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Aron Solomon: Epic vs. Apple, The Legal Battle Royale

In the lawsuit over the massively popular game Fortnite, it’s easy for people to take sides based on our attachment to it.

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The author of this Expert Opinion is Aron Solomon, head of digital strategy for NextLevel.com.

Here we are in May, and Epic v. Apple, the court battle between Epic and Apple has begun in the United Staes District Court for the Northern District of California. The factual background that you need to know to understand this case is less complicated than you would imagine.

Epic has a massively popular game called Fortnite that has earned more than $10 billion. After Apple removed Fortnite in 2020 from its iOS App Store (Android did the same, parenthetically), Epic decided to sue Apple.

Apple took this action because Epic had essentially tried to cut Apple (Epic did the same to Google) out of the Fortnite transactions, which Apple will surely argue in court was a violation of their contractual agreement.

Specifically, Epic began to sell their Fortnite currency, known as V-Bucks, directly to players, cutting Apple out of the financial loop. Epic were incentivizing players to purchase this currency directly from them, with the motivation for players to do so being a 20 percent discount over the cost of that currency through the iOS or Android platforms.

In removing Fortnite from the App Store, Apple argued that Epic had taken the steps of violating Apple Store guidelines that are applied to every developer and intended to keep iOS users safe.

In some ways, this case is reminiscent of cases over the past 50 years involving sports stars that we love. Because Fortnite is something that has captured the popular imagination, it’s very easy for people to take sides in this legal battle based on its popularity and our attachment to it. That’s where the sports parallel works well here. Endless sports radio and social media pundits opine every day as to whether a team or a player is in the right about a contract to be offered or withheld.

Both Apple and Fortnite are popular and have lots of fans

It’s natural that we pick sides based on our affiliations. But those are opinion-based discussions between fans and pundits, neither of whom have the contract in front of them or the training to be able to break it down and apply the law.

So even though Fortnite is an extremely popular game and Epic has a massive amount of public opinion on its side — even aside from the fact that few people have historically liked Apple as a company aside from the fact that we love their products — it’s far too simplistic to make this a one-sided vote of support even for the most ardent Fortnite fans.

From a legal perspective, what Epic is doing, at least on its face, appears to be a violation of the terms of service they agreed to in entering the iOS vendor platform and sales channel.

Jeffrey Zenna, a lawyer with the New Jersey firm Blume Forte Fried Zerres & Molinari, argues that we are looking at fundamental fairness here: “If it turns out that Epic was essentially taking business away from Apple on Apple’s proprietary store, and if this was a breach of the agreement that Epic signed with Apple, then Apple may have been justified in removing Fortnite from the iOS store. While there are many high-profile cases that inflame public opinion, in contract disputes, we always need to look at the law and the contract itself.”

Beyond the law is the issue of fairness

And aside from the law, from a pure fairness perspective, here is the argument to be made against Epic. Somebody says “You can come into my yard and sell your lemonade. All you need to do is give me a cut of every glass of lemonade you sell.” You agree to this and for a while you abide by the letter and spirit of that agreement.

A while later, you decide that since your lemonade is so popular, people who visit the yard will now have an option of buying that lemonade in person or buying it elsewhere at a discount. Of course, that discount will mean that you will still get all of your lemonade sales money, yet the person gets nothing whose lawn you have not only sold the lemonade on but who was instrumental in creating your sales channel. It’s not a great look.

One of the arguments frequently made in the court of social media in favor of Epic is some abstract notion of a free market. It’s interesting that the vast majority of people who quote the free market actually aren’t talking about anything that’s market-related, just a random idea as to how a theoretical free market should operate.

Their argument is that if you manufacture a wildly popular game, you should be able to sell it wherever you want at whatever price you want. That is not a point of legal dispute in this case. It would also not be a point of legal dispute for you to sell your lemonade on someone else’s lawn, your own lawn, or, assuming it was legal, on the side of the highway.

But one of the things that will surely come to light in this case is the massive investment Apple has made over many years to build their iOS platform and the accompanying App Store, which nobody argues is not proprietary. The App Store is the App Store, it belongs to Apple, and it is where each of us who have an Apple product go to get apps.

Another pandemic-related analogy: Food delivery apps and free advertising

Which leads us to another good pandemic-related analogy — the rampant use of food delivery apps. Imagine if a restaurant would try to set up their presence on something like Uber Eats but when you go to the restaurant’s page on Uber Eats all it says is, “Do not order here! Contact the restaurant directly for a 25 percent discount on the price UberEats will charge.”

Nothing here would be factually incorrect, nor would the restaurant be precluded in any way for setting their own price for food that you could obtain directly from the restaurant. The problem, of course, is free-riding on the back of all of the work that UberEats has done to build a massive user base and a seamless platform for you to be essentially telling people, “I will take this free advertising, but don’t shop here!”

