Apple - Legal Challenges IV

Apple - Legal Challenges IV

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Epic Game’s injunction is pushing all the right buttons in laying-out the arguments against Apple’s monopolistic practices

But the complaint is strangely bereft of demonstrable abuse of monopolistic power, leaving the observer undecided about Epic’s priorities

Two tracks are in the line of sight, but the final destination and the ‘road travelled’ appear to remain optional

Either...a level playing field giving freedom of choice to even the smallest app developers on the iOS platform would signal support for a gradual opening-up, excoriating the rules benefitting specifically Apple’s bottom line alone

Or...a radical shake-up of monopoly power exercised by Apple through proprietary control of the iOS operation system, allowing the largest app developers to access the integrated stack of Apple hardware and operating system, would give the later a prized and full control over their value chain

What will it be...?

 

***

 

Epic's complaint for injunctive relief

The Epic complaint describes the nature of the action 

page 1 - section 3

This case concerns Apple’s use of a series of anti-competitive restraints and monopolistic practices in markets for

  • the distribution of software applications (“apps”) to users of mobile computing devices like smartphones and tablets
  • the processing of consumers’ payments for digital content used within iOS mobile apps

page 2 - section 6

Epic brings this suit to end Apple’s unfair and anti-competitive actions that Apple undertakes to unlawfully maintain its monopoly in two distinct, multibillion dollar markets:

  • (i) the iOS App Distribution Market, and
  • (ii) the iOS In-App Payment Processing Market

In section I- C,  entitled 'Apple’s Anti-competitive Conduct in the iOS App Distribution Market' (page 19), the suit argues how Apple maintains a monopoly on distribution through several anti-competitive acts

  • mainly by way of contractual restrictions (the complaint lists 12 entries)
  • technical restrictions (2 entries)

In section II, entitled ' Apple Monopolizes the iOS In-App Payment Processing Market' (page 27), the suit details how, on iOS, Apple eliminates any choice of in-app payment processors for in-app content and coerces developers into using Apple’s In-App Purchase

  • demonstrating 'Apple’s Monopoly Power in the iOS In-App Payment Processing Market'
  • maintaining its monopoly in the iOS In-App Payment Processing Market through several anticompetitive acts

It follows, according to the suit, that

  • Apple  violates Section 2 of the Sherman Act, which prohibits the “monopolization of any part of the trade or commerce among the several States, or with foreign nations”. 15 U.S.C. § 2.
    • Unlawful Monopoly Maintenance in the iOS App Distribution Market
    • Denial of Essential Facility in the iOS App Distribution Market
    • Unlawful Monopoly Maintenance in the iOS In-App Payment Processing Market
  • Apple violates Section 1 of the Sherman Act, which prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations
    • Unreasonable Restraints of Trade in the iOS App Distribution Market
    • Unreasonable Restraints of Trade in the iOS In-App Payment Processing Market
    • Tying the App Store in the iOS App Distribution Market to In-App Purchase in the iOS In-App Payment Processing Market

 

Defining unfairness as a monopolistic practice ?

The suit brought against Apple makes its case on the basis of ‘unfairness’, ‘anti-competitive actions’ and ‘monopolistic practices’

These qualifications may apply – and almost surely, they do – but they still leave the observer wondering about their legal relevance

A monopolistic practice is obviously unfair to those suffering the consequences, but the reverse is not necessarily true : unfair, anti-competitive actions create a 'moat', not necessarily a monopoly

 

Unfairness

  • ‘unfairness’ does not seem to put the complaint on solid ground since anyone would have reason to ‘complain’, some day...

 

Anti-competitive actions

  • ‘anti-competitive actions’ are sought out by successful businesses because their distinctive features makes all the difference in an open market
  • an illegal act would taint the anti-competitive action fatally, but the suit does not seem to establish Apple acted illegally in its ‘anti-competitive’ effort

 

Monopolistic practices

The wording is used confusingly and by turns with ‘monopoly’ as in

  • This case concerns Apple’s use of a series of anti-competitive restraints and monopolistic practices…or
  • Epic brings this suit to end Apple’s unfair and anti-competitive actions that Apple undertakes to unlawfully maintain its monopoly

 

By combining the three qualifications in the same sentence, as the suit does over and over, one is bound to wonder what comes first

  • If illegal acts made anti-competitive actions possible, opening the door for a monopoly position, Epic has a case, and a strong one
  • If the monopoly comes first, as seems to be implied by the second quote, one is left wondering what is exactly meant
    • has Apple’s clear intent to create a monopoly been established in the suit, bringing this about by illegal actions
    • is Apple’s pre-eminent position in the open Internet monopolistic in the first place 

Again, if these assertions can be demonstrated, Epic has a case

 

Embracing familiar tropes ?

