Epic Games vs. Google antitrust trial gets under way

Another big tech antitrust trial gets under way today as Epic Games squares off against Google over control of the app stores.

Fortnite maker Epic Games sued Google as well as Apple for antitrust violations in 2020. Epic mostly lost the Apple antitrust lawsuit and has an appeal pending before the U.S. Supreme Court. Meanwhile, the Epic Games vs. Google trial gets under way today in federal court in San Jose, California.

Epic Games alleges that Google has monopolized the Android app distribution market by engaging in side deals that have benefited the Google Play store and lessened competition in gaming. Epic Games wants the courts to for Google (and parent Alphabet) to allow alternative payment and app distribution on the Google Play store itself. In other words, Epic Games wants either a store within the store or the right to advertise that it has its own Epic Games Store from within its games on Google Play. Google has said it isn’t guilty of antitrust violations.

“Android has made phones more affordable, provided consumers with more options, and enabled developers to thrive,” said Google vice president Wilson White, in a blog post. “Epic Games has fought a global, years-long campaign to up-end this system all in the hope of getting something for nothing. They have already sued Apple and lost twice. Next week they are trying their luck with Android by bringing a case that has even less merit given the flexibility and choices Android offers.”

Last week, Google settled a similar antitrust lawsuit filed by Match Group, which will get a $40 million payment from Google, and Google also settled with state attorneys general as well. That left Epic Games as the sole litigant against Google. Rather than seek monetary compensation, Epic Games wants the courts to order Google Play to rectify policies regarding Google Play, which current blocks third-party payment options. Epic Games says that is bad for consumers, whom antitrust law protects.

Epic Gams said that Google revenue-sharing and licensing agreements with phone makes are the main problem, as this insures pre-installation of Google Play on smartphones and tablets. And Epic Games alleges that Google prohibited the phone makers from permitting third-party app stores being preinstalled.

Google says that its policies are merely legitimate business incentives for developers to launch games on Google Play and for phone makers to host the store. And it also says it has plenty of competition from Apple’s App Store, the Samsung Galaxy Store, Amazon Appstore, and even PCs and gaming consoles. If you measure the “relevant market” as being all games, Google clearly doesn’t have more than 50% of the market. But in the concentrated market for mobile games, Google has the leading market share in terms of users.

The trial should see testimony from Epic Games CEO Tim Sweeney and Alphabet CEO Sundar Pichai. The trial is taking place in the courtroom of U.S. District Judge James Donato and it is expected to run through early December.

Attorney Gary Bornstein will start the opening statement for Epic today, and Epic plans to call witnesses Steve Allison, general manager of the Epic Games Store; Richard Watts, vice president of product revenue at Bumble (via deposition); Ben Simon, software engineer for Google and CEO of Down Dog; Paul Perryman, vice president of partnerships at Netflix (via deposition); and Genaro Lopez, information governance lead at Google.

Epic’s free-to-play game Fortnite makes its money through in-game transactions using its virtual currency V-Bucks. Players buy V-Bucks via Google Play on Android, with 30% of the fee going to Google. Epic Games has called this royalty payment a “tax.” When Epic Games enabled a hotfix update to bypass Google’s app store fees in 2020, Google kicked Epic Games off the app store.

Then Epic Games sued, also complaining that Google ties developers to its own payments platform as well. Epic Games says the result is several times more for the “tax” than Epic’s own 12% take on the Epic Games Store, and much more per transactions when you pay with a credit card. In federal court, judge Yvonne Gonzalez Rogers ruled in the Apple case that antitrust law did not prohibit Apple from enforcing its policies.

Google’s White said, “While Epic argues our fees are too high, Google Play’s fees are actually the lowest among major app stores. In fact, 99% of developers qualify for a service fee of 15% or less. This fee structure also avoids higher up-front charges that would burden small developers. This flexibility has led to a rapid increase in digital transactions, particularly in gaming apps like Fortnite, where the “freemium” model has become very popular among game developers.”

He also said Google offers choice in mobile payments.

The only win Epic Games got was that she said Apple cannot prohibit game and app makers from talking about alternative stores with lower prices. Epic lost that point on appeal and is now appealing the ruling to the Supreme Court. In that case, the judge ruled the relevant market for Fortnite was digital mobile gaming transactions. It’s worth noting that in the Apple case, which was a bench trial as opposed to a jury trial in this case, there was no allegation of improper agreements with phone makers as Apple is the only phone maker for iPhones.

Epic Games brought its legal claims under Sections 1 and 2 of the Sherman Act and under California law to end Google’s alleged unlawful monopolization and anti-competitive restraints in two separate markets: (1) the market for the distribution of mobile apps to Android users and (2) the market for payment processing solutions for digital content within Android mobile apps. Apple had argued that allowing “side loading” of apps through alternative links would have exposed users to security risks.

Google’s White said, “The truth is that Epic simply wants all the benefits that Android and Google Play provide without having to pay for them. And it wants to strip away critical security and privacy protections that keep billions of users safe from things like unfair subscription practices and dishonest billing, for which Epic itself has faced record fines.”

White added, “Users expect a safe experience on Android, and we are committed to keeping our users safe even while giving them choice. For example, when someone downloads an app for the first time directly from a developer’s website, Android notifies the user and asks them to verify they are doing so intentionally. We do this to ensure that users understand the risks of downloading software onto their mobile device directly from the web. We’ve streamlined this user prompt to make it a seamless, simple process. However, Epic wants these user notifications removed entirely, leaving the three billion people around the world who rely on these security precautions uninformed and putting their security and privacy at risk.”

Epic seeks to end Google’s unfair, monopolistic and anticompetitive actions in each of these markets, which harm device makers, app developers, app distributors, payment processors, and consumers.

And Epic alleged that its with phone maker, OnePlus, is illustrative of Google’s hold on the phone makers. Epic Games struck a deal with OnePlus to make Epic games available on its phones through an Epic Games app. The Epic Games app would have allowed users to seamlessly install and update Epic games, including Fortnite, without obstacles imposed by Google’s Android OS. But Epic alleged Google forced OnePlus to renege on the deal, citing Google’s “particular[] concern” about Epic having the ability to install and update mobile games while “bypassing the Google Play Store.”