FOSS Patents

Now that the public redacted version (PDF) of Judge Edward J. Davila's order denying the Federal Trade Commission's motion for a preliminary injunction against Meta's acquisition of virtual reality (VR) software and content maker Within has been released, it's easy to tell what bearing has--and does not have--on the FTC's politically motivated efforts to torpedo Microsoft's purchase of Activision Blizzard.

The issues are not merely distinguishable, but downright disparate:

• The first step in antitrust is always market definition. About half of Judge Davila's order is dedicated to that question, and I agree with his adoption of 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." Meta's counterproposal was ridiculously overbroad--it would even have included home-fitness equipment like Peloton.

  By contrast, the FTC uses some market (excluding Nintendo, and focusing on a payment structure--subscription--rather than products) and product category ("AAA games") definitions that I immediately called "gerrymandered" (as did Activision Blizzard two weeks later). Once the FTC pursues a PI against Microsoft-ActivisionBlizzard, it will have a hard time persuading a federal judge of its market and product category definitions.

• Based on the FTC's market definition, Judge Davila of the United States District Court for the Northern District of California "Court finds that—regardless of the metrics used—every one of these ratios reflect a market concentration well above what the Merger Guidelines have designated as 'highly concentrated.'"

  That is not going to happen with respect to the extremely fragmented games business. Brazil's CADE looked at the Herfindahl-Hirschman Index (HHI) and rightly found no issues of market concentration.

• Meta has a 90% market share in VR headsets; Microsoft is only the #3 videogame console maker, even after the Activision Blizzard deal its market share in games is closer to 10% than 90%, and Microsoft's Game Pass has a very low market share in the overall game distribution market (even if one adopted the FTC's gerrymandered market definition, it wouldn't be anywhere near Meta's 90%). It was leaked that even Sony is not worried about Xbox Game Pass.

• The key question that proved fatal to the FTC's PI motion in the Meta-Within case was about whether Meta would have entered that particular market ("VR dedicated fitness apps") anyway, and would have had to make its own products if it can't just buy Within. There is nothing comparable in connection with Microsoft-ActivisionBlizzard.

I think the FTC's Microsoft-ActivisionBlizzard case is even weaker than the Meta-Within case, but the only common element is that the FTC brings weak cases against Big Tech that are detrimental to its reputation. And, maybe, that the FTC likes to make arguments about "nascent" markets, but that is a non-issue in Microsoft-ActivisionBlizzard once the FTC's market definition of "Multi-Game Content Library Subscription Services" is rejected. In that regard, the closest case I know (and immediately brought up when I commented on the FTC's complaint) is Pistacchio v. Apple, where a different judge of the same district court rejected the "iOS Subscription-Based Mobile Gaming Services Market" and dismissed a class-action complaint. I'm surprised that I appear to be the only commentator so far to have connected those dots, while so many people talk about Meta-Within.

The real question is now one that I've raised before: when will the FTC get tired of losing?

It is so funny that Sony's lawyer in both cases (Meta-Within and Activision-Blizzard) encourages the FTC to keep on losing.

After the basic outcome of the Meta-Within case became known, Bloomberg Law quoted Bruce Hoffmann of Cleary Gottlieb--a former FTC official who is actually representing Sony as a third-party complainer in both cases (see this post on a recent Sony filing)--as follows:

"The FTC has a long history of not being deterred by major litigation losses," he said. "If you look at major issues like the state action doctrine where the FTC has prevailed, it had a lot of losses and eventually won."

Of course he will say that. The FTC is free to keep listening to him. But it's a recipe to keep on losing.

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.

There was a time when Big Tech companies and maybe even their outside counsel thought astroturfing--using lobbying fronts that pretend to speak for someone other than who actually funds and controls them--was par for the course. Like an all-year Mardi Gras in lobbying that everyone attends, the only difference being the costumes. Not so anymore:

This is the year astroturfing finally got called out big-time. First on social media, then in mainstream media (Bloomberg exposed ACT | The App(le) Association), now in the political arena, and be forewarned: if some don't distance themselves from that kind of activity now, even prestigious law firms risk court sanctions on top of the utter embarrassment of their clients' amicus briefs and petitions for intervention being rejected.

When a client like Apple or Google comes to a world-class law firm and asks them to represent their sock puppets (to give them more weight in the eyes of the judges), it may not be easy to say no. But the ability to say no is commonly known as a key differentiator between winners from losers. Declining to aid and abet in astroturfing is the smarter choice going forward, provided one carefully reads the writing on the wall. What's been happening lately takes all the fun out of astroturfing. It has become absolutely toxic. And now there are well-funded companies like Epic Games that are not going to take it anymore when their adversaries commit foul play.

ACT | The App(le) Association remains the most shameless astroturfing operation. They even got Apple's lobbying subsidized by the U.S. government's Paycheck Protection Program at the start of the pandemic. And even after they've been exposed, they keep spouting insults to human intelligence. For example, on September 30, the day that the IEEE rejoined the mainstream of the standards development world, ACT issued the following statement attributable to its president:

"We are concerned the resulting legal uncertainty from the IEEE SA BOG action will adversely impact small innovators delivering amazing standards-supporting products." (emphasis added)

ACT's primary backer--Apple--hasn't been a "small innovator" since 1976, the year it was founded (its first computer became a blockbuster the following year). And WiFi (that's the IEEE's most popular standard) or other standard-essential patent (SEP) lawsuits against small innovators are hard to come by. This is just about Apple's notorious efforts to devalue SEPs. ACT falsely claims to represent thousands of app developers, and I've never seen an app developer being sued over WiFi (or cellular) SEPs.

CCIA--the so-called Computer & Communications Industry Association, more appropriately dubbed the Cash & Carry Industry Association-- is now also getting money from Apple, and has been a Google and Amazon front for many years.

CCIA and three of its members (Google, Amazon, Meta) are the most well-known four of the eight entities whose access to the European Parliament is now in jeopardy due to astroturfing. Politico Europe first reported in November 2021 on a Green MEP's concern over fake SME (small and medium-sized enterprise) organizations, and named Google and Amazon's backing of Washington-based Connected Commerce Council. On Friday, Politico EU reported on formal complaints that three well-respected, influential, center-left Members of the European Parliament--Paul Tang (from the Netherlands), René Repasi (Germany), and Christel Schaldemose (Denmark)--submitted to the European Commission. Bloomberg's report on those complaints quotes some of the players--they deny any wrongdoing. TechCrunch published a good summary.

