I haven't commented on Epic Games v. Google in quite a while, but here's an interesting development. A couple of hours ago, Epic moved for a preliminary injunction. For whatever the reasons may have been, Epic didn't do so with respect to Google's 2020 removal of Fortnite from its app store (it sought a TRO/PI only against Apple, which was denied by a judge whose shocking misconceptions regarding Epic's single-brand market definition in legal, economic, and technical terms are well-documented by now). But it now has an interesting fact pattern to show with respect to music marketplace Bandcamp, an app that Epic acquired just last month--and let's keep in mind that this is not just an Epic v. Google case, but three dozen state attorneys-general are suing Google as well.
Here's Epic's PI motion, on which I'll comment further below:
Epic and other developers have been warned by Google that the Google Play app tax now also applies to any sale of digital content consumed outside the app. The motion describes Bandcamp as "an online record store and music community used by more than 500,000 independent artists and 11,000 independent labels to connect with their fans online." In reliance upon an exemption from Google's app distribution terms, Bandcamp has for more than a decade used "the payment solution of its choice--tailored to the needs of its business--to allow artists and labels to sell music and merchandise directly to their fans through its Android app." The custom payment system was needed "because GPB does not provide Bandcamp with the services it needs and comes at a price that Bandcamp cannot afford." But Google confirmed just about a week ago that a new policy (which Google mischaracterizes as a mere clarification of an existing policy) would be enforced against Bandcamp, which would result in the removal of the app from the Google Play Store on June 1, 2022, unless Bandcamp uses Google's in-app payment system.
Epic would have a much harder time making an irreparable-harm case if it was just about the 30%. In the end, any overpayment could be refunded later. Google's about-face really leaves Epic with only the choices of leaving Google Play altogether (making it much harder to distribute Bandcamp to Android users), reducing it from a marketplace to a "window shop" (obviously not a viable option), or bowing to Google's demand to use the Google Play in-app payment system, which would raise the following issues described in the motion:
It's Bandcamp's unique selling proposition (a term Epic doesn't use, but that's how I understand it) that artists are paid within 24 to 48 hours of a sale. Google's developer payouts come 15 to 45 days after a sale. To close the gap, Epic would have to advance those payouts or delay payments to the detriment of the artists, some of whom depend on Bandcamp to make a living.
I don't consider this point the strongest. Epic could afford to pay artists sooner, especially in these low-interest or no-interest times. There would be issues such as with canceled purchases, but it's not like it wouldn't be doable at all.
Bandcamp currently gives artists "around 82% of the revenue earned from their sales." The motion acknowledges that "Google has offered Bandamp a revenue share of 10% (in exchange for other concessions)," but Epic says this would still force it to change Bandcamp's business model or to "operate at a long-term loss."
Here, Epic argues that adjusting its terms for content creators (the musicians using Bandcamp) accordingly would be perceived as a "violation of [Bandcamp's] core principles within three months of Epic's acquisition."
I'm wondering whether Google would allow Epic to communicate clearly to Bandcamp's content creators that and why a change of those terms would have nothing to do with Epic's acquisition of Bandcamp, and everything to do with Google's policy change.
Epic argues that "Bandcamp's existing payment solution is fully integrated with PayPal," which enables Bandcamp's support term "to offer quality customer support without leaving the Bandcamp payment system." Epic does not claim that integrating Google's payment system would make it impossible to provide customer service of the same quality, but it "would require significant time and effort to build a new infrastructure" for that purpose.
A more interesting point here is that PayPal can be used for the sale of both digital and physical goods (music downloads as well as merchandise such as T-shirts), but Google's system cannot. Therefore, there would have to be two different payment systems. What I like about this argument is that it exposes the illogicality of Apple and Google mandating in-app payment systems for digital goods, while online retailers like Amazon or transportation services like Uber use their own payment systems--which reduces to absurdity any security and privacy concerns related to alternative payment systems anyway.
