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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.

Social Media

Vague Social Media Laws Create Fear in the Middle East. Can Encryption Tools Help?

Experts discuss how social media is being treated in the Middle East and how to respond.

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Chris Meserole, senior fellow at the Brookings Institution

WASHINGTON, January 25, 2022 – Far from being the savior of democracy in the Middle East, four experts said Monday that social media, and government regulation of it, is beginning to hurt civil rights activists.

The world is witnessing an increase in laws restricting social media access and hence regulating freedom of speech, especially in the Middle East, agreed the panelists, speaking at a Brookings Institution event.

Dina Hussein, the head of counterterrorism and dangerous organizations for Europe, the Middle East, and Africa at Facebook, and Chris Meserole, a senior fellow at the Brookings Institution, stated that too many countries are passing vague laws about what is and isn’t allowed on social media.

These new laws are purposefully unclear, they said. This new strategy has made it easier for the government to take down posts and restrict critics’ internet access while leaving up the posts of supporters and government officials.

These laws also spread fear within the regime because the vagueness puts anyone at risk of being arrested for something they post, they said.

When asked what can be done, Hussein said that Facebook promotes honesty through a website that focuses on Facebook’s own transparency and raises awareness of other countries’ laws for their users. In addition, Facebook is personally working to support civil rights activists in the areas of the world that are implementing such laws, Hussein said.

Encryption to avoid surveillance

Meserole said that democratic governments should not be fighting “fire with fire.” Instead, he wants civil rights groups in the Middle East to strengthen their ability to operate without social media. Many activists rely on social media to build their bases and spread their message. So, Meserole emphasized that as the authoritarian regimes increase their abilities to watch, manipulate, and censor social media, democratic governments should invest in technology that will help those who are fighting for civil rights encrypt their media or work outside of the surveillance of government.

Another concern of the guest speakers was the rise in online misinformation and the trend of authoritarian regimes making new accounts to promote their message rather than trying to censor the language of the opposition.

Some people wonder why these groups don’t just eliminate media within their countries. Meserole’s answer is that the government has it is own various benefits to having social media, and so they pass vague internet laws that allow them to have more legal control instead.

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Antitrust

FTC Mum on Microsoft-Activision Deal, Proposes Review of Merger Guidelines

The deal would elevate Microsoft in an even more favorable position in the games-as-a-service market.

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FTC Chairwoman Lina Khan on CNBC last week

WASHINGTON, January 24, 2022 – As Federal Trade Commission Chairwoman Lina Khan does media rounds this past week, she has refused to comment on last week’s news that Microsoft has agreed to buy video game making giant Activision-Blizzard for nearly $70 billion.

As per policy, the FTC and the Department of Justice, which on Tuesday jointly held a press conference on merger reform on the same day of the announced consolidation, said they could not comment on the deal, which would increase the Xbox maker’s gaming market share and allow it to better compete with Japanese behemoth Sony.

During the press conference, Khan, installed as chairwoman in June as an already outspoken critic of certain big tech practices, announced that the organizations would be launching a review of merger guidelines. Khan stressed that the current guidelines do not adequately protect consumers and promote competition in the era of the digital economy.

“While the current merger boom has delivered massive fees for investment banks, evidence suggests that many Americans historically have washed out with diminished opportunity, higher prices, lower wages, and lagging innovation,” she said. “These facts invite us to assess how our merger policy tools can better equip us to discharge our statutory obligations and halt this trend.”

She reiterated those goals on a CNBC interview on Wednesday. The purchase of the highly influential Call of Duty franchise maker will have to go through her office. It also presents another stress test for the office, as it is already engaged in an existing lawsuit against Facebook practices. Both Facebook and Amazon have asked for Khan to be recused from investigations in their companies because of her past positions on them.

The deal would significantly expand Microsoft’s Game Pass platform, which offers free games to play for a monthly subscription. Microsoft announced on the day of the proposed deal that Game Pass surpassed 25 million subscriptions.

“Upon close, we will offer as many Activision Blizzard games as we can within Xbox Game Pass and PC Game Pass, both new titles and games from Activision Blizzard’s incredible catalog,” said Microsoft Gaming CEO Phil Spencer said in a statement.

Despite its numerous successful intellectual properties, Activision Blizzard has been marred with scandal in recent years. In 2021, the company was sued by California Department of Fair Employment and Housing for promoting a “frat boy” culture, whereby female employees were not only allegedly discriminated against, but also subjected to sexual assault and misconduct.

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Big Tech

Attorneys General Suing Google Over Location Data Collection

The D.C. attorney general is leading other state AGs alleging Google mislead consumers into believing they could disable location tracking.

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Alphabet CEO Sundar Pichai

WASHINGTON, January 24, 2022 – The Office of the Attorney General for the District of Columbia has filed a lawsuit Monday against Google alleging “deceptive and unfair practices” related to obtaining consumer location data.

Attorney General Karl Racine‘s office argues that Google has been in violation of D.C.’s “Consumer Protection Procedures Act” since at least 2014. According to the complaint, Google is alleged to have lied to consumers, intentionally giving them the impression that they can disable Google’s ability to collect and retain user location data.

“In reality, consumers who use Google products cannot prevent Google from collecting, storing, and profiting from their location,” the complaint reads.

The documents outline that Google’s primary source of revenue is earned through digital advertising, and thus, Google was incentivized to harvest consumers’ personal data to better target ads – an effort that is significantly improved by collecting location data from users.

“Location data is among the most sensitive information Google collects from consumers,” the complaint says. “Location can also be used to infer personal details such as political or religious affiliation, sexual orientation, income, health status, or participation in support groups, as well as major life events, such as marriage, divorce, and the birth of children.”

Racine’s office is leading the effort with attorneys general in Texas, Indiana and Washington filing their own complaints, he said on Twitter.

The complaint further explains that due to reporting done Associated Press in 2018, it was revealed that Google explicitly deceived customers by allowing them to believe they have opted out of location tracking when the reality is their decision has no bearing on what kind of data Google collects.

“The AP story exposed that Google’s promise to consumers was false. Even when consumers explicitly opted out of location tracking by turning the Location History setting off, Google nevertheless recorded consumers’ locations via other means,” the complaint said.

The ubiquity of Google products and services only compounds the risk, the plaintiff argues, as Google products are found “essentially everywhere consumers go.”

“Google uses this window into consumers’ lives to sell advertising that is ‘targeted’ to consumers according to personal details Google has learned about them, including their demographics, habits, and interests.”

Targeted ads have long been in regulator’s sights, both in the E.U. and the U.S..

The complaint states that it is in Google’s best financial interest to obfuscate exactly what data is being collected, how it is being collected, and why. “The Company’s exhaustive surveillance practices are most effective, and therefore most lucrative, where consumers have no clear idea how to limit Google’s access to their personal information.

“The District files this suit to correct the deceptive and unfair practices that Google has used and uses to obtain consumers’ location data, and to ensure that consumers are able to understand and control the extent to which their location data is accessed, stored, used, and monetized by the Company.”

The AG’s office is not only seeking to compel Google to cease these practices, but also forfeit all revenue generated by them.

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