I have meanwhile obtained--but am not authorized to publish the original documents--copies of four of the eight complaints. The complaints were filed with the Secretariat of the Transparency Register, which is a Commission department, "[f]ollowing an exchange with EP President Roberta Metsola" (a Maltese center-right politician).

They allege breaches of rules requiring lobbyists to "identify themselves by [...] the entity or entities they work for or represent; [...] specify the clients or members whom they represent [...]; [and] ensure that the information that they provide upon registration [...] is complete, up-to-date, accurate and not misleading [...]" (emphasis added) ("points a, b and f of the rules and principles as listed in Annex I of the Interinstitutional Agreement of 20 May 2021 between the European Parliament, the Council of the European Union and the European Commission on a mandatory transparency register).

The lawmakers ask the Commission to impose the ultimate sanction by revoking those organizations' access to the EU legislature:

"We ask you to investigate the issue and, upon concluding your remarks, suspend access to the European Parliament for all representatives of the identified organisation and other registrants of the transparency register who were involved." (emphasis added)

A separate complaint had to be filed for each of these targets:

• Big Tech companies:

  • Google

  • Amazon (also see a recent post, Whether Amazon instigates or draws antitrust scrutiny, it's always about avoiding price competition

  • Meta (Facebook)

• Large lobbying groups:

  • CCIA

  • IAB Europe

• Smaller lobbying groups:

  • Connected Commerce Council (3C)

  • Allied for Startups

  • SME Connect

The complaints focused on lobbying related to the EU's Digital Markets Act (DMA) and Digital Services Act (DSA). ACT has also opposed the DMA, but for what I know has not been nearly as active in the European Parliament in the DMA context. They have, however, lobbied MEPs to ask the Commission written questions about SEP policy, and in at least one case those efforts did result in a formal filing of a parliamentary written question. It's just a question of time when ACT will also be held accountable. ACT (like CCIA) regularly testifies in U.S. Congress, and next time ACT does so, politicians who disagree with its positions may very well bring up the Bloomberg story on whom ACT really represents.

It's getting rougher out there for the astroturfers and their backers. They're increasingly being called out, and formal complaints over their conduct have been and will continue to be brought.

Astroturfers will now also face more resistance to their amicus curiae briefs. So far, most litigants have taken a rather permissive approach and opposed amicus briefs only under the most egregious of circumstances. Now, after those mainstream media reports and complaints by lawmakers, it appears probable that questions will be asked and motions for leave will be opposed. For instance, in an Ericsson v. Apple case before the U.S. International Trade Commission, not only Ericsson but also the ITC staff insisted on knowing more about Apple's backing of ACT (the discovery motion was ultimately granted over Apple's objections).

In the United States, lawyers are officers of the court, and some of the same principles also apply in European jurisdictions. They may vigorously represent their clients, but they have to be truthful. Law firms--especially top-notch firms with an otherwise impeccable reputation--should think twice before they submit briefs on behalf of 5,000 small app developers when the net effect is just that Apple gets to exceed page limits and judges may end up believing that there really are small app developers who are concerned about SEPs or who love Apple's App Store tyranny and tax regime.

I don't mean to name and shame them, but I do want to give examples of astroturfing that was supported by otherwise really great firms:

• Philips v. Thales, United States Court of Appeals for the Federal Circuit, case no. 21-2106: October 21, 2021 "Brief for Amicus Curiae ACT | The App Association in Support of Appellant" submitted by one of Apple's go-to firms, Wilmer Cutler Pickering Hale and Dorr LLP (a firm I've often had extremely positive things to say, but it should be beneath WilmerHale to represent astroturfers)

• Continental v. Avanci et al., United States Court of Appeals for the Fifth Circuit, case no. 20-11032: April 20, 2022 "Brief of Amici Curiae ACT | The App Association, Computer and Communication[s] Industry Association, High Tech Inventor[s] Alliance, and Public Interest Patent Law Institute in support of petition for interference en banc" (I haven't mentioned Perkins Coie before, but I know and respect former as well as current Perkins partners)

• Google v. European Commission, Court of Justice of the European Union, case no. T-604/18 ("Google Android"): Google was supported by the Application Developers Alliance (which is Google's fake developer lobby, i.e., Google's ACT, though less visible in the public debate), which was represented by Ashurst lawyers Parr, Vaz, and Baena Zapatero (Ashurst is also representing European soccer body UEFA in the European Superleague Company case and gave some really good answers at the July hearing)

• Intel v. European Commission, Court of Justice of the European Union, case no. C-413/14 P: Intel was supported by ACT, which was represented by Jean-François Bellis of Van Bael & Bellis, whom I called the #1 lawyer when it comes to appealing DG COMP decisions; even his firm's website grossly misrepresents ACT as "a trade association of more than 5,000 IT firms worldwide"

Those four firms honestly may not have known what their clients were really about when they filed those amicus briefs or were presenting them before the EU General Court. But by now we may have reached a point at which they can hardly deny having read what Bloomberg, Politico, and others have revealed. Just say no next time.

Shortly after an unconditional-clearance decision by Brazil's antitrust authority, Microsoft's acquisition of Activision Blizzard has received another major endorsement:

Strauss Zelnick, the CEO of Take-Two Interactive (best known for its Grand Theft Auto series, and the third-largest publicly traded game maker in the Americas and Europe), has declared himself in favor of the deal as Yahoo! was first to report. He says it's a good thing for the industry and will create opportunities for other games companies (such as Take-Two).

Take-Two acquired Farmville maker Zynga to build up muscle in online games, just like Microsoft's primary reason to buy Activision Blizzard (or Activision Blizzard King, reflecting the importance of Candy Crush) is to become a major player in mobile gaming. The CEO of Microsoft Gaming, Phil Spencer, explained this again a few days ago in an interview. The #2 reason he mentioned is that company's strength in PC games.

In that video interview, Mr. Spencer mentioned the Warcraft, Diablo, and Starcraft franchises. During my Blizzard years, we launched Warcraft II, Diablo I, and Starcraft I, and my names appears in the credits of all three of those mid-1990s titles. As you might imagine, it feels very special when I now hear a senior executive of one of the world's largest corporations discuss the importance of those games:

[フレーム]

Microsoft wants to open up game distribution, which is why Google is lobbying against the transaction. Open markets are not in Sony's interest either: it capitalizes on its walled garden and is projecting its own strategic focus on exclusive content (it has gobbled up numerous game development studios in recent years) onto Microsoft.

