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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.

Broadband Breakfast is a decade-old news organization based in Washington that is building a community of interest around broadband policy and internet technology, with a particular focus on better broadband infrastructure, the politics of privacy and the regulation of social media. Learn more about Broadband Breakfast.

Big Tech

Washington’s Antitrust Push Could Create ‘Chilling Effect’ on Startups, Observers Say

There is concern that an FTC focused on ‘big is bad’ will stunt economic growth in the future.

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FTC Chairwoman Lina Khan

WASHINGTON, September 23, 2021 – Advocates for less government encroachment on big technology companies are warning that antitrust is being weaponized for political ends that may end up placing a “chilling effect” on innovative businesses.

The Institute for Policy Innovation held a web event Wednesday to discuss antitrust and the modern economy. Panelists noted their concern that antitrust law may be welded with political aims that will ultimately create a precedent whereby the federal government will stifle innovators who get too big.

Jessica Melugin, the director of the Center for Technology and Innovation, said technology companies could see what’s happening in Washington – with lots of talk of breaking up companies deemed too big – and be uncertain of the future.

She noted that growing companies largely seek one of two things to make it big: grow to file an initial public offering, where the company’s shares are publicly traded, or wait until a large company buys you out. She said talk emanating from the White House and Washington generally about regulating the industry could deter larger companies from acquiring them, and onerous financial regulations could put a damper on IPO dreams.

“If you start robbing companies of other smaller companies they purchased, it’s going to give a lot of entrepreneurs and a lot of funders in Silicon Valley pause,” Melugin said. “If another path to success gets blocked – the IPO is now harder, and now acquisitions are a little bit questionable…that’s a chilling effect.”

President Joe Biden has made a number of appointments to key positions that is bringing more attention on Big Tech, including known Amazon critic Lina Khan to chair the Federal Trade Commission, which recently filed an amended case against Facebook for alleged anticompetitive practices. He also appointed antitrust expert and Google critic Jonathan Kanter as assistant attorney general in the Justice Department’s antitrust division.

FTC could set a bad precedent if focus is ‘big is bad’ 

Christopher Koopman, the executive director at the Center for Growth and Opportunity at Utah State University, said he’s concerned about the precedent Khan could set for big companies.

He said the odds are that once Khan starts, she will continue down “this path of ‘big is bad’ because that’s a prior that she has and she’s continued to operate on her entire professional career. It just so happens that the focus of this is on tech companies.

“We may be building a regulatory apparatus that will continue to burrow a hole right down the middle of the American economy before we even have a chance to ask if that’s really what we want,” Koopman added. “We just have to recognize that it doesn’t matter, really, who is running the FTC – once we tell the FTC to go break up big companies, they’re going to go break up big companies.”

And the concern for Carl Szabo, vice president and general counsel of lobby group NetChoice, which advocates for less government regulation on the future of technology, is not just a domestic problem, but an international one, too.

“I really do worry about us shanking our innovation and essentially giving a free kick to our competitors and that seems to be what we’re doing,” Szabo said. “Right now, we lead the world.

“This is an international issue, this is a national issue, and we really need to – whether Conservative or Democrat – as Americans we need to see the forest from the trees. And if we want to put corporations ahead of competitors and think those are good democratic values, go ahead and do it.

The House has before it six antitrust bills targeting big technology companies, which passed the chamber’s judiciary committee in June. The goal of the bills is to rein in the power of Big Tech through new antitrust liability provisions, including new merger and acquisition review, measures to prevent anticompetitive activity, and providing government enforcers more power to break-up or separate big businesses.

Federal Communications Commissioner Brendan Carr said earlier this year that Big Tech has too much influence and power, citing the ability of Apple and Google to remove applications like controversial chat website Parler from its app stores.  Carr recently recommended that Big Tech contribute to the Universal Service Fund, which supports broadband expansion in low-income and rural areas of the country, because these companies benefit from broadband.

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Big Tech

Tread Carefully on Tech Platform Data Portability, Conference Hears

Politico panel debates merit of allowing tech platform users to migrate data freely.

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Public Knowledge's Charlotte Slaiman before a Senate committee on September 21, 2021.

WASHINGTON, September 23, 2021 – Panelists debated Monday the merits of forcing companies to allow users to migrate their data from one platform to another, with some lauding the proposal and others cautioning Congress not to stifle innovators by taking a blanket approach.

The Politico Tech Summit hosted a panel discussing legislation before the House – H.R. 3849 – that would force companies to allow users to move their data from one platform to another. The idea behind the concept of data portability is to instigate competition by reducing the barrier for users to use other services that they would otherwise avoid because they cannot take their contacts, connections, and photos with them to the new platform.

Experts say such a portability mandate would be welcomed by younger internet platforms that are competing to grow their networks, but admonished by larger firms like Facebook and TikTok, who would argue that they grew their networks organically and don’t wield any uncompetitive pressures by keeping their networks private.

“[Anti-trust legislation] is really about opening up markets for innovative competitors to enter,” said Charlotte Slaiman, competition policy director for public interest group Public Knowledge.

“Network effects are very powerful in many of these dominant digital platforms. Network effects means it’s very difficult for a person to leave a network. Even if you’re upset with Facebook, you don’t want to leave because of your one thousand connections or whatever.

