When one party is intent on breaking an agreement to make a larger point, it doesn’t necessarily matter how well-drafted their contract is. Epic Games, the creator of the wildly popular multi platform video game Fortnite, agreed to specific terms with Google and Apple to distribute through their mobile app stores. They then violated those agreements to build a case against what they argue is mobile video game monopoly.
Considering that until recently, Fortnite fans couldn’t play on their mobile devices due the ongoing lawsuit, and the Google case is still pending, the stakes are high. Either the game developer will successfully overhaul how big tech operates in the global economy, or Google and Apple will continue setting industry terms.
In what follows, we take a deep look at the Google Play Developer Distribution Agreement that Epic Games signed and then broke in order to spur a lawsuit. It’s an interesting case of one giant taking on another in an attempt to change the marketplace through contracts. Ultimately, the example shows that a contract is only as strong as each party’s intention to uphold their end.
Questions in this Episode
- What is the current status of the Epic Games vs. Google and Apple case?
- How does the agency relationship between Google and Epic Games unfold?
- How did Epic Games go “opposite” with the add-ons feature?
- What’s the function of monopolistic marketplaces in an antitrust environment?
- How can drafters use this case to draft better?
Epic Games vs Google and Apple – The Background
Every time someone tries to sell something on either the Google marketplace or the Apple marketplace, they will see this Google play developer agreement.
“Google and Apple are giants that know what they’re doing and this agreement is a run-of-the-mill when selling on these marketplaces.” - Arianna Mendez #ContractTeardown Click To Tweet
Epic Games, the developers of Fortnite, is a really popular battle royale video game available for free access for video gamers. They sued Google last year alleging that Google is a monopoly, not an open marketplace and its practices are not competitive.
Epic Games, ironically, intentionally violated the Google Play developer distribution agreement in order to file a lawsuit against Google and Apple. Last year, the Apple lawsuit headed towards resolution. The judge ruled that Apple does not have a monopoly, but Epic Games has filed an appeal. The Google lawsuit is set to go to trial later this month, and there’s a lot going on.
Digging Into the Sections
Section 2.1 is an excellent paragraph in terms of drafting. It has everything you need in it. It’s a bit boilerplate, but it gets the job done. At the end of the day, this is what causes Google’s difficulty. It didn’t really matter that Epic consented to engage in this agreement with Google, as we’ll see later.
2.1 This agreement (“Agreement“) forms a legally binding contract between You and Google in relation to Your use of Google Play to distribute Products. You are contracting with the applicable Google entity based on where You have selected to distribute Your Product (as set forth here). You acknowledge that Google will, solely at Your direction, and acting pursuant to the relationship identified in Section 3.1, display and make Your Products available for viewing, download, and purchase by users. In order to use Google Play to distribute Products, You accept this Agreement and will provide and maintain complete and accurate information in the Play Console.
Google gives you access to millions, if not billions, of customers. Their argument is that: “we’re maintaining this very pristine environment for you to go there and do business, and this 30% levy is to keep that pristine environment. You may also purchase games from somewhere else. Also, it’s not like we’re the only game in town.”
4.6 You agree to use Google Play only for purposes that are permitted by this Agreement and any applicable law, regulation, or generally accepted practices or guidelines in the relevant jurisdictions (including any laws regarding the export of data or software to and from the United States or other relevant countries).
Epic Games released a patch that obtained customer information, in this case, credit card and payment information, and sent it straight to them, circumventing Google. Section 4.6 was written to avoid anything like this from happening. At this time, Epic was talking about something greater than simply one contract. For Epic, this is just a sheet of paper.
Exploring the Agency Relationship
Section 3 is the heart of the lawsuit since it is about the Google Play marketplace and Epic Games officially agreeing to all of the terms listed and that Google would be their agent.
3. Commercial Relationship, Pricing, Payments, and Taxes
3.1 You hereby appoint Google as Your agent or marketplace service provider as outlined here to make Your Products available in Google Play.
3.2 This Agreement covers both Products that users can access for free and Products that users pay a fee to access. In order for You to charge a fee for Your Products and to be paid for Products distributed via Google Play, You must have a valid Payment Account under a separate agreement with a Payment Processor, be approved by a Payment Processor for a Payment Account, and maintain that account in good standing. If there is a conflict between Your Payment Processor agreement and this Agreement, the terms of this Agreement will apply.
3.3 Products are displayed to users at prices You establish in Your sole discretion. If Google believes that Taxes may be owed by You or Google on the sale of Products, You grant Google permission to include any such Taxes in the price charged to users. You may set the price for Your Products in the currencies permitted by the Payment Processor. Google may display the price of Products to users in their native currency, but Google is not responsible to You for the accuracy of currency rates or currency conversion.