Unfortunately, the suit is side-stepping these issues with conventional claims

  • the size of Apple’s mobile ecosystem with its mutually reinforcing features – an ‘enormous’ base of one billion iPhone users and in the app store (more precisely 2.2 million apps)
  • the access to the iOS mobile operating system, defined as an ‘essential’ facility'
  • the ban on innovation in a central part of this ecosystem, namely, any app that could compete with Apple for the distribution of apps in iOS

 

While appropriately focused on the influence of Apple's ecosystem in modern life, the breadth of Epic's complaint is perplexing

  • a direct relationship with customers, circumventing the Apple 'customer management', and reliance on its own payment processor would finally open the door for Epic's own store within Apple's ecosystem - shaking the firm's 'closed garden' from top to bottom...
  •  the freedom to which Apple is entitled in refusing to deal, that is, freedom to choose its business partners, may be assigned limits because of the firm's market power, but the Courts are most unlikely to consider upending a business model in its entirety
  • all things considered, cause to unpick the entire ecosystem has not been established 

Turning back the clock by rediscovering the virtues of the open Internet, as a virtual public land, would count for little the value of a trusted interface, provided by Apple with its operation system

 

A more nuanced approach is likely to take root

With renewed attention paid to the pervasive dominance of Apple's mobile operating system, the features benefitting consumers and developers materially should stand out against the requirements devised for the sole benefit of Apple - opening a line of argument for a fair balance

Apple's legal strategies appear plainly contradictory in a web of diverging interests expressed by developers, suppliers and consumers

  • it is hard to argue Qualcomm's  license fees should be nixed because of their size, relative to Apple's revenue (as Apple  attempted to do for years) without wondering how this concept should be ignored when Epic Games makes a similar case regarding the 30% commission levied by Apple on their revenue
  • it is also hard to argue that consumers are the app developers' customers and only Apple's 'indirect purchasers', as Apple advocated at the Supreme Court hearing in May '19, while Apple keeps exclusive control over the orders, managed by Apple and paid for by way of Apple - and if consumers are really customers of the developers, it follows that a direct relationship and direct payment process should be reasonable options

 

Crumbling garden walls ?

...stone by stone...

By calling for a 'one-size-fits-all' injunction upending Apple's valued contributions, Epic's complaint ignores the disparity of interests between the vast majority of developers and the small number of "monster" apps

Common ground might come to light convincingly in an approach limited in scope, but no less transformative over time

  • by allowing consumer choice in payment processing ; the flexibility would benefit all developers, large and small and the bar would raise for Apple's in-house processes as well
  • by opening customer service management choices and control over customer data - a benefit for developers as well as clients, in managing complaints and in profiling customers - again a shared interest with all developers

 

In short,  Epic might up the game and upset Apple's lines of defense by 

  • underscoring the value created by smooth integration of iOS with Apple's hardware, in terms of security and reliability
  • seeking limits to Apple's exclusive customer service and payment processes, behooving a dominant firm's monopolistic practices
  • tilting commission rates to account for revenue gradations

 

In the wider context suggested by this series of  "Apple - Legal Challenges", lawsuits, European Commission investigations and contradictory arguments fielded by Apple's legal team coalesce in 'upsetting the apple cart'

Walled gardens have been great as long as they offered the best gateway to the software market, with secure and tightly integrated applications

Of this highly profitable strategy, Apple's App Store is the foremost example and a resounding success, foreshadowed under Steve Jobs' guidance

Whether these choices will need to be updated by necessity as the tsunami of Internet-of-Things apps comes to dominate Internet infrastructure requirements is an open question ...