Google’s court loss also challenges payment rivals

Epic Games won a major victory in its long legal battle with Alphabet over Google’s payment policies, but parts of the judge’s decision will make it difficult for other firms to take advantage of the ruling.

A federal judge in California said Alphabet must offer non-Google options to support adding a payment app to Android phones. The company also can’t offer financial perks that discourage competition or place conditions on payments, revenue sharing or access to Google. And the search firm can’t ban non-Google options for in-app payments. These terms are part of a three-year injunction against Google that goes into effect Nov. 1.

Monday’s ruling, which details the steps that Google must take, follows a December 2023 decision in the Google/Epic case that found the Google Play store and billing systems violate anti-monopoly rules because of the mandate that outside developers had use Google to process payments. 

Epic, which developed Fortnite and other content, has been fighting Google and Apple over payment fees for about four years, saying the technology companies’ fees of up to 30% are unfair. This week’s ruling does not affect Apple. 

Both Apple and Google have gradually lowered the 30% fee for certain developers based on size or industry. Small developers and media companies, for example, pay a lower fee.

The court decision is designed to encourage competition, but payment experts have said the technology companies will maintain an advantage because Google and Apple’s security and user experience will be hard to replicate. 

Further complicating matters over Monday’s decision is the three-year injunction. The judge said the period would create a chance for other firms to build competitive offerings while not burdening Google. 

“This implies that the remedies have a fixed duration. If competing app stores do not achieve critical mass in that timeframe, then Google could enjoy the near monopoly it has today,” said David Mattei, a strategic adviser for Datos Insights, who added that competing app stores will need to persuade app developers to list on their store and Android hardware makers to load the app store on the devices they ship. 

“That will require quite a feat of effort to accomplish in a three-year time horizon,” Mattei said.

Both Google and Apple have substantial control over listing and downloading apps in their respective ecosystems, according to Mattei. During the trial, Epic claimed Google gained $12 billion in profit from the Play Store, or a 70% margin.

 “Not only do they get a revenue share of app download purchases but also in-app purchases post-download,” Mattei said. “By forcing Google to allow other app stores to operate on Android, it opens the door to competition.”

Epic did not respond to a request for comment.

 Google’s vice president of regulatory affairs, Lee-Anne Mulholland, said the company would appeal the ruling. “As we have already stated, these changes would put consumers’ privacy and security at risk, make it harder for developers to promote their apps, and reduce competition on devices,” Mulholland said in a note. “Ultimately, while these changes presumably satisfy Epic, they will cause a range of unintended consequences that will harm American consumers, developers and device makers.”

The decision rests on a flawed finding that Android is a market in itself, she said. 

In contrast, the Apple decision — which found the tech company is not violating anti-monopoly laws and was upheld on appeal — rightly found that Android and iOS compete in the same market, Mulholland said. “This is obvious to anyone who has bought a smartphone.”

The fight between the app stores and Epic is similar to the larger battle in the payments industry over interchange and other transaction fees. A series of court cases and regulatory action in the United States, the U.K., Europe and Australia are placing pressure to lower tolls that the card networks set for payment processing.

 As fintechs offer alternative payment products in response, the card networks, including Visa and Mastercard, have added products such as security and technology consulting that do not rely on payment fees for revenue. A similar outcome could come in the app store industry.

“It makes no sense for payment fees not to decrease when efficiencies and scale factors are improving,” said Avivah Litan, a vice president and analyst at Gartner. “Further, Google’s monopolistic power is being justifiably challenged  legally, so that too will incline them to voluntarily lower fees to take other legal pressures off of them, in my opinion.”