3.4 Acting as Your agent, and with You acting as a principal, Google is the merchant of record for Products sold or made available to users in the countries/territories described here. You are the merchant of record for Products You sell or make available via Google Play to all other users. The price You set for Products will determine the amount of payment You will receive. A “Service Fee“, as set forth here and as may be revised by Google from time to time with notice to Developer as described in Section 15, will be charged on the sales price and apportioned to the Payment Processor and, if one exists, the Authorized Provider.
3.5 In certain countries/territories as described here, Google will determine if a Product is taxable and if so, the applicable Tax rate will be collected either by Google, the Payment Processor, or the Authorized Provider, and remitted to the appropriate taxing authority for Products sold to users. Google may update the countries/territories where it will determine and remit the Taxes with notice to You. In all other countries/territories, You are responsible for determining if a Product is taxable, the applicable rate of Tax to be collected, and for remitting the Taxes to the appropriate taxing authority. All Taxes will be deducted from the sales price of Products sold and the remainder (sales price less Service Fee and Taxes, if any) will be remitted to You. Where Google collects and remits Taxes in applicable countries/territories, You and Google will recognize a supply from You to Google solely for Tax purposes to the extent required by local laws, and You will comply with the relevant Tax obligations arising from this additional supply.
3.6 Where either the Payment Processor, or the Authorized Provider notifies Google that it is required by applicable (local) legislation or by the applicable governmental tax authority to withhold any taxes, or where Google reasonably determines that it is required by applicable (local) legislation or by the applicable governmental tax authority to withhold any taxes (in each case, “Withholding Taxes“), Google will also deduct an amount equal to such Withholding Taxes from the amount Google remits to You. Withholding Taxes include, but are not limited to, withholding tax obligations on cross-border payments or imposed by telecommunications taxes. You agree to timely provide, as soon as reasonably practicable, any tax documentation or certification requested by Google.
3.7 You may also choose to make Products available for free. If the Product is free, You will not be charged a Service Fee. To avoid unexpected fees for users, You agree that Products that were initially offered free of charge to users will remain free of charge. Any additional charges will correlate with an alternative or supplemental version of the Product.
3.8 You authorize Google to give users refunds in accordance with the Google Play refund policies as located here or the local versions made available to You, and You agree that Google may deduct the amount of those refunds from payments to You. In all other respects, the Payment Processor’s standard terms and conditions regarding refunds will apply. User refunds may be exclusive of taxes previously charged to users for Product purchases.
3.9 Users are allowed unlimited reinstalls of each Product distributed via Google Play without any additional fee, provided however, that if You remove any Product from Google Play due to a Legal Takedown (as defined in Section 8.2), that Product will be removed from all portions of Google Play, and users will no longer have a right or ability to reinstall the affected Product.
It meant that only Google could distribute and provide people with access to the products because they were available in the marketplace. This is at the center of the dispute. It’s a good clause, but it doesn’t matter since we’re dealing with a broader problem here.
Every time something is sold on the marketplace, the marketplace gets a cut. It was called Apple tax because it was Apple that started using it first. The industry has changed so much that a lot of people question whether the service fee is a good fit for today’s marketplace on app stores.
3.4 Acting as Your agent, and with You acting as a principal, Google is the merchant of record for Products sold or made available to users in the countries/territories described here. You are the merchant of record for Products You sell or make available via Google Play to all other users. The price You set for Products will determine the amount of payment You will receive. A “Service Fee“, as set forth here and as may be revised by Google from time to time with notice to Developer as described in Section 15, will be charged on the sales price and apportioned to the Payment Processor and, if one exists, the Authorized Provider.
Opposite Route with Add-ons
This is precisely what Epic Games decided to do the opposite. They were planning to release a patch that Google couldn’t detect before it went live. It allowed users the option of purchasing add-ons for Epic Games directly from Epic Games, avoiding the 30% fee that Google Marketplace would levy on the transaction.
4.5 You may not use Google Play to distribute or make available any Product that has a purpose that facilitates the distribution of software applications and games for use on Android devices outside of Google Play.
Epic Games was giving a cheaper option for users to get the add-ons, and despite signing a contract that stated they were very black and white and they couldn’t do this – they ended up with that offering.
Marketplace Monopolies
There are several things that must be addressed in order for something to qualify as a monopoly under the law. The most important question is if you can obtain the same product or service without using the company in question. Arguably, there are a lot of alternatives in a gaming environment. You can try streaming, Xbox, or PlayStation.
Google and Apple both provide access to mobile users, and they arguably dominate in that marketplace. That is a bigger question for the courts to answer: are “two” adequate competition, or are we talking about a dual monopoly in this market?
“This is not so much about the user. It's a fight between tech giants.” - Arianna Mendez #ContractTeardown Click To Tweet
Draft Better Using Google’s Example
Any drafting changes must be approved by the stakeholders. Policy adjustments must be made by stakeholders in order for the drafting to reflect them. Apple, for example, is already making changes that will allow software developers to contact users directly and maybe offer cheaper alternatives to its marketplace to purchase add-ons.
