Context: Further to a late 2023 jury trial win (which Google will appeal all the way), Epic Games submitted to the United States District Court for the Northern District of California a proposal for a U.S. injunction with worldwide (minus China) effect last month (April 12, 2024 games fray article).
What’s new: Late on Thursday, Google filed a 93-page document full of objections to each and every element of Epic’s proposed injunction, along with more than 250 pages of supporting material. Essentially, Google’s arguments boil down to saying that what Epic wants is not even supported by its clean sweep at trial, would require the court to micromanage Google’s Android app distribution business, would unfairly disadvantage Google vis-à-vis other companies, is too vague in certain respects (such as what APIs Google has to make available to developers who do not distribute their apps through the Play Store), compromises the security and privacy of users, would have profound implications for Google’s contracts with third parties (Android device makers and Android app developers), could make it impossible for Google to comply with international laws and regulations such as the EU Digital Markets Act, and so forth. The part that this article will now focus on is what Google says about intellectual property implications.
Direct impact: The district court has to decide on what injunction to order, and thereafter the appeals court (Ninth Circuit) will first have to decide on whether to stay enforcement (which Google will also request from the district court, but predictably in vain) and, ultimately, there will be an appellate opinion on the merits. If the appeals court upholds any part of Epic’s broad trial victory and does not order a retrial, it will also have to reach the question of remedies. Through the objections it just filed, Google is preparing not only for the further discussions with Judge James Donato but also for the remedies-related parts of the appellate proceedings.
Wider ramifications: The question of how a mobile platform maker gets compensated for the use of their intellectual property by app developers is no less relevant to the dispute between Epic and Apple, where a holding that Apple is in contempt of court after the evidentiary hearing (starting Wednesday, May 8, 2024) looms large, though the appeals court may very well disagree (April 24, 2024 games fray article). There is also a compliance debate over Apple’s and Google’s terms for app developers and alternative app store operators in the European Union (Apple just modified the terms for its Core Technology Fee (May 2, 2024 Apple Developer news).
Here’s Google’s 93-page court filing:
The overall thrust of these objections was foreseeable. For instance, games fray noticed immediately that Epic’s proposed injunction would make it harder for the Google Play Store to compete with other app stores, as the Google Play Store could not have any exclusives while others could. However, that would only be the case until the Google Play Store’s market share has gone down to the extent that the market would be considered reasonably competitive. And games fray knew beforehand that Google would remind the court of a summary judgment decision according to which there is no antitrust duty to deal under which Google would have to distribute the frontend apps of rival app stores through its own Google Play Store.
Also, games fray has made it clear all along that Google’s Android business model would have to be fundamentally transformed in order to enable Google to continue to invest in the platform. Google’s filing makes various arguments that come down to saying that Google would either be generally prevented from competing in certain ways or it would not have a viable ecomomic basis to compete.
Intellectual property is going to be a major part of the debate, both in Judge Donato’s court and subsequently in the United States Court of Appeals for the Ninth Circuit. Primarily it will be about Google’s IP, but there’s also a third-party IP issue: Google argues that its agreement with Android app makers gives it the right to distribute those apps through the Google Play Store, but does not actually allow Google to make those apps available to rival app stores the way Epic proposes.
With a view to Google’s own IP, the issues are similar to the ones in the Epic v. Apple enforcement dispute and the EU DMA compliance debate. The platform makers argue that app makers use some of their IP (and services, but let’s stay focused on IP here) and are entitled to some compensation, so if a court or a legislature prohibits their current business model (that involves app store commissions) or substantially limits its revenue potential, they argue they must have some other way of obtaining compensation.
Epic’s argument at closing argument in the Apple case was that the way antitrust enforcement works is that illegal practices are disallowed and the defendant remains free to come up with a new and lawful business model. Epic said at the time, in very similar words, that they can charge something as long as it is reasonable and non-discriminatory.
Google now points to case involving Kodak where the court allowed the defendant to charge “any nondiscriminatory price that the market will bear.” That means the requirement would merely be ND (non-discriminatory, not RAND (reasonable and non-discriminatory).
The term “intellectual property” is prevalent in Google’s filing. It comes up 21 times in the long form, and there are numerous references to “IP” on top.
Google argues that “Epic has not adequately developed how Google would be compensated for developers’ access to its intellectual property” and “[t]he proposed remedy will impermissibly require Google to provide access to its products and intellectual property to non-customers, thereby chilling Google’s incentives to innovate and make those innovations available to developers.” And Google warns against the broader impact:
“Other stores operated by sophisticated entities with the resources to invest, such as Microsoft, Samsung, or even Apple, would also have little reason to invest in their own innovations because Google’s innovations will be available to developers in their competing store.”
Actually, Microsoft is in favor of opening up app distribution, but so far Microsoft has not taken a position on Epic’s proposed injunction. Apple clearly won’t like what Epic is seeking here. Samsung’s situation is special because they are a Google partner, yet want their own Galaxy Story to be as popular and as profitable as possible.
Epic will probably argue that Google itself has to come up with an alternative Android business that works while complying with whatever injunction the court may ultimately consider Epic to be entitled to.
Google’s filing draws a clever analogy to Epic’s own business model. First, Google mentions “advanced graphics” alongside “mapping, location, or cloud services that can be used by Google Play apps,” arguing that Google should continue to have a financial incentive to invest in the development of such technologies. Then Google points to how Epic, like Google, develops advanced graphics technologies that app makers rely on (the Unreal Engine), yet also operates a store and offers terms where effectively the developers pay for the use of Epic’s foundational technologies through their store commissions:
“Epic itself has developed advanced graphics tools for app developers and charges developers a royalty to access these tools based on a percentage of the developer’s revenue. However, Epic provides a 100% royalty discount on revenue earned through the Epic games store. Under Epic’s proposal, Google would be prohibited from attracting developers to the Play store on the same terms, while Epic remains free to do so.”
Epic’s trial win was spectacular, but from a legal point of view, the post-trial and appellate proceedings are even more interesting.