Google offered app developers special deals to accept 30% fees, Epic Games claims
In a newly unredacted version of Epic Games’ antitrust complaint against the tech giant Google, the Cary-based video game maker claims Google offered sweetheart deals to certain large app makers to accept its 30% in-app purchase fees.
Those fees, which Epic believes are artificially high, are at the center of its courtroom fight against Apple and Google — two of the largest companies on earth.
Epic’s complaint against Google had been redacted heavily for weeks after being filed in a northern California court. But after negotiations with a judge, many of the company’s claims, built on evidence found in discovery, are being revealed to the public.
One of those is that Google had an internal effort called “Project Hug,” in which the company offered deals worth millions of dollars to large app and game developers to accept Google’s requirement of taking a 30% cut on any purchases made within its Play Store. Epic noted, for example, that Google had reached an agreement with Activision Blizzard, the maker of games like Call of Duty and Overwatch.
Epic has long held disdain for the mandatory fees. Last August, it created a getaround on its popular Fortnite game that allowed it to bypass the 30% fee on both iPhones and Android smartphones. Apple and Google then kicked Fortnite off their app stores, leading to the current antitrust lawsuits.
Epic said Google “offered to placate” it with offers of side deals, like YouTube partnerships and cloud services, for agreeing to put Fortnite on the Play Store and accepting the 30% fee.
“Google has reached preferential deals with major mobile app developers, such as Activision Blizzard, as part of an initiative Google originally called Project Hug,” Epic’s complaint states. “These deals allow Google to keep its monopolistic behavior publicly unchallenged. But Epic is not interested in any side deals that might benefit Epic alone while leaving Google’s anticompetitive restraints intact.”
A spokesperson for Google said, in response to the Project Hug claim, that Google faces plenty of competition from other app stores and operating systems.
“We’ve long had programs in place that support best-in-class developers with enhanced resources and investments to help them reach more customers across Google Play,” said Peter Schottenfels, a Google spokesperson. “These programs are a sign of healthy competition between operating systems and app stores and benefit developers tremendously.”
When Epic refused to accept a deal from Google, Epic claims, Google began contemplating buying Epic instead.
That claim was revealed earlier this month, when some redactions were initially removed. But more details were revealed on Thursday.
The complaint says one Google executive proposed that the company “consider approaching Tencent,” about buying Epic outright. Tencent, a Chinese technology company, is the largest shareholder of Epic, controlling some 40% of the company.
Epic claims Google would have bought shares from Tencent to gain some control of Epic or worked with Tencent to buy the remaining 60% of the company.
A different Google executive, Epic claims, wanted to retailiate against Epic by locking down Android phones or making it difficult to sideload apps onto them. Android phones allow users to download apps directly from the internet rather than through its app store — a process called sideloading. That process is not allowed on iPhones at all. Sideloading puts app developers at a disadvantage, Epic says.
Epic paints Google as worried about others following Epic’s lead in trying to create their own rival app stores, like the Epic Games Store.
If it allowed the Epic Games Store to distribute on Android, Epic says, Google would face competitive pressures because Epic only takes a 12% cut on in-app purchases compared to a 30% one.
In a 2019 internal document that Epic claims to have seen, Google estimated that if the Epic Games Store was available on Android phones it could cost the company $350 million, or a “max risk” of $1.4 billion by 2022.
The losses could be higher, Epic claims — between $1.1 billion and $6 billion — if other stores, from companies like Amazon or Samsung, began competing on Android phones.
Epic’s complaint also attempts to show Google and Apple as working together to maintain the 30% fee on in-app purchases.
“The close relationship that Google maintains with Apple further reduces Google’s incentive to compete, innovate, and invest in app distribution because Google benefits by cooperating with its ‘competitor’ Apple,” Epic’s complaint states. “As Google’s founder and former CEO Larry Page once told Apple CEO Steve Jobs during a private meeting in 2010 about a ‘partnership’ between Android and iOS: ‘there will always be places we compete, and places where we cooperate.’”
One of those areas of cooperation is making Google the default search engine on Apple’s Safari browser. Google pays an estimated $8 billion to $12 billion per year for that deal, according to the U.S. Justice Department, Epic notes.
Epic says this deal is incredibly valuable to Google’s advertising business, since Android and iPhones dominate the smartphone market, meaning internet searches on smartphones are being routed through Google.
That value, in turn, keeps Google from competing against Apple over app distribution, Epic says.
“If it did not profit significantly from searches on iOS devices, Google might be more incentivized to, among other things, differentiate its Android platform from Apple with respect to the commissions it charges on app transactions,” Epic’s complaint states.
“If Android competed with iOS on app transactions, the market competition would make Android apps cheaper for users and attract developers to launch their apps first (or even only) on Android,” the complaint continues. “Instead, Google and Apple are cozy duopolists, offering virtually the same terms to developers and changing those terms in tandem (if at all).”
To drive home that cozy relationship, Epic pulls from an internal note that it claims to have seen. The note, exchanged between Apple and Google following a meeting, says, “Our vision is that we work as if we are one company.”
In a response to that claim, a Google spokesperson said it mischaracterized Google’s words.
“As we have stated previously, Epic’s lawsuit is baseless and mischaracterizes our business conversations,” Schottenfels said. “Android provides more choices in mobile devices for developers and consumers.”
Google’s app distribution business is also facing a government challenge. Last month, 37 state attorneys general, including Josh Stein of North Carolina, sued Google, accusing it of operating a monopoly via the Play Store, The News & Observer reported.
Stein told The N&O that Google makes it overly difficult for users to get apps outside of the Play Store and charges too high of fees because of its monopoly. “When people buy things from payment processors the typical rate is 3%, and Google is charging 30%,” said Stein, a Democrat.
Google responded to the attorneys general lawsuit in a blog post, saying their complaint “mimics a similarly meritless lawsuit filed by the large app developer Epic Games, which has benefited from Android’s openness by distributing its Fortnite app outside of Google Play.”
Epic’s lawsuit against Google is moving slower than its twin suit against Apple.
Earlier this summer, Epic and Apple squared off in the court room for several weeks. A judge is expected to rule in that case in the coming days or weeks.
This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work. Learn more; go to bit.ly/newsinnovate.
This story was originally published August 19, 2021 at 3:59 PM with the headline "Google offered app developers special deals to accept 30% fees, Epic Games claims."