And that is what many predict will be the legal foundation for the Court’s analysis in Epic v. Apple, a case that will not stray far from the public imagination, especially for the hundreds of millions of ardent Fortnite fans who will relish this new battle royale.

Finally, one of the interesting things here is that it was absolutely no surprise to Epic the way that Apple was going to react to what the District Court could deem to be a clear violation of the App Store’s rules. It is worth noting, as it absolutely will be in court, that Epic had a big money PR campaign just waiting for the moment they were banned from the App Store.

One has to give Epic some credit for truly going all in here. Not only did they allegedly try to cut Apple out of revenue generated from Apple’s own revenue stream, they leveraged the fame of Apple’s own tens of millions of dollars of investment into their famous PR campaigns with this video.

No matter the end result of this case, Fortnite is a wildly popular and famous game, and Apple has made an absolute ton of money in the past year. If there was ever a legal battle of titans where both sides would not only survive but could be seen as victorious regardless of the results, Epic v. Apple might be it.

Aron Solomon is the head of digital strategy for NextLevel.com and an adjunct professor of business management at the Desautels Faculty of Management at McGill University. Since earning his law degree, Solomon has spent the last two decades advising law firms and attorneys. He founded LegalX, the world’s first legal technology accelerator and was elected to Fastcase 50, recognizing the world’s leading legal innovators. This piece is exclusive to Broadband Breakfast.

Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to commentary@breakfast.media. The views expressed in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.

Big Tech

Tech Policy Conference Panelists Tackle Challenges of Federal Privacy, Antitrust Laws

Academics were concerned about an anti-preference bill, while one state AG said he’s ‘pragmatic’ about a federal privacy law.

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Screenshot of Colorado Attorney General Phil Weiser at the TPI Aspen Forum on Monday

ASPEN, Colorado, August 15, 2022 – Academics expressed concern Monday about antitrust legislation before Congress that would prevent companies from preferencing their own products on their platforms, arguing the legislation targets only certain companies and hasn’t shown it would benefit consumers.

The American Innovation and Choice Online Act, S.2992, which is currently before the Senate and aims to ban discrimination against third-party products on the host platform, defines targeted companies by their value – which effectively narrows the number of affected companies and makes it a problematic piece of legislation, according to some academics.

“I think it’s very difficult to single out specific companies…for specific rules,” Judy Chevalier, a professor of finance and economics at Yale University, said at the TPI Aspen Forum on Monday.

“It’s hard to imagine what is the principle whereby private label band aids are a bad idea at Amazon but they’re a good idea at Walmart,” she added. “The self-preferencing rule can be applied to Amazon in a way that I think can be interpreted to limit their ability to introduce and promote their private label products.

“It’s not very convincing that this behavior has thus far harmed consumers,” she continued. “So I think singling out particular companies in this broad brush way strikes me as problematic.”

Dennis Carlton, a professor of economics at the University of Chicago business school, said the legislation makes him “nervous” because of the impact on innovation of targeting certain industries over others.

“High tech industries are rapidly changing, and whenever we have regulation or try and have regulation of rapidly changing industries, it is just too hard for the regulators to keep track of what’s going on and they wind up causing delays in innovation,” Carlton said.

“Innovation is one of the strongest ways we improve our products and our standard of living. It makes me very nervous when you target specifically an industry or…make exceptions to other industries without…economic criteria or any attempt to show that this would produce a benefit not a harm. So it makes me nervous these proposals.”

Similar sentiments were expressed on a Broadband Breakfast panel in March, in which an association representing large technology companies blasted the legislation introduced by Senator Amy Klobuchar, D-Minn., as unfairly targeting certain online platforms and excluding large retailers.

“The bill very carefully picks winners and losers,” said Arthur Sidney, vice president of public policy at Computer and Communications Industry Association, which includes members like Amazon, Google, and Facebook.

State AGs weigh in on privacy legislation

On a separate panel at the Forum on Monday, the state attorneys general of Colorado and Nebraska discussed the state of privacy legislation – both in their own state and at the federal level.

Introduced in June, the American Data Privacy and Protection Act (H.R. 8152) cleared the House Energy and Commerce Committee last month for House floor votes. The proposed bill would provide Americans protections against discriminatory use of their data, require covered entities to minimize the data they collect, and prevent customers from needing to pay for privacy.

Despite his state having passed comprehensive privacy laws that are considered leading and a model by some, Colorado AG Phil Weiser said he’s “pragmatic” about a federal law.

“If a federal law is as good and strong as what we worked on in Colorado, I am comfortable with that law preempting Colorado, provided state AGs have the authority to enforce federal law,” he said. “It’s important to me to have that model because, you could imagine a world where the feds are not engaged in active enforcement, then the states can pick up that slack.”

Before the introduction of the legislation, some experts were concerned that having a number of different state privacy laws would harm smaller companies operating across multiple states. One lawyer noted that the longer companies have to wait for a uniform federal law, the greater the burden of compliance on them.

