The Sharks preached patience with their top prospect. It’s starting to pay off

By Leah Nylen | Bloomberg

Jurors took less than four hours to find Alphabet Inc.’s Google unfairly wields monopoly power in its Android app store, a lightening fast win by Fortnite maker Epic Games Inc. that’s galvanizing efforts to rein in the power that Google and rival Apple Inc. wield over mobile ecosystems.

Google has said it plans to appeal, but key legislation in Europe, investigations in the US and UK and an expected wave of follow-on lawsuits will keep pressure on the tech giants’ app store duopoly.

Billions of dollars are at stake: in-app spending is forecast to reach $182 billion next year and $207 billion in 2025, according to research firm Sensor Tower. And competitors are ready to steal a piece of it: Microsoft Corp. said last month that it’s already in talks to launch a mobile app store focused on gaming.

Epic’s earlier case against Apple’s App Store policies was mostly unsuccessful, with a federal judge ruling the iPhone maker’s practices don’t violate federal antitrust law. She did determine that under California law, Apple can’t restrict app owners from telling consumers that other payment systems exist and inviting them to access the apps outside of Apple’s system. An appeals court upheld both parts of the trial judge’s decision; Epic and Apple have appealed to the Supreme Court.

Different Outcomes

The divergent outcomes between the Google Play and the Apple cases only appear contradictory, said Phillip Shoemaker, the former head of Apple’s App Store. Apple tightly controls the iPhone, only allows its own apps to be preinstalled on devices and has never allowed other app stores. Android, meanwhile, is open-source and has always allowed direct downloads and alternative app stores.

That required Google to enter business deals with other companies to ensure its Play Store was the favored access point for apps on Android devices. Those side deals made it look like Google was playing favorites, while Apple was consistent in its rules, Shoemaker said.

Apple also successfully argued that iOS is a closed system to improve the safety and security for users, said Bloomberg Intelligence analyst Jennifer Rie. Google argued its payments were needed to compete against Apple — but those payments – and a bevy of documents outlining its strategy — ultimately were key to Epic winning the case, Rie said.

The knockout blow was that Google paid competitors not to compete, said Rie. “At the end of the day, whether the jury understood the technicalities of antitrust law or not, what they saw was a company that is really big, bribing and bullying” just as Epic alleged, she said.

Jury Trials

The different outcomes – and the fact that a judge ruled for Apple while a jury found against Google – may embolden future efforts to bring app store challenges before a jury, said Vanderbilt Law School’s Rebecca Haw Allensworth.

“This is the same case against the same conduct, but it’s judge versus jury,” said Allensworth, who focuses on antitrust and tech platforms. The Epic case “illustrates that judges can sometimes fail to take off their legalistic hats. But the average person understands what competition is for and can call it like they see it.”

The Justice Department recently pushed to have one of its major antitrust cases – a lawsuit challenging Google’s advertising technology business – heard by a jury in lieu of a judge. “A little bit of common sense brought to questions of antitrust law can have a different outcome,” Allensworth said.

Chief Executive Officer Tim Sweeney said Epic’s suit should serve as a template for other developers to follow against both Google and Apple.

“There are dozens of major developers who have resources to litigate,” Sweeney said in an interview following the verdict. “And I think the same thing will start happening with Apple.”

Digital Markets Act

New European Union antitrust rules to rein in Big Tech platforms that come into full effect in early March will also play a role in curbing power over the app store market.

Under the Digital Markets Act, it will be illegal for the most powerful firms to favor their own services over those of rivals and companies must allow users to download apps from rival platforms. Both Apple’s App Store and Google’s Play Store were designated as services that fall under the law, though Apple is appealing its inclusion.

Apple said it expects to make changes to the App Store as a result of the bloc’s new rules despite the pending appeal.

Platforms that violate the DMA’s long list of rules risk fines of as much as 10% of their worldwide annual sales. This could rise to 20% in the event of repeat infringements and the commission could even demand a company be broken up in the case of systemic violations.

Shoemaker, who left Apple in 2016 and is now CEO of startup Identity.com, said the iPhone maker will likely feel pressure to make similar changes in the US. “There is going to be a groundswell to push Apple to do the same thing here,” he said.

Open App Markets Act