'Not Too Big To Play By Rules': Google Settles US In-App Purchase Suit

September 8, 2023
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Google and a group of 50 attorneys general have settled "in principle" an antitrust lawsuit alleging that the bigtech giant abused its monopoly power over in-app payment processing.

Google and a group of 50 attorneys general (AGs) have settled "in principle" an antitrust lawsuit alleging that the bigtech giant abused its monopoly power over in-app payment processing.

The settlement will put an end to one of the three main lawsuits of state AGs concerning Google Play Store, with the other two concerning the search engine and digital advertising markets. 

The parties reached the agreement “in principle”, which means that it still has to be approved by the AGs, Google’s board and the court. They have 30 days to finalise the settlement, at which point they said they would publish further details about the settlement. 

“No company is too big to play by the rules, including Google,” said New York AG Letitia James and the AGs of California, North Carolina, Tennessee and Utah, who co-led the lawsuit.

“We brought this lawsuit because it is illegal to use monopoly power to drive up prices,” they added.

The complaint was filed in July by 37 AGs at the time. Since then, the plaintiffs' number has grown to include all 50 states, the District of Columbia and Puerto Rico, meaning that the settlement will have nationwide jurisdiction in the United States.

Among other things, the AGs are accusing Google of requiring app developers that sell in-app digital content through apps purchased via Google Play Store to use Google billing as a middleman.

Google then charges a commission, often as high as 30 percent, for processing the payment.

This is more than ten times greater than any other fee that other payment processors charge for non-digital goods, which are exempt from the requirement, through Android apps or on the internet, according to the complaint.

Despite the increasing pressure from regulators over Google’s in-app purchase rules, the bigtech gradually expanded the application of the rule to other companies.

Effective from September 2021, subscription streaming services for music and video, which Google had previously exempted, must also use Google billing or deny consumers the ability to purchase subscriptions from their Android app.

Since then, the requirement has been imposed on further subscription services such as those related to job searches, dating, fitness and other apps.

US states allege this practice distorts competition by giving Google’s comparable streaming services “an enormous competitive advantage” over competing apps.

Rival payment processors that these services currently use will also be forced out of providing in-app payments to their existing customers.

“In the absence of Google’s unlawful tying conduct — requiring essentially all Android app customers to use Google Play Billing for in-app purchases of digital content — there would be vigorous competition in the Android in-app payment processing market, as exists in other payment processing markets,” the complaint argues.

Meanwhile, consumers could be harmed too as the “tie” prevents them from using other payment processors, forcing them to pay Google’s “supracompetitive” commission.

In the lawsuit, the state AGs asked the court to end Google’s in-app purchase restriction. 

Regulatory and enforcement actions against in-app payment restrictions mount

Pressure over the in-app purchase restrictions of Google and Apple, however, is heating up elsewhere in the US too.

In a February report, the US Department of Commerce found that the mobile app store models of Google and Apple are “not a level playing field” and it is unclear how the current in-app payment system “benefits anyone other than Apple and Google”.

Two months later in April, the Ninth Circuit Court ruled that Apple must allow developers to use alternative payment methods for in-app purchases and inform iPhone users about their option to do so.

Meanwhile, bigtechs have found themselves in the crosshairs of regulators in other large economies.

In the UK, Google is subject to an antitrust investigation by the Competition and Markets Authority (CMA), which is considering measures to break up Google’s in-app payment monopoly.

In April, the CMA proposed two new billing schemes — one that would allow app developers to offer a payment system of their choosing, known as developer-only billing (DOB), while another one would offer users the choice between an alternative payment system and Google Play’s billing system, known as user choice billing (UCB).

This case is still ongoing and further steps are expected to be announced in October, according to the CMA website.

In Europe, Apple is facing two parallel probes by the European Commission concerning in-app payment restrictions related to audiobooks and other apps, and has recently escaped similar allegations in a third investigation involving music streaming payments.

In the EU, Apple is also under scrutiny for restricting near-field communication (NFC) technology for mobile payments.

While each of these cases is still ongoing, the bigtechs will soon be required to open up in-app purchases to payment processors anyway as the bloc’s Digital Markets Act (DMA) comes into force and requires so-called “gatekeepers” to allow developers to offer an in-app purchase payment technology of their choice.

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