My guess is that Take-Two is just too afraid of being disadvantaged by Apple and Google, and that may be the reason why the company isn't officially supporting Epic Games' appeal against Apple. (Let me point you to my previous post, which discusses why the stage is set for a major reversal, even more so now that the names of the three judges who will decide Epic v. Apple are known.)

I have experienced my own problems with the mobile platform monopolies as a small app maker. I can't imagine that Take-Two likes Apple's and Google's app distribution terms and policies more than Epic Games or I do. It's just that not all of us are equally vocal about it. The current mobile app distribution universe is a tyranny, if not a reign of terror. If the market is opened up through some combination of legislation, regulation, and litigation, and if Microsoft then delivers on its promise of "better revenue and fair marketplace rules" by creating additional ways to connect game creators and players, many companies (such as Take-Two) will benefit. Hopefully the popularity of franchises like Warcraft, Starcraft, Diablo, Call of Duty, and Candy Crush will contribute to that.

In other--but somewhat related--news, Microsoft announced a partnership yesterday with Meta (Facebook). Xbox Cloud Gaming and Xbox Game Pass will come to the Meta Quest Store. Meta Quest is the company's virtual reality headset.

It was, in fact, one of the motivations for Epic to challenge Apple's and Google's app store monopolies that the future of gaming will in no small part involve virtual reality and agumented reality, and Epic was worried about the VR/AR world being subjected to similar rules as today's smartphones and tablet computers. That became known thanks to last year's Epic v. Apple trial.

GameSpot reported on the Meta-Microsoft announcement. That site has been around since the early days of the World Wide Web. In 1996, GameSpot published my first online article ever, which at the same time was my first English-language article: the "WarCraft II Insider's Guide," which "reveal[ed] facts not found in the game's documentation or in the Map Editor" because I obtained some information on the game's inner workings from my friends on the development team. While I can't find the article on GameSpot itself anymore, a third party cached it, and it's still referenced by Wowpedia, a World of Warcraft fansite.

On Friday, Meta (Facebook) published a detailed news item after identifying "more than 400 malicious Android and iOS apps this year that target people across the internet to steal their Facebook login information." Fewer than 50 of those are iOS apps, just like a recent report by security researchers identified only 10 iOS apps engaging in ad fraud vs. 75 such apps on Google Play.

Those numbers are almost reversely proportional to the headcount of the two companies' app review departments (Google employs about four times as many reviewers as Apple). One possible explanation is that Apple's App Review didn't actually do a better job at detecting fraudulent activities, but fraudsters typically create apps that "impersonate" other apps or otherwise merely pretend to be useful--and such duplicative and useless apps face a higher rejection rate from Apple. That's because Apple more aggressively rejects apps that appear to add no particular value to the App Store catalog. The downside, however, has also been reported by app developers (such as on Twitter): there often are cases in which apps are rejected as allegedly duplicative or low-value that actually do have intriguing functionalities. App Review is a tyranny: while there is an "appeal" process, those kinds of rejections are inherently subjective and often unfair, and may sometimes even be motivated by a strategic desire to limit choice in some areas (such as keyboard apps).

Arguably, any given number of fraud apps for iOS may be similarly bad as a several times larger number of such apps o Android as Apple lulls users into a false sense of security.

Every single fraudulent app is one too many, and apps that steal Facebook login data are not just a security but also a privacy issue. Security and privacy are Apple's pet pretexts for its multifaceted App Store monopoly abuse, from the infamous app tax to App Tracking Transparency to the Apple Pay aftermarket monopoly (see the previous post).

The Epic Games v. Apple appellate hearing--October 21--is approaching fast. The district court's judgment raises serious issues, and I just can't see how it could reasonably be affirmed in that form. One critical area is the absence of a proper rule-of-reason balancing--and that's exactly where security and privacy come into play.

Let's correctly define "pretext"

It's not that the word "pretext" always means something that is entirely made up, like declining an invitation to a party based on some other--but non-existent--commitment. Dictionary definitions of that term overwhelmingly focus on a pretext being an excuse or evasion for the purpose of hiding or concealing the real reason or true purpose of something.

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

For instance, when Apple argues that human app review is better than a purely automated review (or even no review at all), it's undeniable that at some point a human reviewer will identify something that would otherwise go undetected. Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California made it sound in her judgment as if Epic could only have debunked Apple's security pretext if it had proved the complete uselessness of human app review. That is the wrong standard.

What renders Apple's security argument pretextual is not that there are zero security benefits from certain architectual and commercial decisions. It takes a holistic view:

1. Is some incremental security actually capable of justifying a complete monopoly with all the problems (and, ultimately, consumer harm) it entails?

2. To what extent could the positive effects be achieved without the adverse effects, such as by notarizing apps and/or by operating system-level measures?

3. Wouldn't even security ultimately benefit from competition?

The sad thing is that Judge YGR actually had #2 and #3 all figured out. Her judgment did acknowledge that an App Store monopoly is not the only way to achieve a certain level of security. And during the trial she did raise the important question of whether competition between app stores wouldn't also force each app store to strive for maximum security.

She could have analyzed more fully the different aspects of "security" (though I cannot rule out--as I didn't follow the entire trial--that maybe the smokescreens put up by Apple were just too effective). Certain kinds of security are achieved through sandboxing, which doesn't even require notarization. Then there are security issues that involve user behavior such as "phishing" attacks, and it's simply not feasible to prevent all of that through human app review. Case in point, Epic's "hotfix" also passed app review.

What is, however, inexcusable and does constitute clear legal error is that she didn't really weigh the upside against the downside. But that's the only way to protect the competitive process and take care of consumer welfare when the case cannot be resolved at an earlier stage of the analysis.

Overview of issues on appeal

Before I talk about rule-of-reason balancing, I'd like to put it into the context of the various questions to be addressed on appeal. Using chess terminology, the adjudication of an antitrust claim has an opening, a middlegame, and an endgame.

• Opening

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

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

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

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

• Endgame: rule-of-reason balancing.

Why Epic is right on rule-of-reason balancing

I've read all the arguments in the case, and numerous decisions referenced therein. It's actually not all that complicated:

The first step is for a plaintiff to prove anticompetitive harm. A complaint may fail at that hurdle (example: Amex).

