Daybreak - Can Google's loss against Epic impact the anti-trust case against it in India?

Episode Date: December 15, 2023

Google has been facing fines totalling billions of dollars for abusing its dominance not just in the Indian market but around the world. So the antitrust investigations launched against it in India last year didn't really come as a surprise for the tech giant. The Competition Commission of India found Google guilty in two antitrust cases and asked it to pay close to $300 million in fines. More than half of this penalty was for exploiting its dominant position in the market for Android, which happens to power 97% of smartphones in India.  Google did manage to get a breather in June this year when the National Company Law Appellate Tribunal (NCLAT) quashed some key directives from the CCI. Google then approached the Supreme Court of India for the second time asking for all of CCI's directives to be withdrawn. While the case is still ongoing, Google lost a major anti-trust case in the US on Monday against Fortnite creator, Epic Games.Experts believe this could the outcome of the anti-trust investigation in India.Tune in.P.S New Segment on Epic vs Google starts at 8:17. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

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With that, back to your episode. Last year, the Competition Commission of India, or CCI, had found Google guilty in two antitrust cases. The tech payment was asked to pay close to $300 million in fines. And more than half of this penalty was for exploiting its dominant position in the market for Android, which happens to power 97% of smartphones in India. It was also asked to pay another fine of over $100 million for some of its play store policies. I don't even think I need to say this, but Google is literally a verb for us.

That is the level of dominance that it has over the market. So it comes as no surprise why it has been facing fines worth billions of dollars around the world for abusing its position, which is why the antitrust investigations in India also did not really come as a surprise for Google. In the case related to its alleged dominance in the Android market, Google decided to approach the National Company Law Appellate Tribunal or Enclad. It asked Enclad for interim relief from the CCI order, and it alleged that the CCI investigators had actually copied parts of the European Commission landmark 2018 ruling against Google which was in a similar antitrust matter.

Now, here is where it gets a little bit muddled up, but I will try to keep it as simple as possible for you. At first, Nclat refused Google's plea. So, Google went to the Supreme Court of India. The top court also declined. And then, around June this year, in what came as quite a boost of confidence for the tech giant, Nclat changed its mind.

It decided to set aside four of the 10 directives that the CCI had asked Google to comply with. Which is why a few weeks later, Google decided to approach the top court again, asking for the remaining directives to also be withdrawn. Now, while we are yet to hear about what comes out of this, a new development in the US has occurred. Earlier this week, Google lost a very important antitrust case against it filed by a gaming company called Epic.

And this could actually impact the ongoing case here in India. So in the first segment today, I will tell you all about the antitrust case that has forced Google to approach India's highest court. And in the next segment, we will take a look at the epic case. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nidda Sharma, and I Don't Chase the News Cycle. Instead, thrice a week on Mondays, Wednesdays, and Thursdays and Fridays, I will come to you with one business story that is worth understanding and worth your time.

Today is Friday, the 15th of December. In India, the CCI or Competition Commission of India has a total of four cases against Google. Out of these, CCI found Google guilty in two. But what was the case that forced Google to approach the Supreme Court of India? Not once, but twice. It has got to do with Google abuse. its dominance in the mobile operating systems market. You see, Android, which is the most common operating system in smartphones, was acquired by Google

way back in 2005. And in India, like I told you before, 97% of smartphones used are powered by Google's Android OS. It is a big market for the tech giant. To understand why CCI thinks Google is adopting anti-competitive practices in this case, we have to understand how Android works. Android is an open source operating system, which basically means that developers can modify it and build on it since it is publicly accessible.

Now, most smartphone and tablet manufacturers which use the Android operating system combine it with a bunch of Google's proprietary applications and services which are known as Google Mobile Services or GMS. This includes running apps like Gmail, Google Maps, YouTube, etc. So, a smartphone or tablet manufacturer, say like Samsung or Xiaomi or Vivo, has two options. The first one is they operate without the GMS, which means that their Android device will not include any apps like Google Maps, Gmail or YouTube.

And the other option is that they use the GMS. But for this, they have to enter into two. additional agreements with Google, the mobile distribution agreement or MADA and the anti-fragmentation agreement or AFA. According to Google, the reason for this is that since it is providing its operating system free of cost, smartphone or tablet manufacturers will have to agree to certain conditions if they also want to use GMS. And what are these conditions? That smartphone makers have to carry Google search widget, the Chrome browser, and an entire suite of applications. And here's the catch. They have to do it without offering users the ability to uninstall them.

