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Taking cue from the Apple verdict, Google countersues Epic Games arguing breach of contract

In its counter lawsuit, Google denied most of Epic’s allegations and argued that the Fortnite developer had acted in bad faith.

After a US judge ruled last month that Epic Games was in breach of its contract with Apple when it implemented an alternative payment system in the Fortnite iOS app, Google is countersuing Epic in the hopes of a similar ruling.

Epic had first sued both Apple and Google in August 2020 after both companies removed Fortnite from their respective app stores and suspended the company’s developer accounts after the app implemented an alternative payment mechanism that avoids commissions charged by Apple and Google. Google Play’s payment policies state that in-app purchases made on apps distributed through the Play Store must use Google’s billing system and pay the relevant commission, which is 30 percent in Fortnite’s case.

What does Google’s lawsuit say?

Deception designed to provoke litigation: Google argued that Epic intentionally breached the terms of the contract and acted in bad faith.

Epic’s purported launch on Google Play was an act of deception designed to provoke litigation—Epic had been working for months on a way to conceal Epic’s payment system in an update on both Google Play and the Apple App Store. This undetected update would be accomplished through a “hotfix,” a method of app updating without Google’s knowledge that would allow the Fortnite app to import data directly from the Epic server. […] This hotfix was designed for the sole purpose of allowing users to bypass Google Play Billing in violation of the DDA. — Google

“Epic had no intention of actually complying with its agreement with Google and paying Google its service fee, as provided for under DDA. According to Epic’s own documents, the plan was simple: “[i]f we are rejected for only offering Epic’s payment solution. The battle begins. It’s going to be fun!”” the company said.

Evasion of contractual service fees: By implementing this alternative payment system, Epic evaded contractual service fees and continues to do so, Google said.

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Despite taking advantage of Google’s development tools, the alternate app distribution and sales channels that Android facilitates, and Google Play’s free distribution services—all with no payment to Google—Epic schemed willfully to violate the terms of the DDA [Developer Distribution Agreement ] to avoid paying Google anything at all on the fraction of transactions that would be subject to Google’s service fee. — Google

Fortnite users who had already downloaded the app before it was taken down continue to have access to the app and are still able to “use Epic’s hotfixed external payment mechanism to make in-app purchases—allowing Epic to evade its contractually agreed service fee to Google for those purchases,” the company said.

Google is seeking compensation equaling the amount that it lost because of Fortnite’s move. In Apple’s case, the judge ordered Epic to pay the iPhone maker $6 million as compensation.

What about the other antitrust claims made by Epic?

“Epic brings claims under Sections 1 and 2 of the Sherman Act under California law to end Google’s 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 processing payments for digital content within Android mobile apps. Epic seeks to end Google’s unfair, monopolistic and anti-competitive actions in each of these markets, which harm device makers, app developers, app distributors, payment processors, and consumers,” Epic’s lawsuit against Google said.

It also accused Google of eliminating competition in the distribution of Android apps using “myriad contractual and technical barriers. Google’s actions force app developers and consumers into Google’s own monopolized “app store”—the Google Play Store. Google has thus installed itself as an unavoidable middleman for app developers who wish to reach Android users and vice versa”.

Epic’s unredacted lawsuit revealed a lot of interesting practices that Google was engaging in including coercing and incentivising smartphone manufacturers to only ship the Play Store with phones even though the company publicly says that it allows and welcomes third-party app stores. The lawsuit also indicates that Google wanted to buy Epic at one point.

Google has denied most of Epic’s allegations (about 278 in total) in its counter lawsuit.

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What happened in the Apple verdict?

In the Epic vs Apple ruling made on September 14, the judge ruled in favor of Apple on 9 out of the 10 counts, however, the one unfavorable ruling requires Apple to allow developers to direct users to purchasing mechanisms other than the one offered by Apple. Both Apple and Epic have appealed the ruling, potentially delaying changes to App Store guidelines for years.

Google Play Store under CCI lens

In India, both Google and Apple are facing regulatory scrutiny over their app stores. The Competition Commission of India (CCI) ordered a detailed investigation into the Play Store last November, and it is currently reviewing an antitrust complaint filed against Apple App Store last month.

In Google’s case, the CCI said that there was prima facie evidence that the company may be abusing its dominant position in India, with regards to Play Store’s exclusivity and Google Pay services. It ordered an investigation into the following aspects of Google’s practices:

  • High commissions 
  • Exclusivity regarding the choice of payment systems for app purchases
  • Preference to Google Pay for payments
  • The advantage gained from data collection

One of the reasons for CCI to launch this probe was Google’s policy change announced in September 2020. Google kicked up a storm when it clarified that it will enforce its billing system on all apps downloaded from the Play Store for in-app purchases. Although not a new policy per se, this announcement indicated that Google is going to strictly enforce its stance. The company had set January 20, 2021, as the deadline after which new apps had to use Google’s billing system. Existing apps, however, were given time till September 30, 2021, to comply with the changes but the deadline was extended again to March 31, 2022, for Indian developers.

Last week, the Alliance of Digital India Foundation (ADIF) filed a petition with CCI seeking interim relief from Google’s new policy until the antitrust watchdog’s investigation is complete.

Regulatory challenges to app stores around the world

South Korea: A South Korean law passed in August requires Apple to allow alternative in-app purchase mechanisms.

Japan: Earlier in September Apple made a concession to settle an investigation by Japan’s Fair Trade Commission into the Apple App Store. The concession allows developers of “reader apps” like Netflix and Spotify to include an in-app link to their website for users to set up or manage an account.

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Netherlands: The Dutch antitrust authority has found that Apple’s rules requiring app developers to use its own payment system are anti-competitive. While the Netherlands’ Authority for Consumers and Markets has not fined Apple, it has demanded changes in the company’s in-app payment policies.

China: China’s Supreme Court in September dismissed Apple’s plea and ruled that an antitrust lawsuit filed by a consumer against the company’s China entity can proceed. In its plea, Apple had argued that the lawsuit should not be allowed because its China entity does not deal with App Store operations. The court, however, said that Apple had potentially abused its market position and undermined competition, and hence the case can be heard.

US: On August 11, US lawmakers introduced a new bill titled Open App Markets Act that proposes:

  • Operating systems must allow third-party app stores
  • Developers must be allowed to choose their choice of in-app payment system
  • Pricing for various app stores or in-app payment systems can be determined by developers
  • Developers can freely communicate pricing offers with users
  • Google and Apple cannot use non-public data to build competing apps
  • No self-preferencing in app stores
  • Third-party developers must be provided with the same access to developer tools

EU and UK: The European Union has launched an investigation into Apple App Store following a complaint from Spotify and the United Kingdom has launched a broad investigation into Google’s and Apple’s effective duopoly over the supply of operating systems (iOS and Android), app stores (App Store and Play Store), and web browsers (Safari and Chrome). Both investigations are ongoing.

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