In fact, two Democratic California reps – Anna Eshoo and Nanette Barragan – were concerned that such a federal law would override their own state’s law. Eshoo proposed a provision, which was not included during a markup of the bill, that would have allowed states to add privacy provisions on top of the federal baseline.

“If you do have multiple standards,” Weiser said, “we have to solve for the problem, which is a problem right now of what I call interoperability or harmonization: How do we make sure that different state laws enable compliance across them as opposed to putting businesses in, to me, the unacceptable position of saying, ‘I can either comply with Colorado’s law or California’s law, but not both.’?”

Having had a privacy proposal in its legislature that did not pass, Doug Peterson, AG for Nebraska, said the state is taking a wait-and-see approach, including observing how states, including Colorado, fare with their own laws.

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Social Media

Americans Should Look to Filtration Software to Block Harmful Content from View, Event Hears

One professor said it is the only way to solve the harmful content problem without encroaching on free speech rights.

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Photo of Adam Neufeld of Anti-Defamation League, Steve Delbianco of NetChoice, Barak Richman of Duke University, Shannon McGregor of University of North Carolina (left to right)

WASHINGTON, July 21, 2022 – Researchers at an Internet Governance Forum event Thursday recommended the use of third-party software that filters out harmful content on the internet, in an effort to combat what they say are social media algorithms that feed them content they don’t want to see.

Users of social media sites often don’t know what algorithms are filtering the information they consume, said Steve DelBianco, CEO of NetChoice, a trade association that represents the technology industry. Most algorithms function to maximize user engagement by manipulating their emotions, which is particularly worrisome, he said.

But third-party software, such as Sightengine and Amazon’s Rekognition – which moderate what users see by bypassing images and videos that the user selects as objectionable – could act in place of other solutions to tackle disinformation and hate speech, said Barak Richman, professor of law and business at Duke University.

Richman argued that this “middleware technology” is the only way to solve this universal problem without encroaching on free speech rights. He suggested Americans in these technologies – that would be supported by popular platforms including Facebook, Google, and TikTok – to create the buffer between harmful algorithms and the user.

Such technologies already exist in limited applications that offer less personalization and accuracy in filtering, said Richman. But the market demand needs to increase to support innovation and expansion in this area.

Americans across party lines believe that there is a problem with disinformation and hate speech, but disagree on the solution, added fellow panelist Shannon McGregor, senior researcher at the Center for Information, Technology, and Public Life at the University of North Carolina.

The conversation comes as debate continues regarding Section 230, a provision in the Communications Decency Act that protects technology platforms from being liable for content their users post. Some say Section 230 only protects “neutral platforms,” while others claim it allows powerful companies to ignore user harm. Experts in the space disagree on the responsibility of tech companies to moderate content on their platforms.

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Big Tech

Surveillance Capitalism a Symptom of Web-Dependent Companies, Not Ownership

Former Google executive Richard Whitt critiqued Ben Tarnoff’s argument in ‘Internet for the People’ during Gigabit Libraries discussion.

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Photo of Ben Tarnoff, co-founder of magazine Logic and the author of “Internet for the People”

July 15, 2022 – A former Google executive  pushed back against a claim that the privatization of broadband infrastructure has created the world’s current data and privacy concerns, instead suggesting that it’s the companies that rely on the web that have helped fuel the problem.

Richard Whitt, president of technology non-profit GLIA Foundation and former employee of Google, argued that while the World Wide Web is rife with problems, the internet infrastructure underlying the web remains fundamentally sound.

Whitt was responding to claims made by Ben Tarnoff, a journalist and founder of Logic Magazine, at the Libraries in Response event on July 8. Tarnoff argued – as he does in his recent book, “Internet for the People” – that the privatization of broadband infrastructure in the 1990s has allowed the use and commodification of personal data for profit to flourish (known as surveillance capitalism).

The discussion took place during the Gigabit Libraries Network’s series “Libraries in Response.” The session was titled “If the Internet is Broken, How Can Libraries Help Fix it?”

Privatization, Tarnoff claims, has raised such issues as polarization of ideologies and the “annihilation of our privacy.” As a result, he said, the American people are losing trust in tech companies that “rule the internet.”

Whitt responded that the internet is working well based on the protocols, standardized rules for routing and addressing packets of data to travel across networks, derived at the onset of the internet.

The World Wide Web, a system built on the internet to allow communication using easy-to-understand graphical user interfaces, allowed for browsers and other applications to emerge, which have since perpetuated surveillance capitalism into the governing approach of the web that it is today, said Whitt, suggesting it’s not ownership of the hard infrastructure that’s the problem.

The advertising market that encourages surveillance extraction, analysis and manipulation is, and will continue to be, profitable, Whitt continued.

The discussion follows a Pew Research Center study that found that only half of Americans believe tech companies have a positive effect in 2019 compared to a seventy-one percent in 2015.

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