Legal Intelligencer: An Antitrust Storm Brewing in the Walled Gardens: Dissecting the Antitrust Claims in ‘Epic v. Google’

Considering the difficulties for private plaintiffs to pursue and prevail on antitrust claims under the Sherman Act, Section 2, Epic’s win against Google carries significant consequences for platform operators’ liability under antitrust laws.

In the January 2, 2024 edition of The Legal Intelligencer, Edward Kang wrote, “An Antitrust Storm Brewing in the Walled Gardens: Dissecting the Antitrust Claims in ‘Epic v. Google’.”

On Dec. 11, Epic Games notched a historic victory against Google after a federal court jury found that the internet search giant illegally maintained monopolies over the distribution of apps on Android devices and for Android in-app billing services. The decision was announced at the end of a month-long trial, and the trial itself was a part of a three-and-a-half year-long legal battle between Google and Epic Games. Back in 2020, the video game juggernaut simultaneously filed lawsuits against Apple and Google, alleging that both companies operated their app stores like monopolies, exercised undue control over the distribution of mobile apps like Epic’s Fortnite, and unfairly penalized the creation and use of app markets and payment tools not owned by either Google or Apple. Epic alleged that these illegal practices allowed the corporations to tack a surcharge of up to 30% onto all purchases made through downloaded mobile apps. Considering the difficulties for private plaintiffs to pursue and prevail on antitrust claims under the Sherman Act, Section 2, Epic’s win against Google carries significant consequences for platform operators’ liability under antitrust laws.

The Goals of Antitrust Law

The Sherman Antitrust Act of 1890 is the primary legal framework regulating competition and preventing anti-competitive practices in the United States. The Supreme Court described its goal as a “comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.” See Northern Pacific Railway v. United States, 365 U.S. 1 (1958). The court further explained that the Sherman Act rests on the premise that unrestricted competitive forces will result in the optimal allocation of economic resources, leading to the lowest prices, highest quality, and significant material progress.

Antitrust laws protect competition from being exploited by market participants. The primary focus of antitrust is not isolated transactions but rather the preservation or restoration of competitive markets. While it is often stated that antitrust law protects competition and not competitors, this perspective may not capture the complete picture. There comes a point where safeguarding competitors becomes necessary to ensure the continuation of competition. Thus, the essential question revolves around determining the quantitative threshold at which the protection of competitors is required to maintain the overall competitiveness of markets, making it a matter of degree rather than a binary qualitative distinction.

Sections 1 and 2 of the Sherman Act address different types of anticompetitive behaviors. Section 1 pertains to concerted or coordinated conduct among multiple entities, while Section 2 focuses on unilateral conduct by a single firm that holds “monopoly power.” The elements of each Section 2 offense vary. Besides the conspiracy to monopolize and the attempt to monopolize, a violation of Section 2 requires monopoly power, some form of exclusionary conduct, and a causal connection between the two. Monopoly means significant but not absolute market power—e.g., a market share of 60% or more. Thus, a firm must not only possess monopoly power (be “big”) but also engage in anticompetitive conduct (be “bad”) to incur liability under Section 2. As the Supreme Court held, “the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct.” See Verizon Communications v. Law Offices of Curtis V. Trinko, 540 U.S. 398 (2004).

It is not surprising that defining what qualifies as exclusionary conduct has been a matter of intense debate since the enactment of the Sherman Act. Generally, most courts agree that for conduct to be deemed exclusionary, the conduct must harm a competitor without providing any corresponding benefit to consumers. Additionally, this conduct should establish or help maintain a monopoly position, which creates a causal link or feedback relationship between the behavior and the monopolistic element. In practical terms, proving a Section 2 violation poses a substantial challenge, and rightly so. This high evidentiary bar is sensible because most business conduct is unilateral, and much of such conduct is not anticompetitive.

