarket monopoly: Apple's iOS competes with Android, but once customers have chosen one system or the other, competition between Apple and Google (and their respective ecosystems) ends.
It is a reality that not every iPhone user actually uses Apple Pay: only about half of them do, but the other half also has to make payments. Apple points to that indisputable fact as evidence that the area of effective competition is necessarily wider than "Tap-and-Pay iOS Mobile Wallets"--the market proposed by the credit card issuers.
Apple argues that one must focus on the "basic task": to make payments. At least "physical tap-and-pay cards are alternatives" and "the most obvious substitute to Apple Pay" according to Apple.
Apple essentially argues that a market cannot be delineated based on characteristics (such as more/less security or convenience) as long as products are "by definition interchangeable." In the alternative, "single-brand markets would be the rule rather than the exception, as one could always point to differences between products used for the same function to claim that they somehow do not compete."
That is a reductio ad absurdum, but then one could also argue that Apple's proposed focus on just the basic function of making payments would always lead to ridiculously overbroad market definitions.
That's why it's a highly case-specific determination: some characteristics are considered to be part of the definition of the relevant function, while others are just typical of a differentiated product market in which competition may actually be healthy.
In FTC v. Meta (a case in the same district over Meta's Within acquisition), Judge Davila rejected Meta's overbroad market definition that came down to all workout options being interchangeable and adopted the FTC's proposed market definition of "VR dedicated fitness apps" in terms of VR apps that are "designed so users can exercise through a structured physical workout in a virtual setting anywhere they choose to use their highly portable VR headset." But in Pistacchio v. Apple, a market for iOS subscription-based game services was rejected, and I had my doubts about that one, too, just like I now disagree with the FTC's market definitions in the Microsoft-ActivisionBlizzard context.
The class-action lawyers want to have it both ways. They make a Kodak/Newcal single-brand market argument, but they also argue that their market definition is "brand-neutral." There would be multiple market actors if Apple was forced to allow third-party digital wallet apps to use the iPhone's NFC chip in the same ways as Apple Pay uses it (just like Google allows alternative payment apps on Android; I recently configured Google Pay, but there are alternatives). But that doesn't make it brand-neutral. A market definition that includes iOS is a single-brand market, plain and simple. Replace "iOS" with "mobile" and it's truly brand-neutral.
Without a doubt, the plaintiffs' lawyers are aware of the case law in the Northern District. Apple's argument for dismissal points to Judge Chen's January 2022 dismissal of Reilly v. Apple, a case that an app developer brought over the removal of his app (named Konverti) from the App Store. What's really crazy about that case is that the developer says he spent about 150ドルK developing his app (and he couldn't afford a major law firm), but Apple was represented by Gibson Dunn and even Mark Perry (now with Weil), the same lawyer who is Apple's lead counsel on appeal in the Epic case. It almost certainly cost more to just have Gibson Dunn read the complaint and form an initial opinion on it than the plaintiff had spent developing his app. But I can see that Apple did not want to take any chances when there was a risk of a single-brand market definition being adopted.
One aspect of the Affinity Apple Pay case that I haven't formed a definitive opinion on is whether the proper approach would be to argue that Android and iOS compete in the foremarket, and the first-degree aftermarket is then app distribution, given that Apple relies on its App Store monopoly to maintain its Apple Pay monopoly. The "Tap-and-Pay iOS Mobile Wallets" market would then be a second-degree aftermarket, which is comparable to in-app payment services in Epic's case.
I have previously stated my belief that the key to solving all those Apple problems (even App Tracking Transparency) is to tackle the App Store (including app review) monopoly. Epic's lead counsel on appeal argued at the mid-November Ninth Circuit hearing that his client should win even under the district court's market definition because the justifications offered by Apple aren't procompetitive justifications. That's understandable, but I'm philosophically much closer to what Circuit Judge Milan D. Smith said at the hearing about the first step being to get the market definition right. I consider it the more logical approach, but I also believe that it would solve more problems (when looking beyond just Epic's case). I remain hopeful that Judge Smith and at least one other member of the panel will overcome concerns over a failure of proof, and that he can then win over at least (former Chief) Circuit Judge Sidley Thoams. The district court's decision not to believe Epic's expert on lock-in need not be dispositive. There's enough in the record, including in the district court's opinion. And if all else fails, the appeals court can just focus on those justifications, a topic the two circuit judges on the panel already dealt with in the case that became known as NCAA v. Alston when it was ultimately decided by the Supreme Court.
This month's hearing is going to be an uphill battle for the credit card issuers in light of the Epic and Reilly decisions in the same district. In Epic, the judge got market definition wrong. In Reilly, another judge relied on Epic, and one of the very best litigators in the entire United States--Mark Perry--squared off with a "no name" attorney. But those decisions are now precedent in that district, and the credit card issuers' best hope is probably that the Ninth Circuit decision in Epic v. Apple will come down and strengthen the case for a single-brand market, either before Judge White adjudicates Apple's motion to dismiss the Affinity complaint or after a dismissal, in which case an appeal might succeed.
I certainly agree with Apple is that there is no "tying" argument here with respect to end users: they don't have to use Apple Pay. But there is monopoly abuse, provided that a single-brand market definition is adopted, and it may take more than one aftermarket to get there.
