Google loses antitrust case brought by Epic Games

Google created a monopoly with its Play Store and Google Play Billing service, a unanimous jury in San Francisco found on Monday after four hours of deliberation.

“We plan to challenge the verdict,” Google spokesperson Wilson White said in a statement following the decision. “Android and Google Play provide more choice and openness than any other major mobile platform. The trial made clear that we compete fiercely with Apple and its App Store, as well as app stores on Android devices and gaming consoles.”

Epic Games, which sued Google, called the verdict “a win for all app developers and consumers around the world.”

“It proves that Google’s app store practices are illegal and they abuse their monopoly to extract exorbitant fees, stifle competition and reduce innovation. The evidence presented in this case demonstrates the urgent need for legislation and regulations that address Apple and Google strangleholds over smartphones, including with promising legislation in progress right now with the Digital Markets, Competition and Consumer Bill in the UK and the Digital Markets Act in the EU,” Epic said in a statement.

Jonathan I. Kravis of Munger Tolles & Olson LLP gave closing remarks Monday for Google while Gary A. Bornstein of Cravath Swaine and Moore LLP spoke for Epic. U.S. District Judge James Donato presided over the four-week trial.

Epic accused Google of violating antitrust laws by using its market power to foreclose competition in the Android app distribution and Android in-app billing services markets. After creating a monopoly, Epic claimed, Google imposed a supracompetitive service fee rate of 30% onto app developers and tied its Google Play Billing service to the Play Store. In re: Google Play Store Antitrust Litigation, 21-md-02981, (N.D. Cal., filed Feb. 5, 2021).

Google denied any wrongdoing, claiming the market should be defined to include what it sees as its biggest competitor — Apple Inc. — and arguing the conduct Epic takes issue with is meant to help Google better compete with Apple and its App Store.

Google had brought counterclaims against Epic because the video game publisher willingly violated its Play Store agreement, incorporating its own payment solution into its hit game Fortnite as an alternative to Google Play Billing. The parties filed a stipulation in which Epic admitted to wrongdoing and failing to pay Google almost $400,000 in fees, meaning the nine jurors were no longer asked to decide on that matter.

Donato ordered the parties to have settlement talks at the end of November. They met for about an hour and concluded that a settlement would not be happening.

Donato had also chastised Google and its attorneys for their deletion of internal communications that were supposed to be preserved under court orders. The judge said he was going to conduct his own independent investigation into the matter and that he would instruct the jury to infer that the deleted chats contained evidence that was detrimental to Google.

“Google has no real challenger … It has a monopoly,” Bornstein told the jurors. He said that Google’s market power comes from its control over Android, the only real choice non-Apple smartphone makers have for an operating system. The attorney claimed Google entered agreements with smartphone makers requiring them to have the Play Store be the default store preinstalled on new phones and blocking competing app stores from enjoying that same privilege. He continued that Google used that power to create a monopoly in app distribution, leading to around 95% of Android app downloads being through Google’s Play Store and the next 13 competitors combined barely making up the remaining five percent.

Kravis responded that the evidence has shown over and over again that Google’s conduct promoted competition against Apple. He said that the app store is a critical part of the competition between Apple and Android phones because users cared about the quality of the app stores and the apps on their devices. Kravis also argued competition within Android is vibrant as well, with 68% of phones having a second app store preinstalled.

“Epic has asked you to pretend that the iPhone just doesn’t exist,” Kravis said, adding the field of competition is much broader than just Google and Apple. Competing with someone means you are in the same market as them, the attorney told the jury, and Apple’s App Store earns a commanding 64% of revenue from mobile apps since a substantial amount of people switch to Apple phones because it has a better store.

“What this is really about is that Epic wants to use the Google Play Store for free,” he continued, pointing to testimony by Epic CEO Tim Sweeney that showed Epic stands to gain potentially billions of dollars in increased revenue or an exclusive Play Store deal with Google should Epic win the case. “Epic is just in this for the money,” he reiterated.

Bornstein replied that only seven percent of people who make the switch to Apple phones did so because of app store quality and Kravis’s arguments are based on a completely different, irrelevant market: the phone market.

“To be anticompetitive, the competition doesn’t have to be blocked entirely, it has to be impaired or limited in some way,” Bornstein argued, adding Google’s expert’s market definition was overbroad, incomprehensible and “absurd.” The attorney said Google’s internal documents showed that the company was scared of developers like Epic leaving the Play Store, finding success and more developers choosing to follow Epic’s example.

“Some witnesses tried to tell you that … apps would leave Android and only be on iOS,” Bornstein said. “There’s no single app that’s given up the 3 billion potential users on Android just to be on iOS.” He accused Google of bribing and blocking competitors through strategies such as Project Hug, agreements with game developers to ensure their apps would not release on Play Store later than any other app store and to not create their own app stores in exchange for monetary benefits.

Kravis contended that Google is falling behind Apple because developers put their apps on the App Store first, meaning Android users need to wait months before receiving the same app or updates to said app. To compete, Google has to lower its fees and improve its products, he continued, saying, “this is not the behavior of a monopoly.” The attorney also said the 30% service fee that Epic takes so much issue with is only paid by 0.06% of developers; the rest pay 15% or less.

Bornstein argued that Google is massively overcharging developers compared to competing billing services, referencing testimony from an Epic expert that Google could already earn $5 billion a year by charging developers only 12%.

Kravis rebutted by arguing that higher price is justified because Google provides a package of extra benefits and services and the competing billing services Bornstein referenced do not distribute apps like the Play Store does.