Google Loses Antitrust Case Brought by Epic Games

Google lost an antitrust case over the market power of its app store on Monday, a blow to the search giant as it faces other legal challenges to its search dominance and ad tech business.

Source: WSJ | Published on December 12, 2023

Google to purge billions of files

Google lost an antitrust case over the market power of its app store on Monday, a blow to the search giant as it faces other legal challenges to its search dominance and ad tech business.

Videogame maker Epic Games sued the search giant in 2020, alleging it used its dominant position to squeeze excess profits from app developers. The San Francisco jury reached a unanimous verdict after deliberating for less than four hours.

The loss comes as Google battles more antitrust challenges, including a landmark trial focusing on its dominant search engine. Epic’s lawsuit formed part of a broader campaign against the fees that Google and Apple charge mobile app developers.

“Today’s verdict is a win for all app developers and consumers around the world,” Epic, the maker of the popular game Fortnite, wrote in a blog post Monday after the verdict. “It proves that Google’s app store practices are illegal and they abuse their monopoly to extract exorbitant fees, stifle competition and reduce innovation.”

Google said it would appeal the decision.

“Android and Google Play provide more choice and openness than any other major mobile platform,” said Wilson White, a Google vice president for government affairs and public policy. “We will continue to defend the Android business model and remain deeply committed to our users, partners and the broader Android ecosystem.”

U.S. District Judge James Donato will decide next year what remedies Epic will be awarded. The parties will reconvene in January.

In the original lawsuit, Epic said it wasn’t seeking monetary damages or favorable treatment from Google. Instead, it wanted Google to have to make its Android ecosystem more open and competitive but didn’t provide specifics. It is unclear what that will look like.

“It is a big deal that a jury is saying, ‘Yes, Google has a monopoly and it has illegally maintained a monopoly,’” said Lee Hepner, a lawyer for the American Economic Liberties Project, an antimonopoly group. “A jury was readily able to call a spade a spade.”

Though the Play Store brings in a relatively small chunk of revenue at Google parent Alphabet, the marketplace anchors a package of services the company licenses to Android device manufacturers that play a key role in promoting its cash-cow search engine.

Google’s app store, called the Play Store, made roughly $12 billion in operating profits in 2021, with margins of more than 70%, according to evidence Epic presented at trial. Google CEO Sundar Pichai said during his testimony the figures didn’t account for Android’s research and development costs.

Google and the Justice Department wrapped up witness questioning last month in the case focusing on its search engine. Closing arguments in that case are scheduled for May. Google also faces a Justice Department lawsuit targeting its advertising technology business that is expected to go to trial next year.

Epic’s case centered on Google’s dominant position in the market for apps on mobile devices running the company’s Android software, and the fees it charges for developers on its Play Store.

The game developer in 2020 began encouraging Fortnite players to pay Epic directly for purchases of in-game items, rather than using systems developed by Google and Apple. Both tech giants kicked Fortnite out of their app stores.

Epic then filed lawsuits against both companies.

According to testimony during the trial, Google had deleted some employee chat logs that might have included information relevant to the case. The judge told the jury to assume that the deleted information wouldn’t have been favorable to Google.

In the lawsuit against Apple, Epic lost on several claims though the game developer convinced a judge that the phone maker should loosen restrictions on payments through its app store. Both companies waived their right to a jury trial, opting to let a judge determine the outcome of the case.

When Epic originally brought its suit against Google alongside

Match Group, owner of the Tinder dating app, and a group of states, Google requested a jury trial. The other parties settled with Google out of court.

The trial before a San Francisco jury provided a rare look into Google’s maneuverings in the Android software ecosystem, the most widely used on mobile devices worldwide.

Epic tried to show that Google used agreements with companies such as Samsung to prevent competing app stores from gaining traction on Android phones, allowing it to squeeze excess profits from developers.

“If you are a smartphone maker, if you want an operating system, your only choice is Google,” Gary Bornstein, a lawyer for Epic, said in closing statements Monday. “This gives Google tremendous power.”

Google argued the agreements helped it compete with Apple and that its payment policies were in line with the rest of the market.

“The law does not require the Play Store to give away its services for free,” Jonathan Kravis, a lawyer for Google, said during closing statements.

Pichai argued that the company’s agreements with Android manufacturers provided benefits to customers who wanted to easily access Google products.

Epic CEO Tim Sweeney testified that the game company had “given up on the idea that Android is an open platform,” referring to the open-source nature of the underlying software.

Google worried about a “contagion effect” with other game companies if Epic were to move its flagship title Fortnite away from the Play Store, according to company documents the developer presented at trial.

The tech giant paid $360 million to Activision Blizzard and millions of dollars to 19 other game developers as part of an initiative called Project Hug, an initiative Epic argued was aimed at discouraging them from developing rival app stores. The search company argued the payments encouraged game companies to make their titles available in the Play Store.

During internal strategy deliberations, Google executives at one point discussed purchasing a 20% stake in Epic for roughly $2 billion but never went ahead with the plan, according to trial evidence.

In the trial, Epic also pointed to Google’s decision to let Spotify use its own payment system without giving Google a cut of the revenue. Google’s global head of partnerships, Don Harrison, testified that Spotify’s unprecedented popularity warranted the special agreement.