The second step is--if there is no per se violation (see my latest post on Epic v. Google)--for the defendant to come up with procompetitive justifications. The analysis can end there if those procompetitive justifications are totally ridiculous, but as I said further above, totally fictitious excuses are unlikely. What's more likely to happen--and should have happened in Epic v. Apple--is that some justifications are simply noncompetitive (example: NCAA v. Alston, where the Supreme Court saw that the NCAA pays millions to coaches but exploits players, and its so-called justifications were related to other considerations than competition).

The third step is an analysis of less restrictive alternatives. Epic argues that it actually has shown enough of them (and I tend to agree) that it's entitled to a favorable judgment on the merits.

Now, what about a potential fourth step?

If a court finds that the plaintiff has shown anticompetitive harm, the defendant has put forward some procompetitive justifications, but the less restrictive alternatives outlined by the plaintiff aren't good enough, the final part is all about weighing the upside (procompetitive justifications) against the downside (anticompetitive harm).

Apple disputes that this is required under the law--and says Judge YGR performed that balancing anyway.

I've read the Epic v. Apple decision in full detail several times (among other things, I documented 271 typos and similar errors in it). There is no balancing in the sense of a passage that would say procompetitive benefits X and Y outweigh the anticompetitive effects A, B, and C. If she had said that a supracompetitive app tax and an inherently subjective app review are justified by a security benefit that goes beyond the security gain that competition between app stores would bring, one could talk about it. However, there's nothing like it in the decision.

There's a lot of trees in that ruling, but the forest is missing. Apple's lawyers may just be betting on the appeals court getting confused by the sheer length of the decision below.

As for whether there is a legal requirement, both parties and various of their amici point to different authorities. The two key questions in the end are the following:

1. What has the Supreme Court recently decided?

2. What does Professor Herbert Hovenkamp say?

One doesn't have to look far to answer the second question. Herbert Hovenkamp, "the dean of American antitrust law" according to the New York Times and America's leading antitrust scholar even according to Apple's own amici, signed an amicus brief in support of Epic Games. And that brief also explains that under the relevant circumstances, balancing is required.

The Apple camp argues that the Supreme Court discussed only a three-step test in Amex and NCAA v. Alston, the last two major antitrust opinions handed down by the top U.S. court. And a balancing between a company's product design decisions and competitive effects would be "unadministrable," Apple says.

As Epic explains in its reply brief, and the DOJ already explained in its amicus brief months earlier, the Supreme Court never specifically abolished the balancing step. In Amex and NCAA v. Alston, the fourth step just wasn't reached because the cases were resolved at an earlier stage.

In those recent rulings, the Supreme Court cited to earlier decisions, at least some of which do also mention the fourth step (balancing).

It strikes me as very compelling that the Supreme Court doesn't overrule its earlier decisions without explicitly saying so. In case of doubt, an earlier decision should still be presumed to be good law.

There's another argument Apple makes in the balancing context: an answer that Epic's counsel gave Judge YGR and which--taken out of context--suggested that the third step (less restrictive alternatives) and the fourth (balancing) are practically the same. Epic explains in its reply brief why it never actually said that balancing wasn't required in a scenario in which the court wouldn't deem Epic's less restrictive alternatives satisfactory.

I'm very optimistic that the district court's rule-of-reason decision won't stand. A remand seems more likely than direct entry of liability, but even the latter is yet more probable than affirmance.

The Wall Street Journal's Salvador Rodriguez has scored an incredible scoop by reporting on revenue-sharing negotiations between Apple and Facebook of a few years back--before the former decided to introduce "App Tracking Transparency" (ATT)--that make Cupertino look really bad. 9to5Mac has published a short (non-paywalled) summary.

The key thing is that Apple wanted a bigger piece of Facebook's cake. It sought to extend its 30% app tax to Facebook's iOS revenues, such as by having Facebook offer an ad-free subscription service via Apple's In-App Payment (IAP) system, through which even payments for promoted posts (which is just a form of advertising on social media) should be paid. The talks unsurprisingly failed, and meanwhile Apple has not only kneecapped Facebook and numerous other app developers (such as makers of hypercasual mobile games, but also done enormous harm to countless companies depending on cost-effective customer acquisition. A venture investor says this could be a key factor leading to a recession. On Tuesday, the Financial Times' Patrick McGee reported on small businesses now "finding it prohibitely expensive to target likely consumers as they once did," and some small companies are really suffering.

Hausfeld partner and competition law professor Thomas Hoppner ("Höppner" in German) rightly described ATT as "Privacy by Default, Abuse by Design" in an academic paper he published last year.

M. G. Siegler, a journalist-turned-venture-investor, also sums up nicely how Apple was trying Facebook--based on today's WSJ story--to pressure into a deal that would have given Cupertino a substantial chunk of Facebook's revenues:

“You’ve got a nice social network here. It would be a shame if something happened to it…” https://t.co/lqHcNhMGR3

— M.G. Siegler (@mgsiegler) August 12, 2022

Dare Obasanjo, whom I hold in the highest regard as the thought leader on product management and adjacent industry topics, pointed out in light of today's WSJ article that there are very popular advertising-financed apps like TikTok, Google, YouTube (which belongs to Google), and Facebook's Instagram on which Apple makes no money, while Apple can and does tax IAP-centric apps like Tinder, Bumble, Candy Crush, and Roblox.

With the WSJ and the FT, the world's two leading financial papers have shed light on ATT this week--a harsh light for Apple.

In the ATT context, Apple has so far benefited from being viewed by many people as the lesser evil than Facebook, sort of the synonym for surveillance-based advertising and user engagement. Apple claimed to stand on higher ground--think about it, privacy!--and capitalized on Facebook's popularity problems.

Here's my perspective on Meta/Facebook: while I can relate to some of the criticsm leveled at it, and while I never thought it was a good idea that antitrust enforcers allowed them to acquire WhatsApp and Instagram (instead of forcing them to compete with those nascent competitors), I think the public perception is unfairly negative. I actually find many of the positions that Mark Zuckerberg has taken on critical industry issues--such as the need to regulate major platforms, but also on free speech issues--totally reasonable. It also says something that Senator Ted Cruz (R-Tex.) considers Mr. Zuckerberg more receptive to his concerns than some other tech leaders. I hardly use Facebook anymore--somewhere between once a month and once a quarter, but I do use WhatsApp every day (though I slightly prefer Signal). So I'm not a hardcore Facebook fan. But I think that company has been unfairly vilified and demonized.

