May 8, 2021

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Apple and Epic draw battle lines

With help from Leah Nylen, Rebecca Rainey, Laura Kayali and Bjarke Smith-Meyer

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— An Epic clash: New filings in the antitrust fight between the Fortnite maker and Apple offer clues on their arguments for next month’s trial. Where are they butting heads?

— How to sue Facebook: A lawsuit from civil rights group Muslim Advocates could expose a new area of liability for Facebook.

— Digital tax push: The Organization for Economic Cooperation and Development is taking a scalpel to President Joe Biden’s tax proposal — and Silicon Valley is watching.

OH YEAH! IT’S FRIDAY; WELCOME TO MORNING TECH. Alex and Emily here for their swan song. Emily will be flying solo starting Monday (a terrifying prospect, according to a source familiar with Emily’s thinking), while Alex delves into her new privacy beat.

Got a news tip? Write us at [email protected] and [email protected]. An event for our calendar? Send details to [email protected]. Anything else? Team info below. And don’t forget: Add @MorningTech and @PoliticoPro on Twitter.

SNEAK PEEK OF THE EPIC-APPLE ANTITRUST TRIAL — Fortnite maker Epic Games and Apple set out their arguments for next month’s antitrust trial in court documents filed early Thursday. A couple of key battlegrounds worth watching: How do most users play Fortnite, and how dependent are users on Apple for in-game purchases?

— Jog your memory on the case: What was the catalyst for all this drama? The feud started when Epic, whose Fortnite game can be downloaded from Apple and Google’s app stores, introduced its own, alternate payment method to sidestep the giants taking their usual 30 percent cut. Apple and Google responded by blocking Fortnite downloads through their respective app stores, alleging that Epic was violating their rules.

And now for Thursday’s filings:

— Where Apple and Epic agree: Both sides agree that between 2018 and 2020, Apple iOS users spent $700 million buying Fortnite’s in-game currency (called “V-Bucks”). Apple’s take of that would be $210 million, and the remaining $490 million would go to Epic.

— Where they disagree: Epic said that about 70 million people — some 64 percent of Fortnite’s iOS users — played the game exclusively on their iPhone or iPad, where they spent $500 million on purchases.

Apple, though, said Fortnite players often play the game on more than one device (“multi-homing”), and that Fortnite is, in fact, more popular on Nintendo’s Playstation, Microsoft’s Xbox and PC computers than on iOS. In a survey Apple conducted for the litigation, 61 percent of iPhone users said they also owned a gaming console or hand-held device. Among iOS Fortnite players, 94 percent said they regularly play games on other devices, according to Apple.

— They also don’t see eye-to-eye on in-app payments: Epic argues that Apple has illegally tied its in-app payment system, which takes that 30 percent commission, to app distribution via the App Store. Apple, though, says that its payment mechanism should be viewed simply as one of many that can be used for game transactions. Fortnite players can and do buy in-game currency on other platforms that can be transferred or used in the iOS version, Apple said. (Epic says that V-Bucks bought in-game on Nintendo’s Playstation or Switch don’t transfer to other platforms, though any items purchased with V-Bucks do move when users switch devices.)

— What’s next: The trial begins May 3.

NEW CIVIL RIGHTS CASE AGAINST FACEBOOK — Muslim Advocates, one of the most influential civil rights groups in the country, is taking a new approach to suing Facebook over hate speech: claiming it’s violating consumer protection laws.

Obviously, it’s hard to sue Facebook, especially over the content on its platform (shout out to the First Amendment, Section 230, etc.). But Muslim Advocates is trying to put those unbearable hours of Mark Zuckerberg congressional testimony to good use, claiming that he misled consumers when he testified in 2018 that Facebook takes down harmful speech that could cause real-world violence. Considering the enormous amount of evidence that Facebook does not always take down posts that lead to real-world harm, especially against Muslim Americans, that testimony could amount to a violation of D.C.’s wide-ranging consumer protection law. (Facebook says it does not allow hate speech and works closely with experts and nonprofits to protect against anti-Muslim rhetoric.)

“Business lies are illegal in America,” Gupta Wessler PLLC’s Peter Romer-Friedman, the co-counsel leading the case, told MT. Facebook may not be liable for the user-generated content on its platform, but it’s certainly liable for its public statements. Interestingly, the aim of the lawsuit isn’t necessarily to force Facebook to take down more hate speech — it’s just to get the company to fess up when it doesn’t.

