What Google's courtroom loss to Epic Games could mean for the tech world

A California jury found Monday that Google (GOOG, GOOGL) acted as a monopoly and abused the power of its app store, a decision that could threaten a Silicon Valley revenue engine and change the relationship between tech giants and software developers.

The decision was a victory for "Fortnite" game developer Epic Games, which claimed that Google had abused the dominance of its Android operating system app distribution and in-app billing markets. Google, Epic alleged, used its Google Play app store to extract exorbitant fees from third-party app makers.

A separate phase of the trial to decide what remedies Epic is entitled to will take place in January. Those remedies could potentially upend the lucrative distribution model that acts as a solid source of revenue for Google.

Epic made similar antitrust claims against Apple (AAPL) in a separate lawsuit, but a federal judge rejected all but one of its claims in that case and an appeals court upheld that decision. Apple has asked the Supreme Court to take up the case.

Both cases center on what level of control tech giants should have over the third-party developers who make games sold in their app stores. Billions are at stake, as many consumers use these stores to download games and other apps to their mobile devices.

Because the arguments in both cases are so similar, the outcome in the Google trial was "kind of a surprise to me and a lot of folks," Paul Gallant, TD Cowen’s TMT policy analyst, told Yahoo Finance.

The greatest impact, Gallant said, may be on the other antitrust challenges facing Google in other courtrooms. The Justice Department is challenging Google’s market dominance in the online search market and the market for online advertising technology, in two separate cases.

“The judges and juries may look at this decision and go, 'Yeah, maybe we can rule against Google as well because we won’t be the first ones to … declare them to be a monopoly.'”

An Epic fight

The fight between Epic, Google, and Apple began in 2020 when Epic tried to circumvent the giants' app stores. It began allowing players to make in-game purchases at a 20% discount, sidestepping the 30% fee for in-app or in-game purchases.

Google and Apple responded by kicking Fortnite out of its app stores, arguing that Epic had violated their terms of service. Epic then sued both companies.

Apple has made some changes since the legal battle began. In 2021, it restructured its App Store fees by dropping commissions from 30% to 15% for companies that make less than $1 million in revenue per year.

Subscription services remained unchanged, with developers paying 30% for the first year of a subscription, and 15% for each subsequent year. Free apps remained free, with Apple taking no commission from developers for downloads.

While the Epic defeat is a blow to Google, the Play Store is still nowhere near as important to the company as its Search business is. That segment generates the vast amount of Google's overall revenue via advertising sales.

"It is a setback for Google," Gallant said, "but it is not game-changing."

In a research note following the news, Needham analyst Laura Martin downplayed the potential risks to Google because an appeal will delay any negative impact to 2025.

"If the Supreme Court gets involved, it would push the timeline out further," Martin wrote.

The analyst also said her contacts expect Google to win any appeal against the ruling.

In a statement Epic Games called the ruling a win for developers and consumers.

"It proves that Google’s app store practices are illegal and they abuse their monopoly to extract exorbitant fees, stifle competition and reduce innovation," the company said in the statement.

Google said it planned to appeal the jury’s decision.

"Android and Google Play provide more choice and openness than any other major mobile platform," said Wilson White, a Google vice president of government affairs and public policy.

"The trial made clear that we compete fiercely with Apple and its App Store, as well as app stores on Android devices and gaming consoles. We will continue to defend the Android business model and remain deeply committed to our users, partners, and the broader Android ecosystem."

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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