That made Apple's ATT scheme easier to implement. Now, with what the WSJ's Salvador Rodriguez has just reported, and with the impact on innocent small businesses and the economy and society at large becoming clearer (not only--but also--thanks to the FT's Patrick McGee's article I mentioned), more and more people--especially those who make important decisions, such as at regulatory agencies--will understand the grand evil scheme centered around ATT.

I expect more public enforcement and more private litigation against ATT, and those WSJ and FT articles may serve as Exhibits 1 and 2. Two major enforcement activities are already ongoing:

• This month, a group of French publishers represented by Hagens Berman brought a class action lawsuit in the Northern District of California. They're tackling the app tax as well as ATT, and it's important to understand that the two are a lot more closely related than some might have thought so far.

• The Bundeskartellamt (Federal Cartel Office), which is Germany's competition authority, is investigating ATT as a potential abuse of market power. It is the most interesting antitrust investigation in Germany in a long time, though many felt at the time that the FCO's action against Facebook based on "combining user data from different sources" was its most significant tech-related initiative.

In the N.D. Cal. litigation, Hagens Berman will appreciate the WSJ article as a treasure trove in terms of starting point for discovery requests, interrogatories, and questions to ask witnesses. The German FCO may also have some questions for both Apple and Meta/Facebook.

No one should make the mistake of cutting off one's nose to spite one's face. If there are respects in which Meta/Facebook can, should, or needs to improve, bring them up. Talk to Meta, as there really are indications (such as what Senator Cruz said) that Mark Zuckerberg is constructive. But don't let Apple get away with a scheme that has a devastating impact on many companies large and (especially) small.

Privacy is largely a pretext. If it was about privacy, Apple wouldn't display a "salesman's" message that strongly encourages authorizing the use of data for advertising purposes when its own interests are at stake while scaring users away from the same kind of authorization when it's requested by third-party apps.

In recent weeks, it became known--based on Apple's job ads--that they're building a demand-side platform (DSP), which means Cupertino wants to scale up its Search Ads business. The DIGIDAY article I just linked to explains DSP as "a core part of an ad tech stack for any company with designs on winning more media dollars" and explains that it "lets a marketer advertise with the help of automation," meaning that "marketers can set up campaigns and manage them with relative ease"--and as a result, advertisers are "likely to spend more."

ATT is a power and money grab. It's not unstoppable. Regulation and litigation--and, if necessary, legislation--can address the problem.

Google has just ratcheted up its campaign to pressure Apple to support the RCS messaging standard in order to massively improve interoperability between Apple's iMessenger and Google's Android Messenger app. I already commented on the topic in January.

The new #GetTheMessage effort says "[i]t's time for Apple to fix texting." Well, it would also be time for Google to fix a number of things--some of which it has in common with Apple. "Goopple" is the mobile ecosystem duopoly, if not a cartelopoly. Apple is more radical and outspoken about its walled-garden approach, while Google isn't truly open in all respects: sometimes it's fauxpen.

One high-profile supporter whose #GetTheMessage tweet I noticed is Qualcomm CEO Cristiano Amon:

At @Qualcomm, we believe interoperability is a basic requirement of the telecom industry, creating better experiences for you — and better overall communications. Everyone should have great messaging, regardless of the device they use. #GetTheMessage https://t.co/Kgw1jEDjtC

— Cristiano R. Amon (@cristianoamon) August 9, 2022

This is just the latest in a series of public statements by Qualcomm executives disagreeing with Apple, which is for now--and possibly for several more years to come if they don't get their own baseband chipset act together--a large Qualcomm customer. Apple and Qualcomm are particularly at loggerheads over standard-essential patent (SEP) royalties. SEP license fees should not be an issue for Apple in the #GetTheMessage context, however: Google proposes using the RCS standard, which is apparently too old to be covered by valid patents.

John Gruber of Daring Fireball, who agrees with Apple most but not 100% of the time, notes that what Google is proposing isn't just the open standard, but also end-to-end encryption, which Google added on top of it. This is an interesting observation, but in the greater scheme of things it's of--at best--tertiary relevance. Google is still right in principle that it's important for society to ensure seamless messaging across major mobile platforms. And I can't believe it's a coincidence that Apple uses an inferior contrast (white on light green vs. white on medium blue) for messages that are not sent by and delivered via iMessage. That is one issue, and there are more important ones.

Should Apple just consider RCS suboptimal (and there may be valid reasons for that), it would obviously be free to propose that Apple and Google form a working group, possibly invite other industry players, and develop a superior alternative. But it's easy to see that RCS would be (a) better than the status quo, which forces low-income family to buy iPhones--instead of cheaper and functionally also very good--Android devices for their kids due to classism, and (b) more than good enough for the start.

It's a U.S.-specific issue because of Apple's market share. The problem may, however, be solved in other jurisdictions (particularly the EU with its Digital Markets Act) before anything happens in the States.

In some communication between the two parts of the Goopple duopoly, someone even suggested that Apple and Google should operate as if they were one company. In some respects they come close to that, but not in all. It's not like Apple's heavy-handedness is great for Google; it's just that Google is trying to mitigate the damage, such as by paying Apple something like 15ドル billion a year to be the default search engine on iOS. I consider it a positive by-product of Google's #GetTheMessage campaign that their disagreement over messenger interoperability may also lead to greater divergence on app store governance and related topics. That's not because I mean to promote conflict, but because nobody can seriously want an Apple-Google cartel. In these special circumstances, division is a good thing (up to a certain point, and not at the expense of interoperability).

The first question is whether this is going to make a difference. John Gruber says Google is beating the RCS dead horse. Granted, Google's campaign appears desperate. In the end it's about selling Android phones in the U.S. market. Google knows that Android as an operating system, and Android-based devices (such as foldables), often introduce innovative features a while before Apple does, yet Apple keeps growing its U.S. market share. That is a legitimate concern. It indicates a market failure that should be remedied.

But will Apple care about whether the #GetTheMessage hash tag is trending somewhere? The problem is that it will be hard for Google to draw attention to the issue after this news cycle is over. The only thing that would help here is regulatory scrutiny and/or private antitrust litigation (which might have to raise an essential facility question, which would not only be hard to prevail on as the concept hasn't been recognized by the Supreme Court but would also be against Google's own interests in other tech law contexts). While not likely to happen, that course of action would generate news at various procedural junctures and culminate in a trial where the plaintiffs' (whoever they might be) lawyers could grill Apple executives and confront them with issues such as classism.

