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Alphabet Loses Antitrust Fight With Epic Games Over Google Play

Alphabet Loses Antitrust Fight With Epic Games Over Google Play

(Bloomberg) -- Google lost an antitrust court fight to Fortnite maker Epic Games Inc. that threatens to upend the mobile app economy and could end up costing the technology giant billions of dollars in revenue.

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Google Play willfully wields monopoly power through the Alphabet Inc. unit’s anticompetitive conduct, a federal court jury found Monday after deliberating less than four hours following a nearly monthlong trial in San Francisco.

Epic largely lost a similar challenge to Apple Inc.’s app store two years ago and both companies have asked the US Supreme Court to review their dispute.

US District Judge James Donato, who oversaw the San Francisco trial, will decide whether Google must open the door for payment and app distribution methods outside its own app store. As in its trial against Apple, Epic didn’t seek monetary damages from Google, only a change in its app store policies.

Google, whose shares slipped 0.4% in extended trading, said it plans to challenge the verdict.

“Android and Google Play provide more choice and openness than any other major mobile platform,” said Wilson White, Google’s vice president of Government Affairs & Public Policy. “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.”

Tim Sweeney, chief executive officer of Epic, flashed a slight smile as he sat in the front row of the public seating area of the courtroom after the verdict was read out. He quickly hailed the ruling in a post on social network X.

In an interview, Sweeney said the company will seek “actual changes in practice” to Google’s app store, but declined to offer more specifics on the remedy Epic plans to ask for next year. “We can’t say there’s a victory when the court has ruled in our favor but nothing has changed,” he said.

Stanford University law professor Mark Lemley said the verdict “has the potential to be a very big deal — not just for Epic, which will get the ability to sell directly on Android phones — but for the entire internet.”

“The last two decades have seen a profound shift away from the open internet towards walled gardens,” he said. “That is one of the things that has kept the internet market so concentrated. This verdict just knocked a big hole in the garden wall.”

Lawyer Paul Swanson, a partner at Holland & Hart who specializes in technology and antitrust law, said “a sweeping verdict like this is going to be hard for Google to undo in post-trial proceedings or on appeal.”

The verdict came at the same time as Google has been defending itself in an even higher-stakes antitrust case by the US Justice Department targeting the company’s search business.

Read More: Pichai Juggles Defending Back-to-Back Google Monopoly Trials

Epic sued Google three years ago, claiming the tech company monopolized the Android app distribution market for more than a decade by striking side deals with rivals and using its resources to thwart competition.

In its defense, Google contended that its partnerships help phones that run on the Android operating system better compete against smartphone market rival Apple’s iPhone.

“Epic wants you to give them a deal that they don’t have and they haven’t been able to get anywhere else,” Jonathan Kravis, a lawyer for Google, told the jury in his closing argument. “A deal that would effectively let them use the Play Store for free.”

Epic was the only stakeholder to challenge Alphabet at trial after the Mountain View, California-based company recently reached settlements with consumers, state attorneys general and Match Group Inc., all of whom had targeted Google Play policies in complaints.

Read More: Google Play Trial Thrust Android Empire Building Into Spotlight

The trial featured testimony from both Sweeney and Alphabet CEO Sundar Pichai, along with a handful of high-ranking executives from Google and several antitrust law experts.

Sweeney, whose net worth is estimated at $6.2 billion, is a long-time advocate of open software ecosystems. He has accused Apple and Google of being a “duopoly” in the app distribution marketplace and enriching themselves by charging developers excessively high fees to list games.

Nine jurors, three women and six men, were shown numerous documents as evidence, including confidential internal Google email communications and presentations, which revealed the inner workings of its efforts to build out Google Play and its Android mobile operating system business.

Jurors found that Google unreasonably restrained trade by sharing Google Play revenue with mobile device manufacturers so its own store was the default store on Android smartphone home screens. Google also made million-dollar deals with game makers including Activision Blizzard before it was acquired by Microsoft Corp. — which Epic argued dissuaded the game companies from launching their own stores.

The panel also concluded that Google limited trade through its developer agreements that Epic contended make it challenging for users to directly download apps from the web to mobile devices. The accords also stopped developers from telling Android phone users that their products and services may be available at a lower price on their websites.

Why App Store Fees Are Drawing Fire Worldwide: QuickTake

Alphabet had countersued Epic, alleging the game maker breached its contract and acted in bad faith when it tried to set up its own app store in 2020 as an end-run around the Google Play billing system.

But after testimony by Epic executives at trial admitting that they tried to sidestep the Play store, Donato decided that jurors would skip ruling on Google’s counterclaims.

The case is In Re Google Play Store Antitrust Litigation, 21-md-02981, US District Court, Northern District of California (San Francisco).

--With assistance from Aisha Counts and Leah Nylen.

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©2023 Bloomberg L.P.

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