Saturday, May 14, 2022

Google now has to decide whether to grant Bandcamp (acquired by Epic Games) and Match Group's apps (like Tinder) a grace period of likely less than a year: change of in-app payment policies

On Thursday, Judge James Donato of the United States District Court for the Northern District of California (San Francisco Division) held a case management hearing that he scheduled at the same time he stayed a preliminary-injunction motion by Epic Games relating to Epic's recently-acquired Bandcamp music marketplace, whose Android app Google has threatened to kick out of the Google Play Store unless Bandcamp complies with an in-app purchasing (IAP) policy change (mislabeled by Google as a mere clarification). That same day, Google had to defend itself against allegations of monopoly abuse not only on the West Coast but also on the East Coast, where it came away unscathed with its "Communicate with Care" policy.

All I know about what the judge and the parties said at the San Francisco hearing I learned from Courthouse News reporter Maria Dinzeo's highly informative coverage.

Not only did Judge Donato discuss the Epic v. Google motion but also a more recent one by Match Group (the Tinder company). Shortly after its complaint (on which I commented earlier this week), Match Group filed a motion for a temporary restraining order (PDF).

The Courthouse News report mentions two different types of reservations on Judge Donato's part. One is that the case presents "difficult and challenging issues" he'd rather not decide on the fast track, especially since the Epic Games v. Google trial has been scheduled for next January anyway. The other is that Bandcamp has known since August 2021 of having to switch to Google Billing, and that it appears its new ownership (i.e., Epic, which was already embroiled with Google and Apple in app store antitrust litigation) is the reason for which it now, all of a sudden, needs emergency relief from the court: "You can’t waiver for eight months and come in and say the house is on fire."

Judge Donato also describes this as "a problem of [Epic's] own making," which is a huge issue not only but especially in the Ninth Circuit, where self-inflicted harm weighs strongly against a preliminary injunction. That was Epic's problem in 2020 when it wanted to bring Fortnite back to Apple's App Store.

The house-on-fire metaphor also reminded me of another antitrust case--in the Southern District of California--in which the same vaunted law firm, Cravath Swaine & Moore, literally claimed that its client Qualcomm's house was on fire because of Apple having ordered its contract manufacturers to stop making royalty payments. That one went nowhere because Qualcomm was financially too strong that the cessation of royalty payments could have put the company in jeopardy. Qualcomm's concern related to the possibility of other licensees doing the same, but then there would have been a new situation.

PI motions are part of a vigorous representation of clients, and movants may sometimes like the idea of finding out early how the other side presents its case and on what questions the court still needs to be convinced. But the Bandcamp motion has already made much more of an impact than the aforementioned ones: Judge Donato encouraged the parties to work it out and to show some flexibility so he wouldn't have to adjudge Epic's PI motion and Match Group's TRO motion.

Epic's position is that Google should not kick out Bandcamp until the trial. If Google rejected that demand categorically, the judge would definitely not be amused. What I guess Google will do now is to attach some strings to such a grace period that the court may consider reasonable but that will be somewhat burdensome on Epic and Match Group. However, that is not easy to do: Epic and Match Group have plenty of cash, so if they have to post a bond, they'll do it.

I interpret the Courthouse News report as Judge Donato not being too likely--even if Google disappointed him by being inflexible or making unreasonable demands--to grant Epic's or Match Group's motion. In that case, the question is whether the parties would appeal the matter to the Ninth Circuit. In the Apple case, Epic didn't do so, presumably because of a near-term trial date. For Match Group the calculus may be different.

Judge Donato may even suspect--and if he did, it wouldn't be unreasonable in the slightest--that the app store dispute was the primary reason for which Epic acquired Bandcamp. In the market definition context (also in the Apple dispute), Epic stressed that it offers more than games, but buying Bandcamp has given it another tool for challenging the major app stores' IAP rules, especially with the benefit of standing up for content creators (which, however, also exposes Epic to the accusation of holding those content creators--and end users--hostage).

At any rate, the judge has a point that this here is partly a manufactured conflict. It's not 100% self-inflicted as Google indeed wants to enforce a different policy, but it made its intent known a long time ago and Match Group and Epic's Bandcamp could have filed for a preliminary injunction a lot sooner. Now the deadline is June 1, and of course the court could theoretically enjoin Google by means of a TRO, which would then have to be replaced by a PI.

The key to understanding Epic's strategy here as well as in the Fortnite case against Apple is the following paragraph from its PI motion:

"Under the Ninth Circuit's 'sliding scale' approach, the overwhelming evidence showing Epic's likelihood of success weighs strongly in favor of preliminary relief. See Indep. Techs., LLC v. Otodata Wireless Network, Inc., 836 F. App'x 531, 533 (9th Cir. 2020) ('Where a party can show a strong chance of success on the merits, he need only show a possibility of irreparable harm.')."

If one agrees with Epic on the merits (as I do, without reservation in this case), it's a different picture. The question of whether Bandcamp was essentially preparing to comply with Google's policy change is then doubly irrelevant. First, because the timing of the motion wouldn't lend Google's conduct the legitimacy it lacks. Second, because there is nothing illegitimate whatsoever about Epic simply having the financial strengths to duke it out with Google while Bandcamp was presented with a point-blank situation and would have been forced to cave had it not been acquired. What a party does or agrees to under duress does not and must not count. That is, by coincidence, also the core of Apple's case against Qualcomm over license fees paid by its contract manufacturers, but that case settled during opening argument (a great result for Cravath, though in all fairness it had more to do with Apple's need for 5G chips than anything else).

It's what Epic already argued in the #FreeFortnite context in the summer of 2020. I remember how Cravath partner Gary Bornstein told Judge Yvonne Gonzalez Rogers (YGR) at the TRO and PI hearings in 2020 that a party simply should not have to abide by a contract that was unilaterally imposed upon it in violation of the antitrust laws. It was the same logic. He also insisted--in my opinion, rightly and brilliantly--on the single-brand market definition, which Judge YGR rejected at all stages of proceeding (as it turned out later, she appears to have been utterly confused all along about the Kodak case law), and on the merits of the tying claim. We're now in a similar situation, but hopefully with a judge who will understand Kodak and Epic's related argument.

So it's not a simple question of whether Epic's request for a PI is reasonable. If one agrees with them (and, therefore, by extension with me) on the merits, then there's nothing wrong with the timing, and the court should enter a TRO if need be. I don't think Google should be rewarded for having abused its monopoly power against the likes of Bandcamp: it's actually in the public interest that Bandcamp now belongs to Epic (no matter the motivation for the deal) and that this allows them to stand up to the bully. But if one doubts the merits--and Judge Donato at least isn't comfortable with considering it a slam dunk for Epic--then it all looks a lot more complicated.

What Will Google Do? (Yes, an allusion to a book title.)

To be perfectly honest, I could easily see people on Google's legal team (internal or external) argue that they should rigidly enforce their new rule and kick out those apps if necessary, just to show that they're 100% confident of the strength of their position. For Google the risk of Judge Donato enjoining them on a TRO or PI basis appears limited--and with the trial being on the horizon, Epic might not appeal, just like it accepted the denial of its motion in the Apple case. But Judge Donato wouldn't like that, and he's going to preside over the January trial. And it could also be that this time around Epic will actually try to take the matter up with the Ninth Circuit at the earliest opportunity. It has a better chance of success with a panel of three high-ranking judges than when a single district judge has to make a decision.

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