Apple is already facing a publicity campaign by Meta (Facebook) in the U.S. over app tracking:

Apple and Meta arguing the privacy/utility tradeoff through opposing billboards in Los Angeles pic.twitter.com/chXGoxJEjL

— Eric Seufert (@eric_seufert) July 15, 2022

It's interesting to see the #1 search engine company and the #1 social network company spending money on such campaigns that deal with some of Apple's practices. But so far there hasn't been enough pressure to force Apple to open up.

Will Apple's shareholders care? It's hard to imagine that the board of directors would order the company's executives to do something about messenger interoperability. If Google's campaign makes an impact, it may, however, make it easier for Tim Cook to get his board to support a decision in favor of enhanced interoperability--but there's no reason to assume right now that he even wants to propose such a move.

One thing that Apple may have to consider with a view to the long haul is that it's becoming more and more controversial--not yet to the extent that it influences purchasing decisions, but at some point that may happen. In a recent post on app store class actions in various jurisdictions I mentioned that it would be like a modern-day pillory for Apple if they had to pay out money to iPhone users as a result of a court of law finding that they illegally overcharged their customers. The combination of losing one or more consumer class action lawsuits, Google's #GetTheMessage campaign, and further (ideally even more aggressive) resistance by Meta and others to Apple's ATT program (see this recent post on macroeconomic effects)--and maybe if Epic Games ultimately turned things around and won its case--could materially affect Apple's reputation even in the eyes of end users.

So, while I'm not fully convinced, I support #GetTheMessage because it's a good thing in principle. Please do so as well.

This here is a FOSS Patents exclusive because no one else appears to have noticed the following:

Well-hidden in a new 90-page U.S. antitrust complaint against Apple (even 251 pages with the exhibits (PDF)), filed on Monday in the Northern District of California, is a challenge to one of the most devious and ruthless schemes Cupertino has ever devised: App Tracking Transparency (ATT).

This is precisely what Meta (Facebook) would love to do, but it hasn't gone to court (at least not yet) and is, instead, contenting itself with drawing public attention to the issue.

Under the pretext of "privacy," App Tracking scares iPhone and iPad users away from granting even the most innocuous apps permission to share with advertising networks non-sensitive information that has nothing to do with spying on users, but is simply necessary in order to avoid that the same user will see irrelevant ads--ad even the same irrelevant ads over and over again. As a result, ATT

• has wrought havoc on iOS app makers' revenue opportunity from the sale of their in-app advertising inventory,

• has massively increased user acquisition (UA) costs (also referred to as customer acquisition costs (CAC)) (even on Android due to budgets shifting to that platform),

• with the resulting squeeze (revenue reduction and cost increase)--in the opinion of a venture investor--even having the potential to contribute to a recession, and

• not only gives the fruity Big Brother greater control over how users discover apps (which facilitates Sherlocking), but also enables Apple to grow its own Search Ads business at the expense of competitor networks and of app developers, such as by soon selling ads even on individual apps' App Store pages, which will force many developers to buy Search Ads just to prevent rivals from diverting user traffic.

The issue of Search Ads being an extension of Apple's app tax came up, but didn't take center stage, in last year's Epic Games v. Apple trial. Judge Yvonne Gonzalez Rogers, to whom the new complaint by those French publishers is likely to be assigned, made terrible mistakes. Yesterday I published a 33-page PDF that details 271 (yes, two-hundred seventy-one!) typos, punctuation errors, inconsistencies, and similar mistakes, which is embarrassing for the (otherwise world-class!) United States District Court for the Northern District of California. And I've previously shown that in the single most critical part of the decision (market definition), Judge YGR was wrong on the law, wrong on the economics, and wrong on the technology. But she did get some things right (as I also clarified in my previous post), and this includes the finding that Search Ads aren't necessarily a blessing for app developers:

Footnote 498:

"[...] Developers must pay for these search ads and competitors may use them to artificially drive traffic, which decreases overall app discoverability. [...] Thus, the search ads are, at best, a mixed blessing for poor overall matchmaking."

At first sight, Société du Figaro et al. v. Apple is just an extension of other U.S. class actions that app developers have previously brought against Apple in the Northern District of California over the 30% app tax. One might be led to think that the only difference is that previous cases--which merely led to a sham settlement the only major beneficiaries of which were Apple and both sides' lawyers--pursued claims on behalf of U.S.-based app developers, and the Figaro case is now seeking redress on behalf of French legal entities under U.S. federal and California state law because the App Store is a global operation.

The headline of the press release with which the Hagens Berman firm announced the new complaint mentions only "Apple's App Store Fees." The firm's name partner Steve Berman then says:

"Our firm is happy to see iOS developers from other countries seeking the same justice we were able to achieve for U.S. developers. We believe they too have been wrongfully subjected to the stifling policies of Apple’s App Store, and we intend to hold Apple to the law." (emphasis added)

The first-named plaintiff's famous newspaper Le Figaro published an article yesterday that says the damages and interests sought from Apple could exceed US1ドル billion. And this group of plaintiffs is not going to be as easily persuaded to agree to a sham settlement: they aren't little guys, but powerful and deep-pocketed publishers.

The emphasis remains on the infamous app tax where Hagens Berman's press release describes the issues raised in the complaint: "France-based iOS developers [...] were subjected to Apple’s high commissions, fees and other policies." The term I just emphasized--"other policies"--does, however, include ATT. The prayers for relief include a request for "injunctive relief requiring that Apple cease the abusive, unlawful, and anticompetitive practices described [t]herein." And Apple's ATT program is addressed by paragraphs 187 et seq.:

b. Apple’s ATT program

187. Another situation that Apple has devised and then exploited for yet more profits is that involving recent implementation of its App Tracking Transparency (ATT) program. Ostensibly, this program is good for end-user consumers because it gives them more choice as to third-party tracking of personal data.

188. However, large and small iOS developers claim that it is implemented in such a way that they are unfairly robbed of their ability to monetize their work by fair use of consumer data for targeted advertising. These developers, which include plaintiffs Individual Developers, as well as associational plaintiff le GESTE, allege that Apple’s ATT program will mean less free-to-get apps; developers will forgo creating them, or will begin to charge fees for heretofore free-to-get apps, because they will be unable to make a living by means of advertising.

