Saturday, October 8, 2022

Google's 'Project Hug' dealings with Activision Blizzard, other game makers were PER SE ILLEGAL, say amended antitrust complaints by Epic Games, Match Group

Around midnight from Friday to Saturday by local time, Epic Games and Match Group have just reinforced their respective antitrust cases in the Northern District of California against Google over its Android app distribution practices. And they have done so in a legally very significant way based on information obtained through discovery since Epic's 2021 first amended complaint.

The makers of Fortnite (Epic) and Tinder (Match) now claim Google's "Project Hug" effort to pay major game makers for remaining loyal to the Google Play Store is per se illegal under Section 1 of the Sherman Act, meaning that Google would not be entitled to a rule-of-reason analysis that would weigh any harm established by Epic and Match against whatever procompetitive justifications Google would seek to present. Simply put, if Epic and Match prove that Project Hug constitutes a per se unreasonable restraint of trade, it's game over for Google with respect to that claim.

That's an important difference from Epic Games v. Apple, where Judge Yvonne Gonzalez Rogers (in the same district) did address the rule of reason in her judgment, though there is a dispute now on appeal--by the way, the Ninth Circuit hearing is now less than two weeks away--over whether she actually weighed the anticompetitive effects of Apple's conduct against procompetitive benefits and whether Apple's "security" and "privacy" arguments qualify as procompetitive benefits. I agree with Epic and its amici, and will discuss this in a separate post one of these days, also in light of recent news that further call Apple's "security" and "privacy" claims into question.

This blog hasn't previously discussed Google's Project Hug--which Google later named the "Apps and Games Velocity Program"--as I have only recently decided to follow Epic v. Google in detail. In August 2021, The Verge published an article that explains very well what Project Hug is about (I don't always agree with The Verge's legal analysis, but their reporting on mobile app store issues is often very good). Google decide to pay Activision Blizzard and other game makers to dissuade them from following Epic's 2018 example of releasing games exclusively outside the Google Play Store. Yes, Epic initially attempted to bypass Google Play, but when Epic realized that it was just losing too large a part of Fortnite Mobile's market opportunity due to Google's immense market power, it backtracked and released Fortnite on Google Play, where it was available until Google ejected it in August 2020 at the same time as Apple did and for the very same reason: an alternative in-app payment system. That's when the Epic Games v. Google litigation started, and earlier this year Match Group also filed an antitrust action against Google over its Android app distribution terms and policies.

Google spent hundreds of millions of dollars on Project Hug. More than 20 major developers signed up. Activision Blizzard is the most prominent one of them, and this is now particularly interesting with a view to the ongoing regulatory reviews of Microsoft's acquisition of Activision Blizzard:

As I wrote last week, the primary reason why Google is lobbying the European Commission and other competition authorities with the objective to get the transaction blocked is that Microsoft advocates open app markets, which are anathema to Google.

As an independent game maker, Activision Blizzard decided to do a deal with the big bully. But what would Microsoft do next time Google takes an initiative like Project Hug? Microsoft's February 2022 statement--which specifically references the acquisition of Activision Blizzard--suggests Google wouldn't get its way.

Brazil's antitrust authority--named CADE--made it clear in its decision to clear the transaction that it's concerned with protecting the competitive process and consumer welfare, but not competitors like Google and Sony.

Epic's first amended complaint already mentioned Project Hug, but only in the monopolization and monopoly maintenance context. Now Epic says it has gathered enough evidence that it can plead per se illegality.

The Google Play antitrust cases in the Northern District of California are not limited to Epic's and Match Group's cases. There is also a case that was brought by three dozen U.S. states, and some class actions.

Here are three documents relating to last night's motion to amend Epic Games' and Match Group's complaints:

1. Epic Games and Match Group's motion to amend their complaints

2. A blacklined version that compares Epic's proposed second amended complaint to its first amended complaint

3. A blacklined version that compares Match Group's proposed first amended complaint to its original complaint