Saturday, November 14, 2020

Google brings motion to dispose of Epic Games' antitrust complaint over Android app distribution terms at earliest procedural stage

On Friday evening (Pacific Time), Google brought a motion it had already announced more than two months ago: a motion to dismiss Epic Games' antitrust complaint in the Northern District of California over Google's Android app distribution terms. At the same time, Google seeks to shot down a consolidated class action complaint brought on behalf of some smaller app developers.

Google also faces class actions by consumers. In fact, the latest one of them, Gamble v. Google, was filed on Thursday. But yesterday's motion relates only to claims brought by Epic and other developers.

Unlike Google, Apple decided not seek the outright dismissal of Epic's claims. Part of the reason might have been that a motion to dismiss causes considerable delay, but Judge Yvonne Gonzalez Rogers (who is presiding over all those Apple App Store antitrust cases, while Judge James Donato is in charge of the Google Play cases) wanted to put Epic's August 2020 case on a schedule that was basically dictated by the decade-old Pepper v. Apple class action, which had meanwhile already reached the Supreme Court. The Pepper opinion is at the heart of one part of Google's attack on the developer class actions it's facing, as I'll discuss further below.

So here's Google's motion to dismiss Epic's complaint as well as the consolidated developer class action complaint (this post continues below the document):

20-11-13 Google Motion to D... by Florian Mueller

With respect to Epic's claims, and the corresponding claims brought by the developer class actions, Google's strategy basically stands on two pillars:

  • In an effort to make Epic's case fail under the Ninth Circuit's FTC v. Qualcomm opinion (which for the time being, and possibly for a very long time to come, constitutes controlling law in the Ninth Circuit, now that the FTC's petition for an en banc rehearing has been denied), Google argues that Epic actually alleges Google has an antitrust duty to deal, but attempts an end-run around the high hurdle for such a duty by seemingly relying on other theories:

    • Google says Epic has no Sherman Act Section 1 case based on Google's app distribution agreements with developers as Section 1 applies only to concerted action by parties, not to terms unilaterally imposed by one party (here, Google).

    • As for Epic's "tying" claim (of which Judge Gonzalez Rogers has so far been unconvinced in the parallel Epic v. Apple case), Google argues that app distribution and in-app payments are simply part of the same business method, so there isn't a second thing that could be tied to a first. Here, too, Google says Epic actually wants to establish a duty to deal, to the effect that Google would have to allow Epic and others to use alternative payment services for their in-app purchasing products.

  • Google says it's not enough when Epic alleges Google's business model and contract terms merely discourage or make it less likely that, for instance, Android OEMs install third-party app stores on their devices or consumers install Android apps without going through the Google Play store. Instead, Google's lawyers argue, Epic would have to--but cannot--allege that Google actually prohibits or prevents such actions.

I would like to comment on one particular sentence from Google's motion:

"Plaintiffs thus importantly concede that OEMs pre-install Play not because of any obligation under the MADAs but because it is the best app store available."

Sorry, but that sounds too meritocratic. It's not like the Google Play app is such a great store app in technical terms that everyone prefers to use it for convenience or similar reasons. It's pretty good, but the key reason why users go there has a name: network effects.

As expected, Google's motion stresses the various ways in which Android is (without explicitly drawing the comparison, as it wouldn't be relevant to the judicial decision Google is seeking) less restrictive than iOS. On iOS, there's no sideloading, nor are there third-party app stores.

In my own app business I can see the difference between Google's greater openness and Apple's more restrictive terms. We recently uploaded a beta version of our app to both Apple's App Store Connect and Google's Google Developer Console, and requested permission to send it to testers, which we have so far been doing via Microsoft App Center. In Google's case, the app was accepted very quickly (the only problem being a technical one--after more than 24 hours, the related Google Play page still can't be accessed, probably because of a long queue that Google's servers need to process; [Update] I just checked again and finally the Google Play page for our beta test is functional [/Update]). In Apple's case, it was rejected because of a rule for which there is no equivalent with respect to Android apps. But Apple has recently tried to improve its relationship with developers, so we've done something that Apple just enabled in the late summer: we submitted a suggestion to modify the rule--and we're going to submit a slightly modified version of our app that will clearly be outside the scope of that narrowly-worded rule (the game will still be just as much fun on one platform as on the other). We're going to launch the game very soon as it is absolutely feature-complete except for IAP offerings, which are easy to do but we technically can't implement them without distributing test versions through Apple's and Google's platforms.

I'm not saying that Android is totally open. There are rules and restrictions. And frankly, if you're not on the Google Play store, you're at a fundamental disadvantage as an app developer. But there is a gradual difference, and Google's less restrictive approach makes it a possibility that Google might successfully defend itself against Epic's complaint possibly before Epic Games v. Apple even goes to trial.

Should Google's motion succeed, Epic will certainly appeal. But after FTC v. Qualcomm, defendants to antitrust cases are in a more comfortable position in the Ninth Circuit than plaintiffs.

That said, I'm sure Epic's lawyers (some of whom played a key role in Qualcomm's victory over the FTC) totally anticipated the points Google has raised in its motion to dismiss, so we can expect to see a very interesting opposition brief.

In a short separate document (as Epic isn't seeking damages, at least not at this stage), Google addressed the developer class actions' damages claim (this post continues below the document):

20-11-13 Google Memorandum ... by Florian Mueller

Google argues that the Supreme Court's Pepper v. Apple opinion allows only consumers (such as the Pepper class) to "seek recovery in the form of an alleged overcharge on the service fee the app store charge." The tricky part of the Pepper case--to the extent it reached the Supreme Court, where it was just about antitrust standing and not about the merits--was that the Illinois Brick doctrine doesn't let indirect purchasers seek antitrust damages. The Supreme Court could have overruled that doctrine, and maybe it will do so some other time. But in this case, a 5-4 majority of the justices determined that consumers were actually direct purchasers from Apple--as opposed to considering app developers to be the ones who pay Apple's 30% commission.

Google says developers can't seek damages based on an overcharge that, if there was one (which Google obviously disputes) would belong to consumers according to the Supreme Court opinion in Pepper. According to Google's motion, developers might still be entitled to damages based on lost profits, but the developer class actions fail to do so. Therefore, Google asks the court to dismiss those damages claims.

This means the developer class actions could fail not only on the merits (in which case Epic would lose as well) but also because of their damages theory.

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