Google has lost its legal battle against Fortnite creator Epic Games, a U.S. federal jury ruled, potentially shaking the foundations of an app store industry that generates up to $200 billion a year.
The jury decided Google had exercised unlawful monopoly power over app developers like Epic Games. The ruling threatens the long-held duopoly between Google and Apple in the app business, where they charge developers fees as high as 30%, Bloomberg reports.
“Victory over Google!” Tim Sweeney, CEO of Epic, said in a post on X. “After 4 weeks of detailed court testimony, the California jury found against the Google Play monopoly on all counts.”
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‘Dominoes to start falling’
Epic sued Google and Apple in 2020, alleging the duo was running illegal app store monopolies. The lawsuit came after Fortnite was removed from the Apple and Google Play app stores because the video game maker installed its own payment system in order to avoid paying the 30% commission to both companies.
While Epic lost the Apple case in 2021, which a single judge ruled on, nine San Francisco jurors sided unanimously with the game developer this week, saying that Google had broken the law.
After four hours of deliberations, the jury decided that Google illegally forced its own in-app billing systems on developers, that it practiced anticompetitive behavior in Android app distribution markets, and that Epic was harmed by those actions, according to several reports.
The ruling will likely see a change in app store rules, observers say, and pave the way for a more open and competitive app market where software developers can bypass app store gatekeepers and reach users directly at a much lower cost.
“The dominoes are going to start falling here,” Sweeney told Time. “The end of 30% is in sight.”
Sweeney expects that Google’s reforms and mounting public scrutiny will leave the company with no choice but to adapt its app store practices, forcing Apple to follow suit.
“The same thing will start happening with Apple,” he said. “The economics is real. When you remove a 30% tax from an ecosystem, consumer prices will get better. Or quality will get better and selection will increase.”
Google’s app store practices have come under fire, not just for their hefty 30% commission fees but also for their alleged favoritism towards certain developers. Critics point to deals like the one it struck with Spotify, where the music streaming giant reportedly enjoys a lower commission rate.
Monday’s verdict delivered a blow to this system. The jury ruled that forcing all developers to use Google’s billing system was unfair, as it limited their options and stifled competition.
“The immediate aftereffect is we will see a shift in the marketplace where big tech companies will have to make accommodations—whether it is more access, better terms, or more options for developers—to stave off legal exposure,” said antitrust law expert Paul Swanson of Holland & Hart, as quoted by Bloomberg.
Victory over Google! After 4 weeks of detailed court testimony, the California jury found against the Google Play monopoly on all counts. The Court’s work on remedies will start in January. Thanks for everyone’s support and faith! Free Fortnite! https://t.co/ITm4YBHCus
— Tim Sweeney (@TimSweeneyEpic) December 12, 2023
App store business ‘cracking open’
Billions hang in the balance for both Apple and Google. With $182 billion projected in in-app spending next year and $207 billion in 2025, according to research firm Sensor Tower, every 5% drop in Play Store fees could cost Google $1.3 billion in operating profit.
In 2023, analysts at Wells Fargo expect Google to rake in $10.3 billion in revenue from app sales and in-app purchases from the Play Store.
The Epic versus Google case brought to light some key differences with Apple. Epic pointed out during the trial that Google agreed to a deal with larger players like Activision Blizzard for fees that were comparably lower than what other developers were paying.
Apple applied the 30% tax equally across the board, analysts say, and “does not allow any rival app stores whatsoever.” By offering reduced fees to bigger players, Google was trying to starve rival app stores of traffic.
“Revenue sharing deals among Google, smartphone makers, and game developers came to light during the trial,” said Justin Patterson of KeyBanc Capital Markets, as reported by Bloomberg. “We believe this was a key difference between the cases that contributed to Apple’s victory and Google’s loss.”
Posting on Threads, Anil Dash, a longtime technology entrepreneur and commentator, said Epic Games’ defeat of Google may be part of a much broader shift in the internet economy.
“The app stores are cracking open, walls between social media platforms are coming down as the old networks fail, the headlong rush to AI is making all the search engines worse, and the open web is more powerful than ever,” Dash wrote.
“We are about to see the biggest reshuffling of power on the internet in 20 years. Most users have never seen this kind of change.”
The app store monopoly is facing cracks on both sides of the Atlantic. The EU’s Digital Markets Act (DMA) will likely compel Apple to open its ecosystem to third-party app stores and billing systems in the region. Observers say the change, along with potential DMA restrictions, could have a far bigger impact on the industry than the recent Google ruling alone.
Already, some changes have started to take place. Facing pressure, Apple now allows “reader apps” like e-readers to direct users to external payment options, circumventing its own revenue cut. Both Apple and Google have also adjusted their subscription models to take a commission, and Apple even caved to Dutch regulations, allowing dating apps to bypass its billing system.
Google to appeal ruling
Google may still win the case. The company plans to appeal the verdict. In a statement, Google affairs and public policy VP Wilson White said “the trial made clear that we compete fiercely with Apple and its App Store, as well as app stores on Android devices and gaming consoles.”
In the meantime, Epic celebrates a famous victory. “Today’s verdict is a win for all app developers and consumers around the world,” it said in a blog post.
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