Tech giants Apple and Google lose landmark court case as federal judge rules they engaged in anti-competitive conduct

RNZ News

2 days ago

By
Michael Atkin
and
Melanie Vujkovic
Fortnite was kicked off the Google and App stores in 2020 for offering its own in-app payment system.
Photo:
ABC News: Evan Young/Epic Games
In a landmark decision, the federal court has on Tuesday ruled against tech giants Apple and Google in a major win for consumers, finding that the companies engaged in anti-competitive conduct.
Judge Jonathan Beach found that both companies had broken the law by misusing their market power in the way they run their app stores which sell everything from smartphone apps to computer games.
It clears the way for two class actions covering millions of Australian consumers and developers to pursue substantial compensation for the price and commissions they paid for digital content - which according to legal representatives for the class actions were heavily inflated on the app stores.
Justice Beach also ruled on two cases brought by Epic Games, the developer of blockbuster online game Fortnite.
Justice Beach also ruled on two cases brought by Epic Games, the developer of blockbuster online game Fortnite.
Photo:
Epic Games
He found Google and Apple breached section 46 of the competition and consumer act by misusing their market power to reduce competition but he rejected other allegations including that the companies had engaged in unconscionable conduct - behaviour so harsh it goes against good conscience.
Consumer advocates and class action lawyers believe the judgement could have a significant impact on how digital platforms operate in Australia and may result in lower prices, increased competition and more innovation.
The exact amount of compensation that 15 million consumers and 150,000 app developers could be entitled to will be determined at another hearing.
A key factor in that calculation will be how much less people would have paid Apple and Google if those anti-competitive practices weren't in place.
Joel Phibbs, with Phi Finney and McDonald, is representing developers and users in an open class action against Apple and Google
Photo:
ABC News: Patrick Stone
The class actions by law firms Phi Finney McDonald and Maurice Blackburn was brought on behalf of app developers who sold their apps and other content, as well as users who bought them on the Apple and Google stores between November 2017 until June 2022.
Joel Phibbs, Principal at Phi Finney McDonald told the ABC the amount of compensation could be substantial, "likely to be in the hundreds of millions of dollars."
Both Epic Games and the class action lawyers alleged Apple and Google ran illegal monopolies for app sales, by banning or heavily discouraging other stores or websites.
This meant app developers were forced to use the tech giants' payment platforms where both companies collected between 15 and 30 per cent of sales revenue in fees.
The battle began in 2020, when
Fortnite was kicked off the Google and Apple app stores
for offering its own in-app payment system, bypassing the tech giants and their commission.
Apple's App Store is the exclusive platform where its native apps are distributed, and under its terms and conditions for developers, it won't allow any third party app store be distributed on its devices - iPhones and iPads - in Australia.
Fortnite launched a #FreeFortnite campaign after Apple blocked the app.
Photo:
Epic Games
It also makes it "technically impossible" to directly download apps onto iOS devices outside of its App Store.
Justice Beach said the way Apple ran its App Store and its requirement that developer's use its payment platform had negatively impacted competition.
He said Apple had "engaged in conduct… that had the purpose or is likely to have or had the effect of substantially lessening competition in such markets".
"Specifically, conduct that prevents or prohibits the direct downloading or sideloading of native apps and conduct that prevents or prohibits developers and users from using alternative payment methods."
While Apple argued it imposed those restrictions for security concerns and risks, Justice Beach ruled it remained anti-competitive.
"The fact that Apple has imposed those centralised app distribution system for the purpose of protecting security, does not entail that there is not also a substantial anti-competitive purpose involved."
In a statement, Apple said, "we welcome the Australian court's rejection of some of Epic's claims, however, we strongly disagree with the court's ruling on others."
"Apple faces fierce competition in every market where we operate. We continuously invest and innovate to make the App Store the safest place for users to get apps and a great business opportunity for developers in Australia and around the world," it said.
Apple maintained that it faces stiff competition from Google, Samsung and other stores and the commissions it charges developers have been decreasing and that many pay none at all.
In contrast to Apple products, Android users can use more than one app store and directly download apps from websites.
However, Epic Games successfully argued in the case that Google still imposed its own payment system for the Google Play store and its control of the android ecosystem and use of restrictive contracts and conditions heavily impacted competition and therefore prices.
Justice Beach found Google had engaged in conduct, "that's had or is likely to have had the effect of substantially lessening competition in such markets."
Google told the ABC in a statement:
"We disagree with the court's characterisation of our billing policies and practices, as well as its findings regarding some of our historical partnerships, which were all shaped in a fiercely competitive mobile landscape."
Despite that, Google said it was pleased Justice Beach had recognised that it offered some additional competition for app distribution beyond its Google Play store.
"We welcome the court's rejection of Epic's demands that we distribute app stores from within the Google Play store, and Epic's attacks on other critical security protections that users rely on."
Epic Games has been suing both companies in courts around the world, including in Europe, the United Kingdom and the United States.
Last month, the United States Court of Appeals for the Ninth Circuit upheld a jury verdict and a permanent injunction against Google.
The US court found that Google had violated federal and Californian antitrust laws by maintaining monopoly power in Android app distribution and billing services and unlawfully tying the use of the Play Store to its billing system.
An earlier case, brought by Epic against Apple in the United States Court of Appeals for the Ninth Circuit, resulted in Apple being ordered to allow developers to direct consumers to payment providers outside of the App Store.
A spokesperson for Australia's consumer watchdog the ACCC said it continued to argue for reform to combat anti-competitive practices by tech giants.
It recently completed a five year inquiry into digital platforms.
"The ACCC has observed conduct by the most powerful digital platforms that is distorting the competitive process," the spokesperson said.
"This conduct includes denying interoperability, self-preferencing and tying, exclusivity agreements, impeding switching, and withholding access to important hardware, software, and data inputs.
"We believe a digital platform regulatory regime will promote innovation, investment and productivity."
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ABC