Sunday, August 16, 2020

How Apple's and Google's defenses to Fortnite maker Epic Games' antitrust lawsuits over their app store policies will likely differ

This is already my fourth post in three days on Epic Games v. Apple and Google. For your convenience, here are the headlines (and links to) to the previous three posts:

Meanwhile I've found the time to juxtapose the two complaints--Epic Games v. Apple and Epic Games v. Google--in an effort to identify their overlaps and differences. By just looking at the (largely consistent) tables of contents as well as the (almost identical) prayers for relie, one can tell that the narrative and the thrust are pretty much the same. But there are significant differences from an antitrust law perspective. While not very likely to be outcome-determinative, the delta will have an impact at all stages of proceeding.

What matters only in the court of public opinion--mainstream and social media--is how Epic's complaints recall Apple's and Google's idealistic communications of many years back (Apple's "1984" commercial and Google's "Don't Be Evil" motto as well as its promises of Android openness). Hypocrisy isn't an antitrust violation. In terms of geographic market definition, Epic defines the relevant markets with respect to Apple as worldwide markets, but excludes China with respect to Google, which won't lead to a different outcome either. Instead, let's focus on legally relevant differences.

The situation Epic Games is facing in practical terms is the same: Fortnite has been thrown out of Apple's App Store as well as the Google Play Store, meaning that new users can't download it and existing users can't receive updates. In either case, this was the platform owner's response to Epic's offering of rebates contingent upon purchases that would have circumvented Apple's and Google's in-app payment systems. So there's a behavioral overlap. Antitrust law, however, is concerned with unilateral conduct only against the background of monopoly power. In that regard, Epic faces unique challenges with respect to each adversary (technically, there are multiple Google defendants, but they belong together):

  • Google's market power stems from its platform (Android), but almost all Android devices are made by companies (original equipment manufacturers, or OEMs) other than Google, such as Samsung, which operates an app store of its own. Google controls the OEMs' behavior through its license agreements--unless they license the core Android code base on open-source terms (without the brand and various proprietary components, including but not limited to Google's propriertary apps).

  • Apple doesn't license iOS to OEMs, so it's completely in control, and its terms and policies are even more restrictive (Apple doesn't even enable Android-style "sideloading"), but iOS runs on far fewer devices than Android does. Apple will likely argue that the huge numbers of Android devices in use constitute a competitive restraint, though this depends on market definition.

In terms of previous decisions by courts and regulators, there's nothing in the U.S. that helps Epic. The Supreme Court heard Apple v. Pepper, a consumer class action case over the 30% App Store cut, but only with a view to the narrow question of an entitlement to damages awards by those indirectly harmed. Google, by contrast, has been slapped with a massive fine by the European Commission over its Android business model, but that's a different jurisdiction (and even within that one, it's merely a decision by an executive agency, not a judicial body). Epic says Google's conduct has been "condemned by regulators the world over," which is hyperbole and ultimately won't help a United States District Court resolve the dispute.

It's instructive to compare the counts of those two complaints:

  • Count 1 in either complaint alleges a violation of § 2 Sherman Act by monopoly maintenance in the app distribution market on the given platform.

  • Only with respect to Apple does Epic Games allege a denial of an essential facility (breach of an antitrust duty to deal) under the same pagraph (Count 2 of the complaint against Apple). The hurdle for something to constitute an essential facility is very high, so apparently Epic's lawyers concluded that this was worth pursuing only with respect to Apple, which controls 100% of the relevant market, and not Google, which controls by far and away the most important--but not the only--distribution channel for Android apps.

  • § 1 Sherman Act then comes into play with respect to contract terms Apple and Google impose on third parties. In Apple's case, the allegation of unreasonable restraints of trade under § 1 is exclusively about the iOS Developer Agreement (Count 3), while Epic brings two such counts against Google: Count 2 over its dealings with OEMs, and Count 3 over its developer agreement.

  • The next three counts walk in stride again: unlawful monopoply maintenance in the in-app payment processing market (Count 4), unreasonable restraints of trade in the in-app payment processing market (Count 5), and tying of a given app store to an in-app payment/billing service.

  • The claims under California state law (Cartwright Act and Unfair Competition Law) are materially consistent again, with just the need for an extra claim against Google as the alleged unreasonable restraints of trade involve not only the companies' developer agreements but also Google's OEM contracts.

I mentioned market definition before. Epic defines a market for app distribution on either platform, and alternatively offers a narrower definition of this for the product group of games (my focus as an app maker, too). Then there's a payment processing markets for each platform, either for all apps or, alternatively, specific to games. With respect to Google's market power as the maker of the platform that runs on 95% of all mobile devices that don't come with an operating system belonging to their manufacturer, Epic defines a "merchant market for mobile operating systems," which makes sense.

Epic's complaint already addresses Apple's and Google's anticipated lines of defense. § 63 of the complaint against Apple states that "competition in the sale of mobile devices does not constrain Apple's power in the iOS App Distribution Market because iOS device users face substantial switching costs and lock-in to the iOS ecosystem." But that pre-emptive strike probably won't end the debate. I must admit I'm still in the process of forming my own opinion. From the perspective of an app developer, I do wish to reach either audience, which is why my forthcoming game is developed using the cross-platform Unity engine. Android has a larger installed base, while the iOS audience is more affluent on average. What I'm still thinking about is this: if Google didn't have pretty much the same app distribution terms as Apple, I could see a competitive restraint because users would find out (and the media would sooner or later tell them) that many apps would offer the same in-app purchases at a significantly lower price on Android than on iOS. That would affect the total cost of ownership, and might create an incentive for switching.

Apple's defense is going to depend on market definition to a greater extent than Google's, which will argue that Android is open source and that apps can, in principle, be installed on Android devices without going through the Google Play Store (though only a minority of users source their apps elsewhere, and automatic updates are the prerogative of apps distributed through Google's store). In other words, Google has more options for muddying the water, for erecting and attacking strawmen, and for creating smokescreens. However, Epic wisely chose to put the case before professional judges rather than juries.

It doesn't appear likely, yet it is possible that the two defendants fare differently in court. If so, Google would have better chances of getting away unscathed, simply because a chain is as strong as its weakest link and the Google-related chain has an extra link: OEMs. But if the ubiquity of Android played in Apple's favor, the opposite outcome would be conceivable, too.

Apple and Google will now have to appoint counsel, and they'll then have to decide whether to merely respond to the complaint or to bring motions to dismiss. It's too early to discuss a motion that hasn't been and may never be filed, but it's not going to be easy to identify any structural deficiencies in Epic's pleadings so far.

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