189. Moreover, they claim that Apple is advantaging itself by the way in which it presents consumers with the option to opt-out of certain third-party tracking, versus other means that would more fairly present the choice.179 They also claim that Apple advantages itself by offering a Personalized Ads architecture for its own apps that is not parallel to the way it presents the ATT opt-out choice; instead, as the U.K.’s CMA has written, it “employs a different choice architecture compared to the ATT prompt.”180 Thus, Apple, which already holds stores of first-party data, and whose advertising services can “use the Apple Ads Attribution API while third parties must use SKAdNetwork [which may be more limited and immature],” is and will be further advantaged vis-à-vis other entities that participate in digital marketing or product development. And so will other large gatekeepers such as Google, which itself holds enormous stores of first-party data gathered by way of its many properties.

190. By monopolizing the relevant market, Apple affords iOS developers who do not wish to participate in ATT, especially as implemented, nowhere to go. Again, Apple presents ATT as a take-it-or-leave-it proposition, if iOS developers wish to sell their iOS apps and in-app products. If there were competition, iOS developers such as Individual Plaintiffs could choose other distribution avenues, or they could more effectively press Apple to change some of its policies and practices around ATT. As to the latter—changing policies and practices—Apple might be persuaded to change the ways in which it presents the opt-out screen to consumers. Or it might be persuaded to allow developers to tell end-users in a fair manner, when the ATT opt-out screen is presented, that if they opt-in, they will receive remuneration or free or discounted digital products, for example. But instead, affected iOS developers are offered no real choices. On the other hand, in typical Apple fashion, it benefits from ATT monetarily. Apple’s App Store Search Ads, which iOS developers that can afford them buy in order to help to alleviate the discoverability issue, are reportedly up in volume sold and more expensive following the introduction of ATT. Because they are auction-based, the more developers that bid on them, the higher the prices go. And in fact there are more bidders, as iOS developers shift more of their own app-related advertising dollars to Apple, given ATT’s negative effect on the quality of certain other places where they might have advertised previously. Once again, iOS developers are squeezed, as Apple’s App Store-related profits increase yet again. Apple harms iOS developers—consumers of its iOS app-distribution and IAP services—by way of supracompetitive pricing and retail pricing mandates.

Given that the app developers here are actually publishers, ATT and its impact on advertising revenues as well as user acquisition costs is going to play a major role in this litigation. And so are subscriptions as opposed to an exclusive focus on one-off in-app purchasing (IAP) transactions.

There are three original plaintiff entities:

• Société du Figaro, SAS (famous for the namesake newspaper),

• L'Équipe 24/24 SAS, publisher of the namesake sports paper and related streaming app, and

• le GESTE, an industry association of French publishers whose membership includes 140 online publishers, two of which are the previously named plaiintiffs. Le GESTE brings the class action on behalf of all of its members. But the class is open to opt-in by other French entities.

The issues in the case are obviously not limited to French publishers. There's no reason why, say, British or German publishers couldn't pursue the same types of claims. And with respect to in-app subscriptions and App Tracking, a victory by those French plaintiffs would immediately lead to additional cases being brought by U.S. plaintiffs. This is a scalable business for Hagens Berman and other firms active in that space, but that's OK as long as their next cases--unlike the case involving small U.S. app developers--truly bring about change.

Consumer class actions against Apple are pending in the United States, Australia, the United Kingdom, the Netherlands (where one of the two class actions invites all EU-based consumers to join, not just Dutch ones), and--most recently--Portugal. In my post on the Portuguese action you can find a structured list of those consumer cases.

But there's also a growing diversity of corporate class actions. The same firm that is representing the French publishers brought a case against Apple--over Apple Pay and restrictions on the access to the iPhone's NFC functionality--on behalf of credit card issuers last month.

Hagens Berman (in the U.S.) and Hausfeld (in a variety of jurisdictions) are presently the two most active firms pursuing class actions against Apple (with parallel cases often targeting Google, but Apple's conduct raises far more issues).

It's worth noting that there also is an effort underway in France. The equivalent of a preliminary injunction against ATT was denied last year, but that case is still ongoing. In the French case, various publishers are being represented by Fayrouze Masmi-Dazi, who also cooperates with Hagens Berman on the case in the Northern District of California.

As I've said on other occasions, Apple used to be about creative destruction, but by now is mostly about the non-creative destruction of business models through its abuse of market power. On Thursday, Alex Gurevich--the managing director of early-stage fund Javelin Venture Partners--raised a fundamental concern in a Twitter thread that deserves a closer look. Mr. Gurevich noted the "massive adverse effects" that small and medium-sized businesses (SMBs) as well as "innovative companies everywhere" suffer from Apple's app tracking rules, which "might bear as much blame for a recession as inflation":

1) I'm still surprised by the lack of public discourse around the impacts of @apple's iOS 14 changes - all in the name of privacy - that are leading to massive adverse effects to SMBs and innovative companies everywhere. They might bear as much blame for a recession as inflation.

— Alex Gurevich (@alex_gurevich) July 21, 2022

Mr. Gurevich then explains that "[o]nline brands, small merchants, local SMBS, and the like have been able to leverage [Facebook]'s micro targeting to compete and acquire customers in a capital efficient way." But as a result of Apple's changed policies, customer acquisition costs (CACs) "have doubled across the board, leading to massive drops (sometimes as much as 60%) in revenue for SMBs. In this context, Mr. Gurevich points to a Meta (Facebook) webpage on the impact of Apple's privacy update on small businesses, but later he also references a Harvard Business Review article.

The fourth part of the thread puts this into a wider economic context:

4) This has massive adverse effects on the economy as a whole. SMB's are 44% of GDP and 64% rely on online targeting. A 50-60% revenue drop is massive for such a large swath of the economy. Could be leading to as much recessionary pressure as inflation and other macro factors.

— Alex Gurevich (@alex_gurevich) July 21, 2022

My initial assessment is that Mr. Gurevich is indeed onto something, and I absolutely agree that it is in the interest of the economy at large not to let Apple get away with this. However, there is one sentence in the tweet I just quoted that I consider an overstatement:

"A 50-60% revenue drop is massive for such a large swath of the economy."

"A 50-60% revenue drop is massive" for everyone, not just SMBs. But the "large swath of the economy" that he refers to (SMBs, which account for 44% of GDP) doesn't experience that drop across the board. It's not an average, or a median. It's unclear how many companies are hit to that extent.

