A recap of Epic Games vs. Google trial day one

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The first day of the Epic Games vs. Google antitrust trial ended after both sides gave opening statements and two witnesses testified.

One thing that is clear already is that we’re going to get a bunch of insights into how the game and tech industries work behind the scenes.

Sean Hollister of the Verge has done a great job liveblogging the first day of the trial. He noted that Epic CEO Tim Sweeney was sitting in the courtroom at the outset, but he didn’t have anything to say but “the weather is nice.”

Epic’s opening statement

Epic’s lead attorney Gary Bornstein opened with a chart that showed the Google Play Store accounted for 90% of app installs in the year the lawsuit was filed, 2020, despite the fact that Google “will say” that the Samsung app store is installed on 60% of all Android smartphones. But Bornstein noted that a tiny sliver of the market share belongs to Samsung.

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Bornstein argued that Google pays actual and potential competitors not to compete and gives them money and other things of value. Bornstein says this is anti-competitive.

Epic also said it knows that Google will argue that it allows “sideloading” of apps, where users can use a browser to install apps as an alternative to using the Google Play Store. But Epic Games said Google through hoops in the way of users who were considering sideloading. Epic said that Google’s 30% fee for its app store sales amount to $12 billion a year and carry a 70% profit margin, compared to 24% in 2014.

Bornstein said that Google’s codename for shady deals was Project Hug, where Google allegedly paid developers such as Riot Games not to compete with the Google Play Store.

He also tried to head off Google’s allegation that Epic’s Project Liberty was an unfair trap that the company set for Google. This was where Epic issued a hotfix update to enable alternative payments and sideloading without informing either Google or Apple, taking them by surprise, forcing them to kick Fortnite off the stores, and then filing an antitrust lawsuit. Bornstein said Epic is admitting it did this but it caused no consumer harm. The judge allowed Epic to say that Google employees including CEO Sundar Pichai set some of their chats to “auto-delete” to keep them out of the evidence trail.

Bornstein also said that because many of Google’s alleged anticompetitive acts started in 2019, Google didn’t need those things to protect its fledgling app store. Rather, it merely intended to protect is monopoly. He also said that Google doesn’t have a monopoly on making app downloading secure and that side-loaded apps didn’t represent a real security threat.

Google’s opening statement

Google’s attorney Glenn Pomerantz came next by saying that the market definition matters in antitrust cases. He said that Google and Apple compete against each other. (Epic has said that Google locks in users and prevents competition, particularly after someone has chosen to buy a particular phone).

From Google’s view, the relevant market for an antitrust assessment is either the whole games market or the market for mobile games, not just the Android app stores that Google dominates. Pomerantz noted that every Samsung phone comes with two app stores on the home screen, and so choice is just one tap away.

Google said the agreements it has in place are Anti-Fragmentation Agreements (AFA), which are needed so Android developers can build just one version of an app to save time and money, where those apps run on any Android phone. Pomerantz also said that billion users have gone through the risks of sideloading apps despite the fact that it takes 16 steps to sideload apps like Fortnite. Google said it will call Apple’s App Store boss as a witness.

Interestingly, these agreements are what Apple doesn’t have to do at all because it owns all of the smartphones that use its app store. By contrast Google has to strike agreements in order to shore up its place in the market. Bornstein called this a “bribe and block” strategy.

“It’s a market fee, not a monopoly fee,” Pomerantz said of the 30% take. It’s the same that Nintendo, Steam, and other stores take. (Epic only takes 12%, fyi). He also said the Play Store and Android provide more than simple payment processing fees that others charge.”

And Pomerantz dispute that Riot Games was prohibited from opening a competing app store if it wanted to do. And he said that just because Google deleted some chats didn’t mean it violated antitrust laws.

First witness: Steve Allison, head of the Epic Games Store

Steve Allison was called as the first witness for Epic, which he joined 2018 to help launch the store. He noted the opportunity at the time was to use Fortnite to disrupt Steam, which takes a higher royalty. Allison said that Steam chose 30% because it was mimicking the split at physical retail, where retailers marked games up 30%. It wasn’t based on any particular costs.

Before joining Epic, Allison was at Telltale Games, where he helped the game studio build its own digital store and keep 95% of revenue. At Epic, the take is much smaller at 12%. But that comes at a price, as the Epic Games Store still isn’t profitable despite spending millions to give away free games every week. He said the goal is still growth.

After Epic Games launched with its 12% royalty, where developers kept 88% of game proceeds, Valve’s Steam, Microsoft’s Windows, and Discord all reacted by giving more money to developers.

In cross examination, Google’s attorney asked Allison if it was true that Epic used to warn people away from downloading its game launcher from other soures, saying Epic’s own web site was the only safe place for that.

Google noted that Allison once said that Epic’s fee for its store was for access to Epic’s audience, not just for payment processing. Since Google has a larger audience, that should justify a larger revenue share, Google’s argument would go.

Second witness Benjamin Simon, CEO of Yoga Buddhi, maker of Down Dog

Benjamin Simon of Yoga Buddhi testified that Apple repeated rejected his app for “steering,” or mention you can get a discount by signing up outside the app store. That was a no-no, as it is anti-competitive, as the judge found in the App case. On Google Play, Simon charges $60 a year or $10 a month for Down Dog, while he charges $40 a year or $8 a month on his own web site.

Simon said that 28% fewer incoming potential users decided to pay for his app at all after Google forced him to remove an in-app button that advertised a way to pay 33% less at an alternative web site. Google tried to destroy Simon’s cred on cross examination.

Conclusion

It’s hard for me to say who won the day so far as it’s hard to make that judgement from a distance. But I am very curious how Google will be able to justify the agreements it has made to keep competitive stores off the smartphones of Android devices. As such, it seems like Google has a tougher argument to win than Apple did during the trial where it proved to be largely victorious. Perhaps Tim Sweeney isn’t tilting at windmills after all.

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