Karl Herchenroeder

The Supreme Court will hear argument Nov. 26 in Apple v. Robert Pepper, with implications for app stores. The conservative majority figures to favor Apple interests, stakeholders told us. Justices will decide whether Apple customers can sue for antitrust damages in a case, docket 17-204 (see 1810100058), stemming from a lawsuit claiming Apple has a monopoly through its App Store. Apple, which collects a 30 percent commission on apps purchased, limits iOS users to installing apps through that store, unless they jailbreak their phones, voiding warranty. Pepper argued this anticompetitive model lets developers pass added costs onto users. App developers benefit greatly from the App Store, given the booming app economy, and the liability and security protections the store offers, Pepper argued, making it unlikely developers will challenge Apple’s model.

FTC Commissioner Noah Phillips said he’s open to alternatives to the consumer welfare standard, which guides U.S. antitrust law. The agency fielded a wide range of opinions about the standard during its fifth competition policy hearing Thursday.

Sen. Lindsey Graham, R-S.C., is the favorite to succeed Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, if Grassley replaces retiring Senate Finance Committee Chairman Orrin Hatch, R-Utah, lobbyists and industry officials told us. Rep. Doug Collins, R-Ga., who scored legislative victories in 2018, is favored to succeed retiring House Judiciary Committee Chairman Bob Goodlatte, R-Va. Rep. Steve Chabot, R-Ohio, who holds seniority over Collins, also is said to be seeking the top GOP seat.

The Supreme Court debated the wisdom of directing Google’s $8.5 million data privacy settlement to charitable and academic organizations rather than to alleged victims (see 1805010051). During oral argument Wednesday in Frank v. Gaos (docket 17-961), Chief Justice John Roberts suggested Google could have awarded the money to organizations it hadn't contributed to in the past, alluding to criticisms from Ted Frank, litigation director for the Competitive Enterprise Institute, which challenged the settlement. New Justice Brett Kavanaugh asked whether it would be better to have a lottery or a pro rata system to ensure an injured party benefits. Justice Samuel Alito’s questioning suggested the deal awards a lot of money to attorneys, the class-action members get nothing, and groups potentially partial to Google benefit. Justice Ruth Bader Ginsburg suggested an indirect benefit outweighs what class members could have gotten. Frank told her each claiming class member “probably could have gotten between $5 and $10” with typical claims rates. Justice Sonia Sotomayor said of the settlement, “It seems like the system is working.” Google attorney Andrew Pincus said the question is whether the cost of distributing the money means the class gets essentially nothing, making an indirect benefit better.

The longer the FTC’s Facebook-Cambridge Analytica probe lasts (see 1808220030), the worse the outcome could be for Facebook, said former FTC Deputy Chief Trial Counsel Michael Kades Tuesday. “If you’re really going to try to hammer a company in a new way, you get your ducks in a row.” Kades at a New America Open Technology Institute event noted the agency is likely preparing for all possible rebuttals. “That the FTC hasn’t done anything on the Facebook [probe] yet, I don’t think that means anything," he said.

The EU-U.S. Privacy Shield is working as intended, American software industry groups told us, and companies expect the program to be extended at the end of the current review, as do some in Europe (see 1810170028). A privacy advocate also expects extension but warned officials are avoiding the bigger issue -- lack of cohesion between U.S. and EU surveillance laws. Two other privacy advocates expect the FTC’s ongoing Facebook-Cambridge Analytica probe to heavily influence negotiations pending EU recommendations for the agreement.

Discussing the need for a federal privacy law, Commissioner Rebecca Kelly Slaughter cited the “real tools” the FTC gained from the children’s privacy law: specific rulemaking and civil penalty authorities. Granted under the Children's Online Privacy Protection Act, those tools have been debated this Congress (see 1810110043). Children should be at the center of the legislative debate, said Sen. Ed Markey, D-Mass., in a video address. Slaughter spoke Wednesday at the Georgetown Institute for Tech Law & Policy (see 1810220041) and at that day’s FTC hearing (see 1810230042).

Diminishing software copyright by overbroad applications of fair use or denial of protection would be a “step in the wrong direction,” Copyright Alliance CEO Keith Kupferschmid said Tuesday at an FTC hearing. The software industry would be forced to retrench to a closed model, no longer sharing code and instead relying on proprietary contracts to keep code protected, he said. He repeated his organization’s support for HR-3945, which would establish a voluntary small claims tribunal in the Copyright Office. Public Knowledge Policy Counsel Meredith Rose urged the FTC to collaborate with the Copyright Office on the overlap between copyright and competition, which increased with IoT technology. Hearings on copyright continue Wednesday (see 1810110056).

NTIA officials organized private meetings this summer with at least 14 different groups representing tech, telco and other industry interests to discuss the Trump administration’s privacy principles (see 1810100057), according to documents we obtained through a Freedom of Information Act request. Of the 21 groups included in some 60 NTIA documents, four were consumer or privacy advocates. Industry representatives and a former senior-level FTC official defended the gatherings. Consumer groups said the process was skewed.

Big-tech acquisitions of startup competitors are harmful because startups usually deliver the “paradigm shifting innovations,” FTC staffer Lina Khan said at Wednesday’s competition policy hearing (see 1810160062). Antitrust enforcers should be wary of seemingly harmless acquisitions like Facebook’s 2013 buy of VPN provider Onavo, argued Khan, a staffer for Commissioner Rohit Chopra and fellow at Columbia University Law School. Onavo grants users heightened security, but it allows the social network to track in “extremely close detail” which rival apps are diverting attention from Facebook, she said. This allows the platform to detect which startups are the biggest competitive threat, shaping acquisition strategy and leading to purchases of apps like tbh and Moves, Khan said. These types of acquisition might not directly affect competition in the digital market, but they improve Facebook’s position and strengthen its leverage as incumbent, she said. It’s unclear how much competition is the right amount to produce a healthy amount of innovation, argued University of California-Berkeley economist Steven Tadelis. Companies need market power to reap the benefits of innovation, he said. Tadelis is convinced current antitrust tools guided by solid economic thinking are adequate, and each case should be evaluated on its own merits. Former FTC General Counsel Willard Tom, now at Morgan Lewis, agreed existing antitrust tools are adequate. Early stage entry is now extremely cheap and easy, given cost reductions with cloud computing, Tadelis said.