Tuesday, January 31, 2023
Microsoft offers commitment to U.S. court not to close Activision Blizzard merger before May, but seeks outright dismissal of so-called gamers' lawsuit anyway
On January 19, Microsoft stipulated during a U.S. court hearing (on its motion to stay the so-called gamers' lawsuit in the Northern District of California) that it would not consummate the acquisition of Activision Blizzard King (NASDAQ:ATVI) before March 31, 2023 at the earliest. Microsoft
is now prepared to push back that earliest possible closing date to May 1, which would make it possible to hold the preliminary injunction hearing later and have more time for briefing the motion (currently the hearing is scheduled for March 23), but
is primarily asking Judge Jacqueline Scott Corley to dismiss the private lawsuit in its entirety. The motion-to-dismiss hearing is requested for March 9, which means that the March 23 case management conference as well as the PI hearing may never have to be held in the first place.
No particular reason is given. The court did not formally stay the case, but relied on Microsoft's stipulation when setting its initial schedule. Microsoft asks the court to adjudge its motion to dismiss regardless of any commitments not to close the deal before a given date.
Here's Microsoft's motion, filed late Tuesday afternoon Pacific Time:
[フレーム]The May 1 date is found in a footnote toward the bottom of page 13 (page 19 of the PDF document).
Microsoft's motion presents three independent grounds for dismissal, the first one of which (failure to plausibly allege anticompetitive effects) has three parts. It would take just one of the other two grounds (unripe claims, lack of standing) for the court to hold that it lacks subject matter jurisdiction (lack of standing could not be cured, but if the claims were just deemed unripe at this point, the plaintiffs could refile at a later stage). Furthermore, Microsoft seeks dismissal of plaintiffs' prayer for injunctive relief--the only remedy the complaint is requesting at this stage.
Depending on what the court agrees or disagrees with, the outcome of this motion could range anywhere from a denial of the motion to a dismissal of the entire complaint with prejudice (meaning that it could not be refiled), with a variety of possibilities in between those binary results. For example, the court could also dismiss some theories of harm without prejudice (allowing plaintiffs to bring an amended complaint).
The Twombly standard applied by U.S. courts is that an antitrust complaint must not merely allege facts that, if taken as true, would support an actionable claim, but that such facts must also be plausible. I see Twombly motions in antitrust cases all the time, and at first sight Microsoft's Twombly arguments suggest to me that the class-action lawyers who brought that complaint prepared it rather hastily. They saw the FTC's in-house lawsuit and obtained some filings from other jurisdictions and tried to piggyback on the regulatory processes with their federal lawsuit. Microsoft's motion attacks (as it must) each of the different theories of harm separately:
With respect to horizontal concentration (i.e., both Microsoft and Activision Blizzard make games), Microsoft rejects as "unsupported (and vastly incorrect)" the allegation of having a 23.9% market share "of some undefined market for game publishing" and Activision having a 10% market share.
As for vertical foreclosure (Microsoft not making Activision Blizzard's games available to other console makers, subscription services etc.), Microsoft says the complaint has nothing to offer but a "highly speculative theory" and notes that if "[a]n allegation that a company might foreclose competitors' access to a product" sufficed, "almost any pleading would survive the pleading stage and proceed to expensive discovery."
The motion says "only a few brief, conclusory statements" in the complaint relate to a theory of a lessening of competition in a video game labor market.
If the court finds the complaint lacking and wanting in one or more of those regards, it may allow plaintiffs to amend their complaint (dismissal without prejudice).
The motion notes that U.S. courts have previously dismissed private antisuit lawsuits against prospective mergers because they were unripe. In particular, Microsoft points to a Seventh Circuit decision in South Austin Coalition Community Council v. SBC Communications, Inc. and the adoption of that reasoning in this district (Northern District of California) in the 2011 AT&T Mobility LLC v. Bernardi decision. The interesting part there is that private litigation is premature when things are in flux. The regulatory reviews can lead to commitments (such as Microsoft's ten-year deal with Nintendo), and regulators can impose remedies. As a result, a case may go away in whole or in part. That fact has been key even in cases where only one regulatory approval was outstanding, and here there are merger reviews in multiple key jurisdictions (plus the FTC's in-house lawsuit).
The regulatory reviews come up again in connection with the first part of Microsoft's argument that those private plaintiffs lack standing. With respect to the alleged effects on a vieo game labor market, Microsoft notes that "[n]one of the Plaintiffs allege that they work in the video game industry or even plan to seek employment in the video game industry" and, therefore, they cannot claim that there would be "a concrete, particularized, and imminent harm to themselves."
The final part of the motion discusses why those plaintiffs are not entitled to an injunction. That one is not surprising at all. We will see it again when Microsoft files its opposition to the motion for a preliminary injunction, unless the court dismisses the complaint before that brief ever gets filed. In its motion to stay, Microsoft argued that the PI request was premature; in its motion to dismiss, it's about the key requirement that an injunction is available only when monetary relief (damages) would be inaquedate. The motion does not put it like that, but in the end it comes down to this: the worst-case scenario for those gamers is that they have to buy an Xbox in addition to a PlayStation, plus they would pay a little more for each game they buy (none of which makes sense, but that's the worst-case scenario even if one agreed with the theories found in the complaint).
In a hypothetical scenario in which the complaint survives the motion to dismiss in part, but at least the claim for injunctive relief is thrown out at this stage, the plaintiffs would have to bring a new complaint seeking damages.
In a couple of weeks we'll see the plaintiffs' opposition to this motion.