“If you think about it from the perspective of an entrepreneur, they’re facing this problem times a million users,” Slaiman added. “The sources of funding know it, the venture capitalists know…interoperability is about addressing those network effects.” Interoperability is the extent to which a platform’s infrastructure works with others, which can facilitate data portability.

And more competition is emerging in the online platform space. For example, sites like Parler and Vero have emerged as social networking alternatives to the likes of Facebook, while video sites like Rumble and Locals have emerged as alternatives to YouTube.

Slaiman argues that platforms should compete on the features and user experiences they offer, not on owning a pool of users and profiles.

Slaiman testified similarly before the Senate Judiciary Committee’s Subcommittee on Competition Policy, Antitrust, and Consumer Rights on Tuesday.

Caution for portability legislation

Zach Graves, head of public policy for the think tank Lincoln Network, said there are a lot of cases where mandated portability “makes a lot of sense.

“If you look at the telecom context, you know the fact that you can take your phone number and port it to a different carrier. But we should approach this with caution. There are tradeoffs… I think there’s sort of a category error in how they’re constructing this that big is bad and that’s how we should regulate it,” he said.

“I would prefer a more sector specific approach,” Graves added. “If we’re talking about online retail, we should regulate online retail. If we’re talking about online ads, we should regulate online ads. The fact that we’re saying these companies are big and we should scrutinize them and give them a special framework I don’t agree with.”

Steve DelBianco, CEO of lobby group NetChoice, which pushes for a tech future free from onerous government regulation, was more blunt.

“The interoperability mandate will be a disaster for competition, for privacy and for data security,” he said. “There’s a complete difference between phone number portability and data portability compared to having interoperability where you open a hole into your application which means that any competitor can see data that violates your own privacy requirements. [That creates] security problems.

“People can join multiple social networks at the same time. The theory of network effects really falls down on this.”

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Section 230

Repealing Section 230 Would be Harmful to the Internet As We Know It, Experts Agree

While some advocate for a tightening of language, other experts believe Section 230 should not be touched.

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Rep. Ken Buck, R-Colo., speaking on the floor of the House

WASHINGTON, September 17, 2021—Republican representative from Colorado Ken Buck advocated for legislators to “tighten up” the language of Section 230 while preserving the “spirit of the internet” and enhancing competition.

There is common ground in supporting efforts to minimize speech advocating for imminent harm, said Buck, even though he noted that Republican and Democratic critics tend to approach the issue of changing Section 230 from vastly different directions

“Nobody wants a terrorist organization recruiting on the internet or an organization that is calling for violent actions to have access to Facebook,” Buck said. He followed up that statement, however, by stating that the most effective way to combat “bad speech is with good speech” and not by censoring “what one person considers bad speech.”

Antitrust not necessarily the best means to improve competition policy

For companies that are not technically in violation of antitrust policies, improving competition though other means would have to be the answer, said Buck. He pointed to Parler as a social media platform that is an appropriate alternative to Twitter.

Though some Twitter users did flock to Parler, particularly during and around the 2020 election, the newer social media company has a reputation for allowing objectionable content that would otherwise be unable to thrive on social media.

Buck also set himself apart from some of his fellow Republicans—including Donald Trump—by clarifying that he does not want to repeal Section 230.

“I think that repealing Section 230 is a mistake,” he said, “If you repeal section 230 there will be a slew of lawsuits.” Buck explained that without the protections afforded by Section 230, big companies will likely find a way to sufficiently address these lawsuits and the only entities that will be harmed will be the alternative platforms that were meant to serve as competition.

More content moderation needed

Daphne Keller of the Stanford Cyber Policy Center argued that it is in the best interest of social media platforms to enact various forms of content moderation, and address speech that may be legal but objectionable.

“If platforms just hosted everything that users wanted to say online, or even everything that’s legal to say—everything that the First Amendment permits—you would get this sort of cesspool or mosh pit of online speech that most people don’t actually want to see,” she said. “Users would run away and advertisers would run away and we wouldn’t have functioning platforms for civic discourse.”

Even companies like Parler and Gab—which pride themselves on being unyielding bastions of free speech—have begun to engage in content moderation.

“There’s not really a left right divide on whether that’s a good idea, because nobody actually wants nothing but porn and bullying and pro-anorexia content and other dangerous or garbage content all the time on the internet.”

She explained that this is a double-edged sword, because while consumers seem to value some level of moderation, companies moderating their platforms have a huge amount of influence over what their consumers see and say.

What problems do critics of Section 230 want addressed?

Internet Association President and CEO Dane Snowden stated that most of the problems surrounding the Section 230 discussion boil down to a fundamental disagreement over the problems that legislators are trying to solve.

Changing the language of Section 230 would impact not just the tech industry: “[Section 230] impacts ISPs, libraries, and universities,” he said, “Things like self-publishing, crowdsourcing, Wikipedia, how-to videos—all those things are impacted by any kind of significant neutering of Section 230.”

Section 230 was created to give users the ability and security to create content online without fear of legal reprisals, he said.

Another significant supporter of the status quo was Chamber of Progress CEO Adam Kovacevich.

“I don’t think Section 230 needs to be fixed. I think it needs [a better] publicist.” Kovacevich stated that policymakers need to gain a better appreciation for Section 230, “If you took away 230 You would have you’d give companies two bad options: either turn into Disneyland or turn into a wasteland.”

“Either turn into a very highly curated experience where only certain people have the ability to post content, or turn into a wasteland where essentially anything goes because a company fears legal liability,” Kovacevich said.

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