The CCI, in its investigation, found these conditions unlawful or anti-competitive. Plus, the CCI also said that because of the compulsory pre-instillation of Google Suite, which includes Google Play Store, consumers did not have the option. of downloading apps outside of the Play Store. So the CCI found Google guilty of anti-competitive practices and fined it for nearly $162 million in this case. This fine was paid by the tech giant. In its ruling, the CCI also said that Google's licensing of its Play Store

shall not be linked with the requirement of pre-installing Google search services, the Chrome browser, YouTube or any other Google application. But here is what happened after that. The CCI directives that the Nclad decided to put on hold in June were the same ones that would have forced Google to allow uninstalling of its pre-installed apps on Android devices. The directive that asked the tech giant to allow individual app store developers to distribute their app store via Google Play Store was also quashed.

And now, Google is actually contending that it has not a abuse the market position that it has and should not be liable to pay the rest of all the fines. This information is based on a report by Reuters. In fact, in a court filing, it also announced plans to present its case and demonstrate how Android benefited users and developers. But as you probably know, governments around the world dealing with tech giants are constantly learning from each other. In Europe, for example, Google was fined from.

for putting unlawful restrictions on Android mobile device makers and was asked to pay them more than $4 billion in fine in that case. Of course, Google challenged that ruling, but that is not the point. Just how governments around the world are waking up to the monopoly of tech giants like Google, India is doing the same. Which is why many experts believe that Google's laws against Epic in the US may not bode well for its ongoing case in India. And now for our brand new segment called In Other News.

Today's story, as I mentioned earlier, is related to the previous segment. Tim Sweeney, the CEO and founder of Epic Games, which is an American gaming company, is a very happy man this week. Not just because he won a legal battle against a tech bayment like Google, but also because he is now set to make billions of dollars. And this, by the way, is despite Google not having to be, to pay for any damages in the entire case. Now, if you've not heard about Epic, it is the company that made the popular survival video game called Fortnite. To give you a sense of its success, the company made a total revenue of more than $9 billion

within two years of launching this game. So on Monday, an American jury held that Google had violated antitrust laws to extract fees and limit competition from Epic Games. and other developers in its Play Mobile App Store. Now, this case is super important because it has the potential to rewrite the rules on how thousands of businesses will make money on Android in the future. So what was this case all about then? More than three years ago, Epic had sued Apple and Google for running an illegal monopoly on

their respective app stores. You see, Fortnite happens to be a few. free-to-play video game. So the way that Epic makes money through it is by selling in-game items with its virtual currency called V-Bucks. Now, players usually buy V-Bucs from the same place that they play Fortnite. And until August 2020, if the player used an Android or iOS device and install the game through their official app stores, that purchase would then lead the player to an in-app payment fee to Google or Apple. Critics called this fee Google Tags or Apple Tax. And Epic was obviously against it. Now here is where the story becomes super interesting. Epic did not go to the court straight away.

It first announced that it would stop the Apple and Google App Store fees. And for this, it used an update on Fortnite. And here is where the story gets even better. It did all of this without telling Apple or Google. It led Fortnite players buy Veebucks directly through its own payment processing option that two at a discount. As you can imagine, Apple and Google were pretty pissed off when they found out. So quite predictably, they kicked out Fortnite from their app stores for breaking the rules. And here comes the surprise.

Epic was already waiting for both of them with lawsuits. And also a very interesting ad. Do you remember Apple's super famous 1984 Macintosh ad? There's this giant screen that everybody's fixated at and it features this dictator-like figure who is talking. And then there is this woman who's running away from authorities towards that screen and then she comes and actually breaks it by throwing a hammer at it. Does that ring a bell?

And then we hear Apple's message. On January 24th, Apple computer will introduce Macintosh. and you'll see why 1984 won't be like 1984. Now, just in case, 1984 happens to be a reference to the most influential science fiction book ever written by George Orwell. The story is about how a totalitarian leader called Big Brother instills fears in the minds of people that they are being constantly surveilled. So you can understand why this Apple ad was so iconic.

Now, guess what Epic's ad was? It featured a Fortnite hero throwing a unicorn hammer into a giant screen. So Epic had basically used Apple's very own most famous advertisement against it. In the case, though, against Apple, Epic didn't really win. That's all for today, dear listeners, but before I wrap up, here is my question for you today. Can the government alone save us from big tech monopoly? Please do write to me with your answers at snigda at the rate the ken.com. It is S&I-G-D-H-A at the rate the-K-E-N dot com.

If you're listening to me on Spotify, I have added a poll at the end of the show notes where you can vote. Thank you for listening. I hope you have a great weekend. See you on Monday. Daybreak is produced from the Newsroom. of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the Ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.