— Why the case matters: If it goes to discovery, the lawsuit could unearth communications among top Facebook executives, including Sheryl Sandberg and Zuckerberg. (There’s some healthy skepticism about if it could get to that level.) And if Muslim Advocates wins, the case could establish important precedent that opens up Facebook to a whole new world of hate speech-focused consumer protection lawsuits across the U.S.

— Fun fact: This approach to suing Facebook over civil rights violations was endorsed by Kristen Clarke, Biden’s pick to lead the DOJ civil rights division.

EYEBALLS WATCHING EMOJI: ALABAMA’S AMAZON UNION TALLY — The union trying to organize the Amazon warehouse in Bessemer, Ala., was trailing by more than a two-to-one margin with about half of the vote counted on Thursday before the talliers called it a day. We could know the results of the closely watched union election by the end of today. But, likely not. (And POLITICO’s Morning Shift team expects the decision will ultimately be resolved not by a vote but via litigation.) The labor board plans to resume counting the votes this morning at 8:30 a.m. CT.

WASHINGTON WIDENS DIGITAL TAX PUSH — Biden’s pitch to overhaul the global tax system, a closely watched issue in Silicon Valley, will be a top talker today at the Organization for Economic Cooperation and Development.

— What he’s pushing for: Biden wants the world’s largest 100 companies — those with revenue of at least $20 billion — to pay into countries’ coffers wherever they sell their goods or services, according to proposals sent to more than 130 governments involved in the ongoing tax talks. Washington’s pitch aims to redirect years of fraught negotiations that have focused on finding ways for countries to hike taxes on Big Tech companies like Facebook and Google.

More on that agenda here from our colleagues Aaron Lorenzo in the U.S., and Bjarke Smith-Meyer and Mark Scott in Europe. House Republicans said Thursday they were concerned about the Biden team’s handling of the tax negotiations and called for a Treasury Department briefing on the matter.

— What to watch at the OECD: International tax experts are convening online for the OECD’s Task Force on the Digital Economy and will get a chance to comment on the proposal, obtained by POLITICO. If accepted, the U.S. proposal would replace an OECD proposal to tax multinational companies through a complex system of financially separating their digital services and consumer-facing business.

— Clock’s a-tickin’: EU tax officials in Brussels met the proposal with apprehension. They’re unsure whether the OECD will be able to iron out the U.S. proposal and find the consensus it needs by the end of June to present a political agreement among more than 130 countries. Luxembourg is one notable exception: Finance Minister Pierre Gramegna told Bloomberg that the Biden administration’s proposals “go in the right direction, and in the best interests of both Europe and the United States.”

Steve Case, CEO and chair of Revolution Ventures, has joined TechNet’s executive council. … Acting FCC Chair Jessica Rosenworcel signed a Memorandum of Understanding with Keabetswe Modimoeng, chair of the Independent Communications Authority of South Africa, that is intended to facilitate conversations on best practices around 5G, broadband security and other telecom issues.

Sidestepping Apple: “Procter & Gamble participated in testing an advertising technique being developed in China to gather iPhone data for targeted ads, a step intended to give companies a way around Apple’s new privacy tools,” WSJ reports.

U.S. tightens grip on China: “The Commerce Department on Thursday announced trade restrictions with seven Chinese supercomputing companies and research centers that it said were engaged in ‘destabilizing military modernization efforts’ or in programs to build weapons of mass destruction,” POLITICO Pro reports.

In profile: Room Rater, via The Guardian. The Twitter account, one of our favorites, has spent the past year of remote work grading our Zoom backgrounds.

Tracking the chip shortage: Here’s The Verge on how the crunch is hitting iPad and MacBook production, and here’s the WSJ on how it’s forcing General Motors to pump the brakes in North America.

Online hate: Roughly half of U.S. Asian adults have experienced more online harassment during the pandemic, according to Morning Consult.

Tips, comments, suggestions? Send them along via email to our team: Bob King ([email protected], @bkingdc), Heidi Vogt ([email protected], @HeidiVogt), John Hendel ([email protected], @JohnHendel), Cristiano Lima ([email protected], @viaCristiano), Alexandra S. Levine ([email protected], @Ali_Lev), Leah Nylen ([email protected], @leah_nylen), and Emily Birnbaum ([email protected], @birnbaum_e). Got an event for our calendar? Send details to [email protected]. And don’t forget: Add @MorningTech and @PoliticoPro on Twitter.