Epic Games beat Google but lost to Apple in monopoly lawsuits. What does it all mean?

The CEO of Fortnite maker Epic Games launched a battle of his own three years ago against two of the most powerful gatekeepers of the digital economy: Apple and Google.

Tim Sweeney's gripe? That the tech Goliaths have too much power over the multibillion-dollar mobile economy by forcing nearly everyone with a smart phone to download apps through Apple and Google app stores and process payments within each company's own system. For that, the tech giants collect a commission of up to 30% on every transaction.

Sweeney's crusade against the Silicon Valley giants had the backing of scores of small app developers, who also felt like they were getting ripped off on Apple's App Store and the Google Play Store.

"These stores are making a lot more money from creative works than the creators," Sweeney told NPR in 2020 when he unveiled federal lawsuits against Apple and Google with the aim of blowing a hole in the so-called "walled gardens" the tech companies maintain on their devices that Sweeney said locked out competitors.

Now, decisions in both cases are in — and they're in conflict, raising many questions about how these app stores might change.

Epic beat Google, but only after it largely lost to Apple

On Monday, a jury in San Francisco ruled in favor of Epic Games after a four-week trial focused on Google's app store policies. The jury found that Google acts like an illegal monopoly in the way it distributes apps and in how it bills within the app store.

In 2021, a federal judge dismissed nine out of ten of Epic Games' monopoly claims against Apple in a case nearly identical to its fight with Google.

It is a dual conclusion almost nobody expected.

"For Tim Sweeney, this is a surprising turn of events, since his real enemy has always been Apple, not Google," said Harvard Business School professor Andy Wu, who pointed out that Apple's app store policies are even more closed-off than Google's. "The Google case was seen almost as a sideshow compared to Epic's case against Apple, and it's turned out in the opposite direction."

So Sweeney's lawsuits have resulted in one court finding that Google is acting like a monopoly and another court ruling that Apple is not behaving like a monopoly. But what will it all mean for the hundreds of millions of people in the U.S. with iPhones or Androids?

It depends.

How will the cases affect iPhones and Androids?

Epic is asking the U.S. Supreme Court to review the decision in the Apple case. While Apple largely won, the court ordered Apple to give people more ways to pay for things in its app store, not just through Apple's own payment processor, which can take a fee of up to 30% of the transaction. Apple has appealed that to the Supreme Court. Apple does not have to make any changes to its app store until the high court has its say.

The Google case is on a different path. The judge who presided over the trial, U.S. District Judge James Donato, has said hearings will be held in January in San Francisco about remedies, or in plain English: What Google will have to change to comply with the law and stop operating like a monopoly?

Mark Lemley, a professor at Stanford Law School who teaches courses on competition law, said the judge could go very narrow or very broad with possible remedies.

For example, the judge could order Google to let Fortnite back into its app store. (It was kicked out after Epic violated Google's app store policies and offered gamers a way to circumvent Google's app store fees. Epic did the same with Apple).

Or the judge could use the jury verdict as a way to systemically change how Google Play Store operates.

"The judge could blow up the idea of exclusivity in the app store and say Google can't discriminate among apps," Lemley said. So, Google could be required to treat all apps the same, regardless of whether they were downloaded through Google Play or elsewhere.

Even though Google, unlike Apple, allows for what is known as sideloading, or downloading apps outside of its app store, more than 95% of all downloads onto Android phones in the U.S. happen through Google Play Store.

Epic wants Google to let app developers — like itself — offer people their own app stores on Google devices. And along with those, it is pushing Google to permit payment processing methods that do not involve Google.

Apple and Google have said that they compete against each other, undercutting the idea that either of them has monopoly control over the mobile economy, or more specifically, the economy of downloading and paying for apps. That argument persuaded a judge in the Apple case, but failed to convince the jury in the Google trial.

Experts: App store shakeups could lead to lower prices and more innovation

Both tech titans have argued that the fees they levy on purchases made inside their app stores — ranging between 15% and 30% — are necessary to keep Apple iPhones and Google Androids safe and secure. Apple has pointed that the percentage is on par with what other digital stores charge, like Sony's Playstation and Microsoft's Xbox.

The commissions generate billions of dollars a year for Apple and Google. Any "digital good or service" that costs money is charged the fee, including virtual items purchased in games, or subscriptions to an exercise app, or dating app or any other paid app.

It creates a sizeable revenue stream no doubt, but to these multitrillion-dollar companies, losing or reducing money from the fees would not be existential.

Sweeney has long said that forcing Apple and Google to loosen their ironclad grip over app stores would allow app developers to make more money, lower prices for consumers and allow for greater innovation. Granted, in such a situation, Epic Games would be poised to get richer, too. Nonetheless, legal scholars generally agree that more competition against the two tech behemoths would benefit anyone who uses a mobile device.

"Even though it might be a significant, but not huge, percentage of Google's revenue, it is important to get competition where competition could and should exist," said Eleanor Fox, a professor at New York University School of Law, referring to the app store commissions. "The Google decision could open up innovation opportunities, so more players can be in the space, because right now, Google does not feel competitive pressure from the outside."

New EU rules could shape app store policies

Regardless of what happens with the Epic cases, some observers say regulatory pressure in the European Union may spark swifter changes to app stores.

As part of the EU's sweeping Digital Markets Act, Apple is preparing to allow other app stores on its devices. That would let customers sidestep what's become known as "the Apple tax" and even the playing field for third-party developers, Bloomberg reported last year.

The EU's mandates already have led Apple to make changes in other parts of its business. For instance, the new iPhone 15 features a new way to charge the phones — with USB-C chargers (the same as Androids) — after European officials passed rules requiring tech companies to agree on a universal charger.

It is not clear if Apple's changes to its App Store in Europe will eventually extend to the rest of the globe, and if so, how Google might respond, but Europe is the third-largest App Store revenue stream, behind China and the U.S., so changes there can exert pressure on the company to make wholesale changes how the app store operates.

Wu from Harvard points out that forcing Silicon Valley companies to change has long been an uphill battle, since the antitrust laws being used against the high-tech firms are more than a century old. And as long as Congress does not write new competition laws for the digital age, it might be up to the Supreme Court to provide some clarity.

"There's a lot of ambiguity right now in antitrust law around digital platforms, and it would be very helpful for a high-level court to settle these issues," Wu said. "We need the Supreme Court to step in on these matters." [Copyright 2023 NPR]