Antitrust Suit Filed by 36 State AGs Targets Google Anticompetitive Practices on Android App Distribution

Last week, the attorneys general of 36 U.S. states and the District of Columbia filed a lawsuit in the Northern District of California against internet services and mobile operating system (OS) provider Google. The complaint lists various causes of action under the Sherman Antitrust Act and a number of state antitrust laws that have allegedly been violated by Google’s practices in leveraging its monopoly power in the mobile OS sector to maximize its revenues on app purchases through the Google Play Store through suppression of competing app platforms and charging exorbitant fees from app developers.

Google Leverages Licensable OS Market Monopoly to Prohibit Sideloading

Although Google’s Android is not the only mobile smartphone OS available on the market, the 36 state AGs allege that the relevant market for the court’s antitrust analysis is the app distribution market within the licensable mobile OS sector, which excludes proprietary OS platforms like Apple’s iOS system. Within the relevant market, of which Android accounts for 99% of OS licenses, the suit alleges that the Google Play Store accounts for more than 90% of app distribution.

The antitrust complaint identifies several technical barriers and other means by which the company either prevents or discourages third parties from distributing apps and app stores outside of the Google Play Store. The state AGs allege that Google’s warnings to Android users downloading apps outside the Google Play Store, which tell users that such downloads “can harm your device,” belies Google’s public claims about the security of its Android platform. Despite Google’s claims that it scans “more than 100 billion apps every day” as a security measure, competing app stores from major competitors like the Amazon Appstore continue to be listed as “unknown” apps.

If Android security is as robust as Google claims, its warnings against sideloading falsely overstate any potential “harm”—particularly as to widely used apps and app stores, from reputed developers, which Google has analyzed and found to be harmless. It is impossible to reconcile Android’s robust security features and Google’s own estimations of Android’s superior safety features with the idea that direct user downloading of apps is dangerous.

Even if Android users are able to circumvent Google’s measures to prevent app downloads outside of its store, Google suppresses their use by other means, including by preventing any automatic updates for those apps. These means to prevent sideloading, or the process of downloading and installing apps outside of an official app store, are enforced upon original equipment manufacturers (OEMs) licensing the Android mobile OS platform. Similar contractual restrictions are placed upon app developers who, as a condition of being able to offer Android-compatible apps through the Google Play Store, are prohibited from making available any platform for Android app distribution outside of the Google Play Store. The state AGs further allege that Google’s restriction of search engine and YouTube ad campaigns within the Android ecosystem to only Google Play Store apps also degrades potential alternative app distribution avenues.

Google’s Contracts with App Developers Constitute Unlawful Exclusive Dealing

Along with enforcing overstated warnings against app downloads outside of the Google Play Store, Google also uses contractual provisions with OEMs licensing Android to foreclose competitors in app distribution through pre-installation practices. For example, OEMs licensing Android must sign a Mobile Application Distribution Agreement (MADA) which requires OEMs to make Google Play Store an undeletable app and to display it prominently on the OEM device’s home screen in exchange for access to critical application programming interfaces (APIs) that are only available through Google Play Services. As well, Google also requires OEMs to sign a Revenue Share Agreement, which gives OEMs a share of Google’s revenues earned through advertising and Play Store app purchases in exchange for a prohibition against OEMs preloading competing app stores.

Google’s efforts to prevent app store competition also include offers of higher Play Store revenue share to major Android licensee Samsung in exchange for disincentives to Samsung’s own Galaxy Store. Google allegedly also sought to pay off app developers who are seeking to follow the lead of Epic, who bypassed the Google Play Store for sales of its gaming app Fortnite. Instances of the consumer harms created by Google’s anticompetitive practices include the shuttering of Amazon Underground, an innovative model of app distribution that would have paid developers based on the amount of time users spend interacting with their apps.

The monopoly over Android app distribution maintained by Google has also allowed the mobile OS giant to create unlawful exclusive dealing arrangements that ties Google Play Billing to process all in-app payments of digital content. The suit alleges that Google requires app developers to sign a Developer Distribution Agreement (DDA) mandating that in-app purchase payments are processed by Google Play Billing while also prohibiting developers from using Google Play Billing to accept payments for physical goods or monthly utilities. Whereas Google Play Billing takes a supracompetitive 30% commission from all in-app purchases processed, the state AGs’ suit notes that payment processing available through companies like PayPal and Braintree, both of which only charge 2.9% plus 30 cents for each in-app purchase processed. The state AGs allege that the tie between Google Play Store and Google Play Billing is not necessary either from a technological nor a monetization standpoint in large part due to Google’s substantial revenues from other digital advertising channels. Most of the financial figures contained in the complaint regarding Google’s revenues from in-app purchases and other Google Play Store practices have been redacted from the public version of the complaint.

Have Section 101 and Patent Reform Led to Rise of Big Tech Antitrust Issues?

The supracompetitive 30% commission charged by Google Play Billing contrasts greatly with Google’s billing practices for app purchases through the Google Chrome Web Store, which only charges a 5% commission on apps sold through that platform; the state AGs’ suit notes that Google Chrome Web Store’s commission is likely low because it actually faces competition. The complaint also notes that Google is implementing a policy effective this September requiring streaming content providers to also process payments using Google Play Billing. Such a policy is especially prohibitive of streaming music services offering freemium models, such as Spotify, as it hinders their ability to convert free users into subscribers while also cutting into the 65% of revenues that those companies pay in royalties to rightsholders.

Finally, in addition to Google’s anticompetitive and monopolistic conduct, the state AGs’ suit also alleges that several public statements by Google surrounding the Play Store constitute unfair and deceptive conduct. These statements include those like the aforementioned warnings to Android users about apps that “can harm your device” despite Google’s representations about scanning globally available apps to identify Potentially Harmful Applications (PHAs). The suit also identifies a statement made by Google in the late 2000s, early in the days of Android OS commercialization, that Android would be conducted as an “open-source platform” for all developers. Although Google had pledged to run Android as a revenue-neutral platform, the company allegedly introduced the Google Play Store in 2012 as a way to change course and capitalize on lucrative app purchases.

Interestingly, the antitrust concerns surrounding Google’s app store practices likely would not have taken hold if the U.S. patent system actually did its job of upholding the rights of independent inventors and small businesses. Google is one of a few app store providers who, like Google, Amazon and Apple, were sued in 2013 and 2014 by Smartflash, inventor of data storage and access methods which a district court jury found to be willfully infringed by Apple prior to proceedings at the Patent Trial and Appeal Board (PTAB), which featured a massive ethical concern posed by a former (and current) Apple lawyer sitting on PTAB trial panels as a judge, enabled the Big Tech giants to invalidate Smartflash’s valuable patent claims under Section 101, even though Section 101 validity challenges were raised by those companies in district court, where they failed. While it’s good to see public defenders responsible for protecting consumer welfare take a stand against monopolistic practices, the Big Tech antitrust conversation likely has about as much to do with the invalidation of competing patent claims at the PTAB as it does with any Standard Oil-style monopolistic takeover of an industry.

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