Like Apple, Google requires "itemized pricing catalogs for every item available for purchase in the app." App developers have to edit that catalog using the developer-facing websites of those app stores. I've done such edits myself. But Epic argues that for Bandcamp, this is not possible without serious harm, as Bandcamp-using "artists and labels add and edit thousands of digital and physical items each day and have full control over pricing, including the ability to allow fans to name their own price for items and thea bility to set the price of an item in the currency of their choiced."
Epic also notes that Google's payment system (Google Play Billing) "is only designed to pay out developers--it does not support running an open marketplace or faciliate a developer seeking to pay out thousands of merhcants (e.g., artists)." It seems to me that Epic could still make it work, but there would be some effort involved.
Epic considers Google's policy change a threat to its "ability to grow the Bandcamp Android app into a global platform with more fans and artists, which is essential to building the audience base and momentum necessary to conect musicians with creators in search of high-quality music."
What isn't clear to me here is how this disadvantages Bandcamp as compared to any rival marketplace.
For the purpose of securing a PI, Epic's motion must be focused, and Epic had to carefully avoid that Judge Gonzalez Rogers's decision in the Apple case--no matter how flawed in at least some areas--would serve as binding precedent in Google's favor. Judge YGR held (and I actually agree with her in that regard, though I do understand the other side, too) that Sherman Act Section 1 should not be read to apply to unilaterally-imposed agreements (contracts of adhesion). Unless overturned by the Ninth Circuit, that holding would doom a similar Section 1 argument here. So, Epic focuses on Section 2 (unilateral conduct).
The relevant theory here is tying, which requires a tying product (where the defendant has monopoly power) and a tied product (which others are forced to buy in order to get the tying product they need). The alleged tying product here is "Android app distribution," a single-brand market definition that I absolutely concur with. Judge YGR rejected a single-brand market in the Apple case, but as I said in the first paragraph of this post, she made unbelievable mistakes on that basis. Also, it's a more case-specific determination involving a number of relevant facts, while her take on Section 1 not applying to contracts of adhesion would clearly be apposite here.
Among the things Judge YGR held against Epic's claims in the Apple case was her finding that Apple had not imposed the challenged terms only after acquiring monopoly power. One can disagree with that because Apple has over the years changed a number of terms to the detriment of developers, and Epic on appeal challenges that it even is a legal requirement for a single-brand market definition. But here, in Google's case, Epic credibly characterizes Google's conduct as "bait and switch" tactics.
Also, Epic points to typical monopoly-maintenance tactics such as exclusive-dealing agreements between Google and third parties such as carriers, device makers, or app developers.
All in all, I can anticipate various ways in which Google will oppose this motion, and it's not a slam dunk, but it does raise some very interesting questions. Unlike in the Fortnite context, where Epic changed an app in order to provoke its removal from Apple's App Store and Google's Play Store (self-inflicted harm), this is now just about requiring Google to tolerate that an app continues to operate in the same way it has been for more than a decade--as opposed to forcing Google to accept a departure from its own longstanding policy. Here it's about not having to modify--in some ways almost cripple--an app in order not to be ejected from an app store.
When Epic was denied a PI against Apple over Fortnite, the trial was already so close that an appeal to the Ninth Circuit wouldn't have made sense at that stage. Here it is much more likely that Epic would immediately appeal a denial of a PI, and predictably Google would appeal an order granting a PI. The timing could work out in such a way that there could even be "synergy effects" between the Ninth Circuit appeal of the final judgment in the Apple case and the PI decision in the Google case (be it Epic appealing a denial or Google appealing a PI) with respect to single-brand market definition and tying theories.
Toward the end of its motion, Epic notes the "sliding scale" that the Ninth Circuit applies, which basically means that the irreparable-harm theory doesn't have to be all that strong if the likelihood of success on the merits makes up for any potential shortcomings (or the other way round). Here, I consider the likelihood of success on the merits much stronger indeed than the irreparable-harm argument, but Epic does raise issues concerning the impact of Google's policy change on itself as well as on third parties, with both the district court and the appeals court likely being rather sympathetic to the musiciains who need daily/weekly income from Bandcamp in order to make a living or at least in order to continue making music. Plus, Epic will get massive support and has presumably coordinated this motion beforehand with the 36 state AGs and other key parties and stakeholders.
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