Epic Games and Match Group (Tinder) have made some progress lately in their Google Play antitrust litigation in the Northern District of California. Three dozen U.S. states are also suing Google over its Google Play practices. Then there is also a consumer class action seeking $4.7 billion in damages, claiming that this is the amount by which U.S. consumers overpaid for Android apps and in-app purchases due to the app tax.
I don't doubt that Google's terms and policies for the distribution of Android apps harm not only app developers but also consumers. It is, however, not trivial to determine what portion of the app tax developers would actually have passed on to consumers in the form of lower prices. Google argues that the class action lawyers went too far, and on that basis has appealed to the Ninth Circuit the district court's decision to certify a consumer class:
This is an interlocutory appeal, and the first decision for the Ninth Circuit to make is whether to grant the petition and hear the case at this stage. In its efforts to get the appeals court interested, Google has provided an outline of why it believes its appeal is meritorious:
The central legal question here is whether a class can be certified if more than a de minimis number of its members have not actually been injured. Google's petition acknowledges a circuit split in this regard.
Google cites Supreme Court precedent according to which the predominance requirement for class certification (that issues common to the claims of all class members outweigh the questions relating to individual members' claims) is not satisfied when "[q]uestions of individual damage calculations will inevitably overwhelm" common questions.
I'm not fully convinced by Google's argument that there should be no class certification at all, but--despite my harsh and frequent criticism of Google's Android app distribution practices--I agree with Google that the class action lawyers' damages calculation is unrealistic.
Google argues that developers would typically not lower prices if an adjustment did not take the price down to a distinct focal point. For instance, if an in-app purchase costs $0.99, and the reduction of the app tax would allow the developer to charge only $0.82, it's likely that the developer would keep the price at $0.99 because psychologically the two prices are about the same, so demand wouldn't change much and the developer would leave money on the table.
Google reasonably criticizes the consumer plaintiffs' expert's "one minus share" formula. The expert's starting point is reasonable: the more competition an app faces, the more of the app tax (if it could be saved) would be passed on as savings to consumers. A monopolist will probably just increase its profits; in a fiercely competitive segment, prices will gravitate toward a reduction that more or less amounts to the app tax. But the consumer plaintiffs' expert simply looks at a given app's share in one of the 35 categories to which Google lets developers assign their apps. That is a coarse segmentation. Without substitution, there are no competitive dynamics, and Google reasonably argues that "[e]ven though the children’s game Thomas the Tank Engine and the adult game Doom are in the same 'games' category, they are clearly not competitors, are not marketed to the same consumers, and are not perfect substitutes such that if the price of one increased, consumers would switch to the other in proportion to the app’s share of the category."
I would actually go even further: even if two games are in the same category, there may be zero substitution for in-app purchases, especially if those are impulse purchases. For instance, if someone plays Candy Crush and wants to spend money to master a level, such as by paying for some extra moves, it doesn't matter that there are literally thousands of other Match Three games out there that may sell five more moves at a lower price.
My take on Google's interlocutory appeal (at this stage): Judge James Donato
was definitely right that consumers must have a chance to recover damages (especially in light of the Supreme Court's Pepper decision),
may be right that a class action is the appropriate vehicle, but
the class certification decision has been based in part on the acceptance of economic theories that Google rightly criticizes and that I, as an app maker, would equally disagree with.
