U.S. House Subcommittee Hears Complaints About Purported Anticompetitive Conduct by Platforms

The U.S. House Subcommittee on Antitrust, Commercial and Administrative Law recently held hearings concerning potential anticompetitive conduct by platforms against smaller companies who may offer services or products on those platforms at University of Colorado Law School.  Notably, the congressmen on the committee were all concerned about the activities of the platforms.  Here are a few of the notable points: 1) the relatively small companies do not spend a lot of money on lobbying; 2) some of the companies are very concerned about having to purchase their trademarks as keywords from Google; 3) there is concern about bargaining or the lack of it with Amazon; 4) there are concerns about the size of Apple’s cut of App Store sales as well as Apple using control over iOS to disfavor competitors of its own products; 5) there is potentially predatory pricing being conducted by some platforms; 6) there is fear that the platforms are using data about a smaller companies’ products or services created when they use the platform against them to compete; 7) none of the smaller companies could very clearly answer the question of whether the complained about conduct violated current antitrust law; and 8) the congressmen repeatedly thanked the smaller companies for their courage for speaking out against the platforms.  There was some discussion concerning intellectual property.  Sonos, the speaker company, noted that a platform was involved in “efficient infringement” against them.  The smaller companies also complained about the cost of litigating against the platforms and how it diverts funding from research and development.  At least one company noted that having the government pursue these cases would help them because of the cost.  As previously mentioned, there was also concern expressed about trademarks, and additionally, how platforms use similar trade dress to competitor's trade dress on products that platforms use to compete against smaller competitors.  Counterfeiting was also a concern. The full hearings can be found, here. 

App Store: The Long Tail or Trojan Horse?

The oldest "chicken and egg issue" in IP law must be the copyright question: what takes precedence: the author and his work, or its commercializer/distributor? I admit that the question is not precisely fair, because the existence of a work is obviously the prerequisite for its distribution and sale. That said, prior to the means of mass reproduction (I am going all the way back to the advent of the printing press), works were few and commercially irrelevant. True, people have and will always create works, but it is only the ability to commercialize the work that warrants copyright law and the legal and business apparatus that underpins the system. Creations are typically not made for their own creative sake, but with an eye how that work can successfully be distributed and sold.

I thought of this most basic of copyright truisms when I recently read an item published on April 24 on CNBC.com entitled "Big Game Makers Staying Off the iPhone". The gist of the article is the reluctance of some big video game producers to proceed warily with making at least some of their games available for download onto a iPhone via the Apple App Store.

On the one hand, the thought of a games application intentionally shunning the App Store seems difficult to fathom. After all, various media reports have notedthat App Store expects to reach the one billion download level virtually any day. That kind of potential market would seem to make the App Store the dream platform for a game developer seeking to monetize his product in the smartphone environment. And indeed, some game developers appear to have enthusiastically embraced the App Store. The CNBC report indicates that Electronic Arts has five games available, including the high-profile game "Spore". As well, an iPhone version of "Star Wars: The Force Unleashed" was released simultaneously with its release for the xBox 360 and Playstation 3.

However, as noted by CNBC, "[o]f the Top 25 paid applications (most of which are games) in Apple's App Store, only two are from established third-party publishers: EA's Tetris" [I assume the same "Tetris" I played a decade or two ago--njw] and Namco's "Galaga Remix." In particular, the article noted the reluctance of game maker Activision to publish a title via App Store. Notably, Activision is reported to have cut a deal to distribute five "blockbuster" titles to a number of platforms--none of which is the iPhone. The reason for Activision's reluctance seems to be rooted in the current economics of the App Store download market. True, we are reaching the one billion download level, but that activity has not yet translated into the kind of financial flows that make the App Store a preferred distribution platform for the larger players in the electronic games industry.

The business environment created by the App Store was described by John Taylor, an analyst with Arcadia Investment Corporation, as follows:

"It used to be that competitive advantage was defined by time to market and establishing a presence on new platforms before the competition. The genius of the iPhone is that all it takes is a small file and a consumer touching a screen to d0wnload it. It is the most elegant way to deliver interactive entertainment I've ever seen.... It's a huge opportunity, but it is going to be amazingly fragmented."

Well and good--so here's the question: Is the iPhone/App Store combination the Nirvana platform for the "long tail" model of distribution of contents and products? Or is the iPhone/App Store merely a Trojan Horse for ultimate domination by the larger game players when they ultimately decide to mark to App Store as a preferred means of distribution for their products? You will remember that the "long tail" model, as developed Chris Anderson, the editor of Wired magazine, posits that on-line distribution enables niche players to reach a customer audience to which it was unable to have access in the bricks-and-mortar days.

Translated into the App Store environment, "[t]o a small (or single-person) development house, $500,00 or $1 million are significant, but to a video game publisher, they're basically pocket change." That view would seem to support the "long tail" notion, where the potentially huge distribution numbers allow developers at the far end of the tail to reap commercial reward. Stated otherwise, fragmentation of the AppStore market provides exactly the kind of benefit envisioned by the "long tail".

However, the CBNC report suggests that farther out in time, the situation may change. The article suggests that, at some point, there will be more distinct winners and losers on the AppStore. With a reported 8500 games already available and presumably more coming on-line every day, there may be a day where more traditional barriers of entry will come into play, and the ability of the game publisher to support its product at the engineering and marketing level will provide a material competitive advantage and determine the ultimate success of the game.

All of this is a long way from the author-centric notion of copyright. And while "chicken and egg" it might not be, distribution and sales is certainly front and center in connection with the ultimate fate of creations in the computer game world. Let's check back again six months or so and see how things have developed.

The Long Tail on the Prowl