US – Landmark Court Decision in Epic Games vs. Google  

For those interested in essential headlines that could disrupt legal and tax ecosystems globally, we present a landmark decision resulting from the long-standing Epic Games vs Google trial.  Epic vs Google legal dispute has been fought for some time, with different claims, moving forward and backward.

Under the umbrella of the regulatory framework in the US, Epic Games Store initiated a legal dispute against Google, looking to obtain a favorable supporting decision that will result in the ending of the “alleged” Google monopoly position over the terms and conditions under which third-party sellers of apps can list their apps within  Google Play store catalog. 

The Epic injunction against Google should establish an entirely new Android-based marketplace landscape. Google Play Store is the undisputed leader and determining factor in the space that connects developers of Android-based apps with end customers. 

One noticeable relevance is that Google Play Billing(service payment providing services) comes fixed almost as a glue for all the payments made through the Google Play Store. This payment mechanism permits Google to express its dominance and “dictate” conditions for both third-party online suppliers( being independent developers or digital marketplaces) 

In this Epic Games Google legal battle, the Epic Games platform(plaintiff) probably won the first chapter, as Google will most likely submit an appeal. 

Timeline 

The permanent injunction issued by the US District Court(Northern District of California) should be effective November 1, 2024. However, it remains to be seen whether the Epic vs Google permanent injunction enforcement will be practically enforced from this point forward. 

The enforcement of the third-party app stores ruling in Epic’s injunction against Google should cover three years, from November 1, 2024, to November 1, 2027.

Business Landscape 

Current Situation 

As the market leader in the distribution of Android-based apps, Google has developed, maintained, and created a digital marketplace of this type in its “own” terms, following the present regulatory framework. This position has “permitted” the Google Play Store to function so that terms and conditions are standardized and often non-negotiable for third-party digital content and services sellers. 

Practically speaking, the third-party provider(developer and seller of the app) offers his digital product or services through the Google Play store, using the portfolio of Google services, for which it must pay a fixed fee, without the “ negotiations.” The costs are standardized, depending on different parameters, e.g., the turnover of the digital vendor.

However, the “privilege” of using Google Play Store services will often cost the developer around 30% of its selling price. Digital suppliers that want to offer their products or services through the Play Store must, in most cases, use the Google Play billing system(payment service provider) exclusively. 

From the practical perspective, this means that developers(online vendors) are bound to these terms and conditions. If they want to offer their app via the Google Play Store, it must, in most cases(in most countries), be processed by Google PSP’s system and quoted only on the Google marketplace. 

As Epic claimed, Google has successfully created a digital ecosystem of special bonds with developers, carriers, and device makers. Thus, third-party app stores had almost no chance of entering the Google Play store and offering apps quoted within the Play store or “theirs” in different terms and conditions. 

Court’s Decision and Impact 

The battle of David(Epic Games) and Goliath( Apple and Google) within the world of app stores or platform operators has some history. The noteworthy legal battle started in the US in 2020 when Epic Games filed a lawsuit against the market leaders indicated above. 

What was the main reason for supporting their claim? 

Epic, as an app store that offered the super popular game Fortnite, offered both at that time through Apple and Google listings. We sought to circumvent the 30% purchase commission the facilitators took from each sale. As a result of the “creative strategy,” the game was removed from their stores. 

In December 2023, a court ruled that Google Play and its interconnected payment service system created unfair competition and acted from a dominant market position. 

Fuelled by this landmark triumph, Epic moved further on, battling for the rights of its app store, other app stores, and developers. In this regard, the Judge of the District Court of Northern California issued a permanent injunction against Google, which is the game changer for the landscape of the platform economy within the United States, at least for now, just within the boundaries of the US. 

What are the main points of the lawsuit supported by the Court’s decision? 

• Apps offered via Google Play Store will become accessible to third-party app stores. 
• Rival app stores could become part of the Google Marketplace. 
• App stores and developers will not be obliged to facilitate the payments exclusively through the Google Billing service. 
• App stores will be free to define the commission for their in-app purchases. 
• Google should stop using ” incentive”-based tactics when making deals with app sellers or developers when choosing which store portfolio the app will be listed in and accessible by consumers.
• Downloading the app from a different place outside Google Play will be allowed. 

The Google Play monopoly ruling permits Google to develop a practical and applicable solution following the injunction guidelines within eight months of the decision’s pronouncement. 

Google source says that the company will appeal the court’s decision, and Epic Games, fuelled by the force of win, is in sight to initiate additional legal proceedings against Google and associated partners.                             

Tax Collection Mechanism

Google Play Store

Following the present situation, where Google has its “alleged dominant” position in the world of App stores based on the Android system, and no other rival stores can enter its portfolio, Google is the Merchant of Record in most cases. This is based on the almost “exclusive” usage of the Google Billing Service.

Practically speaking, Google acts as the “actual” supplier of intangible goods or digital services to end customers. Google takes care of imposing adequate tax rates, collecting taxes, and remitting the collected taxes to the respective authorities. 

This is one of the options that Google presents to developers offering their products or services through the app store. It should be emphasized that this alternative is preferred, and from a business and tax perspective, there is little room to choose the other. 

Another option is the agent option, in which the actual developer acts as a seller and handles its tax duties. 

In countries where Google can or should act as a Merchant of Record, the developers(“owners” of the goods or services) are “free” of tax worry. The platform takes care of the underlying suppliers. However, there are countries where Google cannot act as Merchant of Record for the entire lifecycle of underlying supply, and developers there should be tax registered and take care of their tax duties under local legislation.

Merchant of Record

Third-party stores 

Following the letter of the permanent injunction, starting in 2025 in the US, Google “will” allow rival third-party stores to enter the competition and establish “contractual” bonds with underlying suppliers(developers of intangible goods or services). 

When this happens, Google will no longer act as the Merchant of Record for these developers. The third-party app store(store X) will obtain this status and become the deemed supplier, mandated to fulfill all legal-tax obligations for their underlying suppliers worldwide. 

This will be one of the biggest and most complex challenges for app stores moving within the Google Play Store space. The operator of App Stores will need to get familiar with the tax legislation from a global perspective to know when it will be the Merchant of Record and when the developer should bear partly or entirely the tax responsibility. 

The Epic Google Court Decision(app store monopoly lawsuit) will unquestionably disrupt the app business in the US. For the beginning US, then we will see where this will lead. The decision opens the door for more competition, a fairer market, and the possibility for rivals of the app store behemoth to enter the game in the first place. 

Competitors will have the opportunity to offer developers lesser commissions and the possibility of using different payment service providers. Without precedent in the US, these “ app-business ecosystem” reforms will reshape the market. 

The digital operators of the app stores will most probably “choose” the method to operate as Merchants of Records, so the level of their tax responsibility will automatically grow exponentially. On the other hand, the developers(suppliers) of intangible goods or services or platform operators can operate independently as operators or tax agents. 

They will have a chance to take advantage of being responsible for their tax duties. Of course, this depends on the terms and agreements between them, the app store operator, and the local rules in place.