That inaccurate wording (which is attributable to Twitter-style brevity) changes nothing about the facts that

• companies of all sizes are impacted,

• the SMB sector is usually a growth and job engine,

• many SMBs are affected, some of them even to the extent of a 50-60% revenue drop, and

• there are companies that are forced out of business by such dynamics, and other must give up their independence (see this example or another Twitter user's observation of educational technology companies becoming unsustainable).

I'd like to add that many online companies--including app makers--are experiencing a terrible squeeze as their user acquisition costs go up while their revenues from selling their so-called ad inventory go down.

It's definitely not a stretch to express major macroeconomic concerns over all of that.

One common misconception is that the impact of Apple's app tracking policy is limited by the fact that there are even more Android devices in use. This here is a particularly good response I found on Twitter:

How they are unaffected if budgets switch to compensate it! Ads there are getting more expensive too.

— Borat Zimmerman (@mesak1) July 22, 2022

It's not just that Android ads are "getting more expensive." There was an immediate meteoric impact on Android ads when Apple's ATT rules took effect. On some ad networks it was even impossible for a few weeks to start new campaigns because there was so much demand.

Also, let's never forget that the average spending power per iOS user is far greater.

Then there are some Apple apologists who argue that it's a good thing if consumers buy only what they really need, and that product makers should simply adjust to the situation and/or make better products. The best response to that one that I've seen so far is this:

Not a lot of marketers in this thread I see…those saying that products should just be better are naive& obv. don’t understand the landscape. A great product can be buried by the sheer mass of the internet. Even the most innovative need an efficient CAC.

— pt (@ltltrb) July 22, 2022

It's simply not realistic to assume that the world of commerce is totally meritocratic and the best products will get all the word of mouth they need.

Some harp on the theme of Meta/Facebook being no better than Apple--just another monopolist that SMBs would depend on. But it doesn't make sense to assume that each Big Tech player uses its market power in equally problematic ways. Apple is the most arrogant and aggressive abuser of its power, followed by Google. There are reasons to assume that Facebook is fundamentally more benevolent. I remember an interview in which even Senator Ted Cruz (R-Tex.) was talking about his experience in discussing tech policy issues with Big Tech CEOs and gave Mark Zuckerberg credit for being receptive to certain concerns--and constructive.

From a competition policy point of view, I'm one of many people who think--and I already thought so at the time those deals were announced--that Facebook shouldn't have been allowed to acquire Instagram and WhatsApp. But that's water under the bridge, and didn't really hurt SMBs. So I also concur with the following tweet by Mr. Gurevich:

7) .@Meta is no saint of a company, but we need to acknowledge the positives the micro targeting model has had for the SMB and innovation economy over the past decade plus.

— Alex Gurevich (@alex_gurevich) July 21, 2022

Some people may gloat over how Meta/Facebook was impacted by this. But that's a case of cutting one's nose to spite one's face. In the end, the economy at large depends on innovation, fair competition, and healthy SMBs. I don't care how many or how few Hawaiian islands Mr. Zuckerberg can afford--but I do care about Facebook's ability to serve companies of all sizes, especially SMBs.

On Thursday, Snap Inc. (Snapchat) announced its Q2 figures, and its Investor Letter accurately notes that "[p]latform policy changes have upended more than a decade of advertising industry standards."

In a way, Snapchat "deserved" it as its CEO attempted to help Apple on the last day (apart from closing argument) of last year's Epic Games v. Apple antitrust trial. But again, I refuse to cut my nose to spite my face.

This tweet promotes a free 14-day trial to access an expert Q&A platform, but I'll share it nevertheless because the highlighted part is really instructive:

First-hand example of how Apple’s privacy changes drastically impacted advertising tracking for $SNAP $META TikTok, etc.

Free 14 Day Trial (no credit card required) to access Stream’s 17,000+ expert interviews on 3,000+ companieshttps://t.co/HsVL3wnfYx pic.twitter.com/u1OPnkYOGc

— Austin Lieberman (@LiebermanAustin) July 22, 2022

The first highlighted answer says:

"[App tracking has] wrecked the whole ecosystem, not just Facebook. Facebook, TikTok, Google, everybody has felt it. I've seen businesses go out of business. I've seen multiple companies go under. I've seen agencies go under jsut because it was such a bold move on Apple's side, and it's fake. All they're doing is keeping the data for themselves to release what it is that they're going to release. It's not about privacy. There's no privacy."

Now, some Apple apologists say that one shouldn't complain about Apple's rules but convince users to allow app tracking. But that's unrealistic as Apple simply doesn't allow it on iOS. Users are systematically scared away from granting that permission to third-party apps, but it sounds rather different when Apple itself requests access to user data:

Apple going full Russell Conjugation here

I personalize, you track across apps, they invade your privacy. https://t.co/w55sVWEb2q

— tobi lutke (@tobi) June 3, 2022

That tweet by Shopify founder Tobi Lutke is spot-on. It's a Russell conjugation type of hypocrisy. Shopify is an excellent example of a big company that's affected by those rules in a way that hurts many small companies: SMBs relying on Shopify to sell products online. The alternative to Shopify or its competitors would basically just be Amazon...

I noted last year that Apple's privacy hypocrisy is also evidenced by the fact that it asks for location data to sell music (even in the Android version of Shazam, an app it once acquired) while Apple didn't let governments use voluntarily-provided location data for COVID tracking purposes.

This tweet correctly explains how Apple leveraged "privacy" for the purpose of monopolization:

Because Apple led with a privacy PR campaign to woo the media with an obscure privacy mantra, then proceeded with its plan to eliminate competition, wall-in users, and enjoy an effective monopoly.

— Annalisa Fernandez (@BecauseCulture) July 22, 2022

Apple's app tracking rules are structurally similar to its long-standing practice of "Sherlocking."

There was an early attempt in France to thwart Apple's plan. But what happened is that the French antitrust authority (Autorité de la concurrence, Adlc) couldn't order interim measures because the country's privacy watchdog effectively vetoed it. That case hasn't been definitively decided yet, and meanwhile Germany's Federal Cartel Office is looking into abusive self-preferencing in connection with app tracking.

Let's come full circle back to the question of whether Apple's ATT rules "bear as much blame for a recession as inflation." There can be no doubt that the economy at large is increasingly suffering from Apple's abuse of market power. Lawmakers, regulators, and the courts of law must combat this problem. Privacy activists and watchdogs must be educated that it's largely a pretext in Apple's case. And it would be good if a renowned economic research institute could undertake to quantify the impact of ATT on the wider economy as well as, more specifically, on SMBs and on certain categories of startups.