The loss of Google in its antitrust case with Epic Games was a resounding success for the Fortnite creator and a severe blow to the economic model that underpins the mobile app ecosystem, in which platforms host app stores and then take a share of developer earnings. But, in the short term, what does the verdict imply for app developers? That remains to be known, since the case isn’t over until a court decides exactly what Google’s sentence should be.
A San Francisco jury rendered a ruling in Epic’s favor in hours, not days or weeks, finding that Google “willfully acquired or maintained monopoly power by engaging in anticompetitive conduct,” according to a court document. However, although the jury decided on culpability in the case, the judge must still decide on the remedy. That means the two sides will still be able to present their claims before the court later in January, with the intention of determining precisely how Google’s operations would need to be adjusted to compensate for its anticompetitive actions.
Google is unlikely to make any big modifications to its Google Play Store until the judge makes a definitive determination on what precisely needs to be done. If it did so willingly before the ruling, it would only complicate things if the court later found that more activities were required.
In other words, the Play Store’s policies will not change in the next few weeks or months while the case moves into its remedial phase. Developers will continue to pay their commissions as before, typically passing on the additional cost of doing business to customers. Google’s side arrangement with Spotify, as well as its settlement with Match, will stay in place.
We don’t know yet if U.S. District Judge James Donato, who handled the case, will order Google to unravel any of its arrangements or whether the court will define what kind of competitive agreements Google may engage in with app publishers or OEMs in the future. We also don’t know how the court will handle the intricacies of alternative app stores or third-party payment methods, such as mandating the discounts Google should provide. Epic is anticipated to ask the court for more precise and thorough directions, but Google will urge the court to recognize that it still has a company to operate and that too many restrictions will eventually undermine competition.
“The court is going to be trying to strike a balance to restore competition in these markets where the jury has found competition has been restrained,” said Paul Swanson, a partner at law firm Holland & Hart, who advises clients on the antitrust implications of their corporate relationships and represents them in antitrust litigation. Nonetheless, he thinks the court will aim to do so in the least invasive manner possible, given that it does not want to render Google itself non-competitive. That implies the court is unlikely to engage in “too much tailoring” of the remedy and will instead concentrate on extending options for downloading and purchasing Android applications.
Instead, the law surrounding the app store business model—and presumably others—is altering instantly as a consequence of this verdict.
“What we know right now is that this is going to impact the walled garden business model Google, Apple, and other companies have enjoyed for a while,” Swanson went on to say.
He thinks the ruling will have an influence on other markets where a corporation has built its own platform and so gets to set the rules of the road, such as the app stores’ 30% fee. While Apple successfully claimed in its antitrust action against Epic that it had a unified product that blended hardware with iOS and the App Store, the jury in the Google case reached a different result. They discovered that software purchasing and distribution are different marketplaces, which may cause other large corporations with comparable business models to Apple’s iOS and Google’s Android operating systems, as well as the software Store and Play Store, to reevaluate how their businesses should operate.
“That’s where they go; okay, there’s some real uncertainty in our fundamental model for how we do business,” Swanson went on to say. Indeed, the legal risk associated with this business model may drive other firms to reform, even if they are not brought to court.
Furthermore, Swanson said that class action lawsuits may be filed, allowing other prospective plaintiffs to defend their own claims without having the enormous funds that Epic possesses. He noted that a road has been laid out for others to follow.
According to Rick VanMeter, Executive Director of the Coalition for App Fairness (CAF), an Epic-founded lobbying group that includes other founding members and app developers in favor of increased competition in the app economy, such as Spotify, Match, Tile, Deezer, Basecamp, and others, The organization, which started with a little over a dozen people, now has more than 70. While it is primarily concerned with advancing legislation, such as the Open App Markets Act introduced in the previous U.S. Congress, VanMeter believes this ruling is significant because it involved consumers—members of a jury—reviewing the facts and determining that Google’s conduct was anticompetitive.
“I think when consumers do learn about these issues, and when they have an opportunity to see what is actually happening behind the scenes, I think they do understand it and do want change,” Van Meter said.
Nonetheless, he and CAF are doubtful about how Google would enforce the judge’s order when it comes into effect, citing various ways Apple and Google have managed to avoid the meaning of the law or a court’s verdict. For example, Google launched a test program for alternative payments; however, their 4% commission reduction typically results in the developer spending more when they must pay their own payment processing expenses. When Apple was required to enable alternative payment mechanisms for dating apps in the Netherlands, it simply paid the fine for weeks on end for failing to execute the change.
“I don’t think either company, including Google, can be trusted to comply with the intention of the ruling,” VanMeter told Eltrys in a statement. “I think, for our members, having more specificity and clear rules of the road that will prevent them from circumventing the ruling would be our preference.”
He also believes that the decision may compel the Supreme Court to hear Epic’s second case against Apple.
“It’s our hope that the Supreme Court will look at it, want to review it, and side with Epic,” VanMeter said in a statement. He adds, however, that he is unsure how the court might understand a decision in another instance. “To the extent that it encourages them to look at the case and open it up and do a full review and rule on this, I think that would be great,” he went on to say.
Swanson also acknowledged that the Google-Epic verdict may not have an immediate influence on Apple’s continuing lawsuit with Epic, but it does highlight the clear consumer interest that led to the jury’s swift conclusion. However, the two systems did not attain market dominance in the same way. Apple did not participate in side agreements on a regular basis (though it explored one with Netflix), nor did it pay developers to launch on its app store rather than theirs, since Apple only provides one avenue to app distribution: the App Store. It also does not have OEM agreements since it manufactures its own hardware. So, although there are similarities, there are also significant variances.
Though Epic hailed the decision as a “win for all app developers and consumers around the world” in a statement, the fact is that the judgment is only one of many dominoes that must fall in order to completely demolish the app store business model. Just as important, if not more so, is upcoming legislation in other markets, such as Europe’s Digital Market Act, which is set to go into effect next year, the United Kingdom’s Digital Markets, Competition, and Consumers Bill, and regulations being considered in other markets such as Brazil, Japan, Australia, Canada, and the United States.
CAF hopes that the Google-Epic ruling will at the very least cause Apple to reconsider its economic approach.
“Just because it is your business model does not mean it is legal or that it’s right,” Van Meter said.
