The Big Story

The chip wars heat up

Look, a U.S.-China story that isn't about TikTok! On Friday, The Financial Times reported that the U.S. Commerce Department sent a letter to American companies warning them that they'd now need licenses to continue supplying certain tech to SMIC. And the timing couldn't be worse for Nvidia.

• Exports to the chipmaker now pose an "unacceptable risk" of being diverted to "military end use," officials reportedly told the companies, suggesting that the government now views SMIC as a threat. SMIC denies that it has any links to the military.

This all has a whiff of Huawei about it. Things aren't quite that bad yet: SMIC still isn't on the Entity List, and we still don't know which tech will require licenses, or how generous the Commerce Department will be with issuing them. But the Huawei sanctions started off loose, before steadily getting stricter — until now "survival is the goal," as Huawei's chairman said last week.

• The reports have already hit SMIC hard: Its shares plummeted more than 7% this morning.

But the repercussions could be bigger than with Huawei: A ban would go to the heart of China's ambitions to domestically produce 70% of the chips it uses by 2025.

• Much of the equipment needed to make advanced chips comes from American companies such as Lam Research. Without access to that tech, SMIC would have a really hard time manufacturing them.
• SMIC is seen as China's best chance of achieving its audacious chip manufacturing goal, which was already in doubt — China only makes about 16% of its own chips at the moment. A severely disadvantaged SMIC would make it even harder.
• And the U.S. is trying to make allies take a similar stance, making life even harder for SMIC. After a reported pressure campaign from Mike Pompeo last year, the Netherlands refused to give ASML a license to export its EUV machine to China — a machine widely thought to have been ordered by SMIC to make next-gen chips. Bloomberg reported earlier this month that "the Dutch are still highly unlikely to reverse their decision."

This could be a "tipping point for U.S.-China relations," Eurasia Group analyst Paul Triolo told the FT, and it comes at a very sensitive time. Last week, The Wall Street Journal reported that Chinese authorities were debating whether to release their blacklist of U.S. companies before or after November's election. The SMIC saga could escalate things.

• That could be particularly bad for Jensen Huang, who has the $40 billion acquisition of Arm awaiting Chinese approval. That was already hanging in the balance, and a U.S. shot at China's chip ambitions is unlikely to improve its chances of success.

Antitrust

Apple-Epic: Battle Royale

The big day's finally here: At 9.30 a.m. PDT, Apple and Epic go to Zoom court for their big Fortnite hearing. Judge Yvonne Gonzalez Rogers will decide whether to grant an injunction, forcing Apple to restore Fortnite to the App Store and maintain Unreal Engine's access to Apple's developer tools; whether to keep things as they are; or whether to let Apple ban both. Ahead of the hearing, tensions between the companies have gotten awful heated. I dug through the court filings to find the best bits — which should give a sense of what to expect today.

Epic is very sure that Apple's behavior violates antitrust laws. In the bigger case where it tries to prove that, it thinks it is "highly likely to succeed on the merits." Apple's take? "Epic will not succeed on the merits of its antitrust claims." That pretty much sets the scene for the hearing.

Epic also thinks "the balance of harms strongly favors Epic." Tim Sweeney said that "there is a significant risk that frustrated iOS users driven away from Fortnite due to Apple's actions will never return to the app," adding that could "stunt Fortnite's continued evolution from a social video game into a more immersive and varied social space." Meanwhile, Epic argues, nothing bad will happen if Apple restores Epic's access.

• Apple, would you believe it, disagrees. "The relief requested by Epic risks harming the iPhone ecosystem and around a billion iPhone users around the world" by posing a security threat, it says, calling the Unreal Engine "a second potential 'Trojan horse.'"
• Epic thinks those security concerns are overplayed: "Epic would suffer incalculable reputational harm if it tried to sneak in malware," it says.

But Apple says this is all Epic's fault. "Epic started a fire, and poured gasoline on it, and now asks this Court for emergency assistance in putting it out," Apple said. That, in Apple's view, isn't acceptable: "Epic's asserted harm is the self-inflicted and self-fixable result of its own cheating ... and thus not irreparable," the company argues, saying that provides reason to deny the injunction. "Epic is a saboteur, not a martyr," it says.

• Epic, obviously, disagrees. "Epic is doing precisely what the Supreme Court has instructed that Epic is entitled to do: Refuse to comply with anti-competitive contractual conditions."

Remember what happened last time the two were in court: Back in August, Judge Rogers issued a temporary restraining order, saying that with respect to Fortnite, Epic had "not yet demonstrated irreparable harm," and that "the current predicament appears of its own making." But she also said that Apple couldn't retaliate against the Unreal Engine, in part because that could cause "potential significant damage to both the Unreal Engine ... and to the gaming industry generally."