Defining the relevant antitrust market and evaluating the degree of actual or likely power within that market are often the most critical issues for establishing the existence of monopoly power under Section 2. Courts generally describe the existence of monopoly power as “the ability to control prices and exclude competition in a given market.” See Broadcom v. Qualcomm, 501 F.3d 297 (3d Cir. 2007). This showing requires a plaintiff to first “establish the relevant market” in which the defendant allegedly has monopoly power. See Sky Angel U.S. v. National Cable Satellite, 947 F. Supp. 2d 88 (D.D.C. 2013). For antitrust purposes, the relevant market has two components: the relevant product market and the relevant geographic market. The relevant product market is defined as that set of products for which a hypothetical monopolist could profitably raise prices for a nontrivial period. This analysis requires a study of the candidate market and the interaction of the various products in that space. The algorithm for determining the product market is similarly applied to determine the geographic boundaries of the relevant geographic market. Because the antitrust market definition is an evidence-driven legal concept, defining the market is typically a complex factual inquiry that is established through experts and economists.

Given the challenges of obtaining direct evidence of anticompetitive effects, antitrust plaintiffs often rely on a double inference approach by first inferring market power from measures of market concentration and later inferring anticompetitive effects from the demonstrated market power. Presenting a scenario with few competitors and high market shares allows for the rebuttable inference of anticompetitive effects resulting from exclusionary conduct.

Google’s Wrongful Conduct During Discovery

During the month-long trial, Google was repeatedly questioned about its evidence preservation practices. At one point, the judge said that the evidence presented at trial had him questioning whether Google had an “ingrained systemic culture of suppression of relevant evidence.” The judge’s remark was directed at Google’s failure to preserve internal chat evidence. Google’s chat system includes a setting of turning off “history,” which causes internal chats to be deleted automatically after one day. After Google CEO Sundar Pichai testified Google employees regularly used chat for substantive business discussion, Epic pointed out that Google employees were turning off “history” in chat even after a legal hold was put on the company following the lawsuit. Instead of changing the functionality and forcing the chat to be saved, Google issued an internal document reminding employees that “anything you write can become subject to review in legal discovery.”

In addition to the deleted chatlogs, Epic alleged that Google intentionally hid documents from discovery by assigning “fake privilege” to them. It is not the first time that Google has been accused of such conduct during the discovery process. In United States v. Google, an ongoing antitrust case brought by the DOJ this year against Google for its alleged monopolizing the advertising technology market in violation of the Sherman Act, the DOJ moved to sanction Google and compel disclosure of documents with “fake privilege.” The DOJ claimed that Google had intentionally misused the attorney-client privilege to shield ordinary court business communications from discovery by directing employees to create the appearance of privilege on all written communications relating to agreements on the search function. Specifically, Google employees would mark the emails as privileged, carbon-copy in-house counsel, and request generic “legal advice.” The in-house counsel included in these emails would not respond, and no actual legal advice was given. Epic claimed that Google employed the same tactics in its litigation with Epic.

In its complaint, Epic pleaded Google’s monopoly power and anticompetitive conduct within the mobile app distribution market for Android users and the market for Android in-app payment processing. For both markets, Epic defined the relevant geographic markets as “worldwide excluding China.” Alongside the counts under Section 1 of the Sherman Act and state claims, Epic asserted two counts under Section 2 of the Sherman Act for the respective markets. The jury ruled in favor of Epic on all counts, including both counts under Section 2 of the Sherman Act. Notably, on the verdict sheet, the jury adopted, in their entirety, the product and geographic market definitions outlined by Epic in its complaint. While it is possible that the adverse jury instruction tainted the jury’s view of Google, the jury verdict sheet evidenced that the jury found Epic’s definition of relevant markets compelling.

Epic’s win against Google bears substantial implications. As recognized by the jury, the proprietary environment of the mobile app market on the Android operating system has become so ubiquitous for Android users that it might have become an antitrust market. For tech companies like Amazon, Apple, and Google, building the infrastructure for digital goods and services allowed them to achieve astronomical growth by leveraging the network effect to increase the value of their products and services with every new user. As the digital market matures and more market participants appear on the scene, the question becomes when the platform operators would have “antitrust duties” to allow others into their “walled gardens” and make the markets competitive. Since defining the relevant antitrust market is often the most critical issue for establishing claims under Section 2, the line of thought that makes Epic’s market definitions recognizable to the jury will implicate many other antitrust cases. Bringing successful Section 2 claims has been difficult in recent years due to, among others, the court’s attitude towards monopoly. With the Epic ruling, practitioners can take heart in that private plaintiffs can still prevail when armed with robust, albeit novel, claims under Section 2.

Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.

Reprinted with permission from the January 2, 2024 edition of “The Legal Intelligencer” © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.