News Information and Media Site: Byers Market: Judge splits decision in Apple vs. Epic fight

August 25, 2020

By DYLAN BYERS in Los Angeles &

AHIZA GARCÍA-HODGES in San Francisco

Good morning. 🙏 We got a lot of positive feedback on the new Monday morning "Week Ahead" format. We'll continue to kick off each week with that briefing, unless the news demands otherwise.

📅 What's next: Shep Smith, our new CNBC colleague, launches his show "The News with Shepard Smith" on Sept. 30 at 7 p.m. ET. Here's an early look.

Join the Market: 🗞️ Newsletter | 🎙️ Podcast

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🍏 Moving the Market

What we learned from the first Apple-Epic ruling

The U.S. district judge overseeing the legal battle between Epic Games and Apple issued a key pre-trial decision late Monday night that highlights the strengths and weaknesses of both sides and offers a telling preview of the larger antitrust fight still to come.

• The ruling: Judge Yvonne Gonzalez Rogers ruled that Apple does not have to immediately reinstate Epic's "Fortnite" on the App Store, but does have to let Epic provide its Unreal Engine graphics software to game developers.

The big picture: The judge's split decision, and her condemnation of both Epic's provocations and Apple's reaction, reinforce the core arguments on both sides and point to a spirited battle ahead.

• On the one hand, she is telling Epic that it willfully disobeyed Apple's policy and is solely responsible for getting "Fortnite" banned — a reminder that Epic clearly broke the rules.

• On the other hand, she is saying Apple overreached by retaliating against Unreal Engine without warning — a move that underscores Apple's power over the digital marketplace.

• This isn't a "slam dunk" for either side, Gonzalez Rogers said during the hearing.

The backstory: The standoff between Apple and Epic started earlier this month when Epic installed its own payment system in "Fortnite," intentionally circumventing the 30 percent commission that Apple requires from companies that use its service.

• Apple responded by removing "Fortnite" from the App Store. Epic, apparently anticipating the move, sued Apple for anticompetitive behavior. Apple then threatened to terminate Epic's Unreal Engine unless Epic agrees to pay its fees.

What's next: The real legal fight — over Apple's 30 percent fee, its power over the digital marketplace and what Epic describes as its anticompetitive behavior — is still to come. A preliminary injunction hearing is scheduled for Sept. 28.

• Lawyers for Epic told the judge they needed up to six months to be ready for trial; Apple's lawyers said they would need 10 months.

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🏛️ Big in the Beltway

How to read TikTok's lawsuit

TikTok has filed its lawsuit against the U.S. government, challenging President Donald Trump's executive order to ban U.S. companies from doing business with the app and its parent company, ByteDance, unless it can find a non-Chinese buyer before Sept. 15.

• The suit claims that the Trump administration failed to follow due process when it ordered the ban and that it never provided evidence that TikTok posed a security threat. (Read our full report.)

• "We do not take suing the government lightly; however, we feel we have no choice but to take action to protect our rights, and the rights of our community and employees," the company said.

The big picture: TikTok's chances of overturning the ban are slim, as Andrew Ross Sorkin & Co. point out here. The real goal, a source familiar with TikTok's legal battle told us, is to prolong the window for negotiations with U.S. suitors past the Sept. 15 deadline.

• Major tech firms such as Microsoft and Oracle and other private investors are pursuing an acquisition of TikTok's U.S. business, as well as its businesses in Canada, Australia and New Zealand.

🌁 Big in the Bay 🌁

Watch for some news from Facebook later this morning on the small business / commerce front. ...

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🇺🇸 Talk of the Trail

Republican convention, Pt. 1

"President Trump and his political allies mounted a fierce and misleading defense of his political record on the first night of the Republican convention on Monday," NYT's Jonathan Martin, Alex Burns and Annie Karni report.

• They "made plain that they intended to engage in sweeping revisionism about Mr. Trump's management of the coronavirus pandemic, his record on race relations and much else."

• "At times, the speakers... appeared to be describing an alternate reality: one in which the nation was not nearing 180,000 deaths from the coronavirus; in which Mr. Trump had not consistently ignored serious warnings about the disease; in which the president had not spent much of his term appealing openly to xenophobia and racial animus; and in which someone other than Mr. Trump had presided over an economy that began crumbling in the spring."

The big picture: "It can now be safely said... that Donald Trump's party is the very definition of a cult of personality. It stands for no special ideal. It possesses no organizing principle. It represents no detailed vision for governing," Politico's Tim Alberta writes.

• "Filling the vacuum is a lazy, identity-based populism that draws from that lowest common denominator... If it agitates the base, if it lights up a Fox News chyron, if it serves to alienate sturdy real Americans from delicate coastal elites, then it's got a place in the Grand Old Party."

Market Links

• Tim Cook acquires a VR startup (Protocol)

• Dustin Moskovitz files to take Asana public (CNBC)

• David Helgason files to take Unity Software public (CNBC)

• Salesforce, Amgen, Honeywell move to DJIA (CNBC)

• Thomas Kurian invests $100M in Amwell (CNBC)

Drew Angerer/Getty

🌴 Talk of Tinseltown

Netflix's British invasion

Reed Hastings and Ted Sarandos have been looking overseas for fresh Netflix content and outbidding British channels for the rights to new shows, taking advantage of television channels hit by the recession and stagnant advertising market, The Guardian's Jim Waterson reports.

• It's not just British TV that's exposed. As the pandemic continues to slow production, Netflix's deep pockets and willingness to outspend TV broadcasters in the U.S. and abroad poses a threat to others.

• Netflix is also in a privileged position because its long production lead times mean it still has a relatively full library of new material. (Netflix didn't respond to our request for comment.)

The big picture: Netflix is uniquely positioned to thrive at a time when traditional TV is "grappling with an exodus of cable-TV subscribers, the evaporation of advertiser demand ... [and] a content drought," Bloomberg's Tara Lachapelle noted recently.

• What's next: That content drought is likely to result in a rather disappointing fall TV season, Lachapelle warns. Excluding Netflix, perhaps.

🌪️ What's next: Department of corrections: We referred to hurricanes as tornadoes yesterday. Dylan, who recently watched "Twister" for the first time, takes full responsibility. Apologies.

See you tomorrow.