• That judgment didn't give either party exactly what they wanted. So today, expect Epic to work hard to prove it's suffering — while Apple will try to justify why a sweeping ban is reasonable. You can watch along here, from 9.30 a.m. PDT.

Social

The TikTok saga keeps looping

It must have been a nerve-wracking weekend for Vanessa Pappas. But it all ended fairly well for TikTok: Yesterday, a federal judge blocked the Commerce Department's ban on new Tiktok downloads. For now, at least, that means the app is still alive.

TikTok argued that the ban violated the First Amendment, while the Justice Department said not granting the ban would "infringe on the President's authority." Judge Carl Nichols sided with TikTok — kind of.

Though he halted last night's App Store ban, the Nov. 12 order is still in effect for now. That order, which bans U.S. companies from providing internet hosting and content delivery network services to TikTok, would essentially stop the app working even for existing users.

• If TikTok can't get a further injunction, then, that means it has just over a month to get the Oracle-Walmart deal approved. Which means that this whole drama is, yet again, far from over.

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People Are Talking

Facebook Messenger's Stan Chudnovsky said he's asked Apple to let users change their default messaging app:

• "We feel people should be able to choose different messaging apps and the default on their phone … Generally, everything is moving this direction anyway."

An anonymous Facebook exec said it's not the platform's fault that right-wing content thrives:

• "Right-wing populism is always more engaging … That was there in the [19]30's. That's not invented by social media — you just see those reflexes mirrored in social media, they're not created by social media."

Elon Musk isn't happy about that OpenAI-Microsoft partnership:

• "This does seem like the opposite of open. OpenAI is essentially captured by Microsoft."

Ajit Pai is really into mac-and-cheese:

• "Yes, it may not occur in nature. And yes, it may resemble uranium ore. But there's no color more soothing, none that better triggers the brain to expect and enjoy comfort food, than macaroni-and-cheese bright orange."

Coming Up This Week

Palantir and Asana are both expected to go public on Wednesday. Both are doing so via direct listings, so their first-day performance will be very closely watched.

The House antitrust subcommittee has a hearing Thursday, where it will discuss "proposals to strengthen the antitrust laws and restore competition online." The subcommittee is also expected to release a report about Big Tech's behavior soon.

Google will announce the Pixel 5 on Wednesday, alongside a new smart speaker and Chromecast. As Protocol's Janko Roettgers reported back in May, the latter will likely have a totally new UI and might be Nest-branded.

In Other News

• Google is set to get strict on in-app purchases, Bloomberg reports. It sounds like the company is taking a page from Apple's playbook, with updated guidelines expected to emphasize the much-ignored requirement that apps use Google's billing system. Which seems like quite bold timing?
• Apple, meanwhile, is relaxing a bit. It's waiving its App Store commission on payments for online events until Dec. 31, a win for Facebook, Airbnb and ClassPass. Gaming apps are not eligible for the waiver, though.
• Russia wants a digital truce. Vladimir Putin issued a statement calling for a "reboot" in the U.S.-Russia cyberspace relationship, saying that the two countries should issue "guarantees of nonintervention into the internal affairs of each other, including into electoral processes." Make of that what you will.
• On Protocol: Trump's ban on diversity training at federal contractors could cause big problems for tech companies. Experts say that it could strong-arm companies into halting the progress they've made on racial sensitivity.
• Prime Day will once again be two days: Oct. 13 and 14. The timing sets the stage for a huge fourth-quarter for Amazon: Prime Day, Black Friday, Cyber Monday and Christmas now all fall in the same earnings period.
• Don't miss this story about the bizarre eBay stalking case from The New York Times. My favorite bit is how eBay's head of security regularly showed his team a scene from "Meet the Fockers" to make a point.
• Alphabet settled a shareholder lawsuit, which means it will be prohibitied from providing severance to employees terminated for sexual harassment or misconduct. Alphabet has also committed $310 million to creating a DEI advisory council.
• Uber kept its London license. After a long court fight, a court ruled that the company was "fit and proper," and could keep operating in its biggest European market.
• U.S.-China tensions are affecting IPOs. Kioxia, Toshiba's memory business spinout, postponed its listing this morning, saying that markets were too volatile. The company is a supplier to Huawei, so has been hit hard by U.S. sanctions.
• Amazon and Columbia set up an AI research center, with Amazon contributing $5 million over the next five years. Shih-Fu Chang, an Amazon scholar, is the center's inaugural director.

One More Thing

Windows XP is a COVID truther

The source code for Windows XP leaked last week, on 4Chan of all places. And mixed in with all the files and a suspiciously Apple-looking secret theme is a 30-minute conspiracy theory documentary called "Bill Gates' Plan to Vaccinate the World." Presumably it was placed among the files by the leaker. Because disinformation spreads everywhere now — even to 19-year-old operating systems' source code.

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