Show Notes
The developers of video game sensation Fortnite violated their contract with Google, making a case that the tech giant has a monopoly on the mobile gaming marketplace. Watch as corporate attorney Arianna Mendez tears down the Google Play Developer Distribution Agreement and explains how Epic Games is using litigation to bring about economic and social change.
Considering that until recently, Fortnite fans couldn’t play on their mobile devices due the ongoing lawsuit, and the Google case is still pending, the stakes are high. Either the game developer will successfully overhaul how big tech operates in the global economy, or Google and Apple will continue setting industry terms.
In what follows, we take a deep look at the Google Play Developer Distribution Agreement that Epic Games signed and then broke in order to spur a lawsuit. It’s an interesting case of one giant taking on another in an attempt to change the marketplace through contracts. Ultimately, the example shows that a contract is only as strong as each party’s intention to uphold their end.
THE CONTRACT: Google Play Agreement
THE GUEST: Before starting her firm, Arianna worked at a civil litigation firm in Cutler Bay, Florida. During that time, Arianna concentrated her practice in the areas of breach of contract, insurance law, business law, appellate practice, consumer protection cases, real estate law. and condominium law. Arianna helped launch the firm’s Appellate division and served as Second Chair on the firm’s civil appellate cases. Arianna is admitted to practice in the United States Southern District of Florida and is a Florida Supreme Court County Mediator.
THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com.
If you are interested in being a guest on Contract Teardown, please email us at community@lawinsider.com.
Interview Transcript
Mike Whelan Hey everybody, welcome back to The Contract Teardown show from Law Insider. I’m Mike Whalen. The purpose in this show is exactly what it sounds like. We take contracts, we beat them up, we’re mean to them, sometimes supportive at the end, just to leave them feeling good about themselves as they go out in the world. But usually not, because that’s less fun. I hang out with smart friends like Arianna Mendez here. Arianna, how are you today?
Arianna Mendez Hi, Mike. Thanks for the invite.
Mike Whelan Yeah, absolutely. We’re going to get nerdy today, as we often do on this show because we’re talking about video games. We’ve got like this Venn nerd diagram of, like, video games and contracts and all the cool kids. So what we’re going to talk about is this document. Let me share it real quick, Ariana. This is a Google Play Developer Distribution Agreement. Before we dig into it, Ariana, what is this thing? When are we going to see something like this?
Arianna Mendez Okay. So every time you try to sell something on either the Google marketplace or Apple marketplace, you’re going to get something like this Google Play Developer Agreement. It’s quite standard in the industry. Google and Apple are kind of the head honchos, they know what they’re doing in this area. So this is run-of-the-mill when you’re trying to sell something on one of these marketplaces.
Mike Whelan Yeah, we’ll get into that reality before we do. Arianna, tell me about your background. What brings you to documents like this? What’s your practice like?
Arianna Mendez Sure. I run the law firm Arianna M. Mendez out of Miami, Florida. We do civil litigation, business, real estate, and estate planning work down here. And a big hello to everybody up north who is dealing with the cold weather. We’re sunny down here and quite nice and toasty.
Mike Whelan We had very confusing snow today. Like it started to snow last night, apparently, and then it was like, it’s too cold out here. We’re not going to do this. And so it just sort of stopped—very confused here. Okay. So here’s what we’re going to do. As you know, you deal with a lot of litigation things, business litigation things. And so that’s what we wanted to bring you in for was that perspective. And there’s litigation going on about this particular document. So before we dig into the nitty gritty of this document, can you just give us some background on what’s going on with this case? People have probably heard about this case between the Fortnite people and Google. Tell us about the case. What’s the state of things right now?
Arianna Mendez Oh, Mike, the tea is hot with this one. Epic Games, the developers of Fortnite, which is a really popular, you know, battle royale video game out there, free access, very popular with video gamers. So they sued Google last year because they’re alleging that Google is a monopoly and that their practices are not competitive, it’s not an open marketplace. They are that bad word, monopoly. And ironically, Epic Games violated the Google Play Developer Distribution Agreement on purpose so they could start litigation against Google and Apple. And basically right now, the Apple case last year kind of headed towards resolution. The judge said, Hey, Apple is not a monopoly, but now Epic Games is appealing. The Google suit is going to trial later this month. So it’s just a lot going on. But there’s a chance to make interesting case law if Epic wins, and it could change the way we buy apps on both of these two platforms forever.
Mike Whelan Yeah, there’s a dynamic with this situation, where there’s inside the contract and there’s outside the contract, which is an interesting thing as we sort of address the questions inside the contract. When is the contract sort of creating problems that we can avoid, and when is it, like, there was nothing you were going to be able to do here—this fight was going to happen anyway? And Google is really using the contract to try to, you know, do some social engineering, basically. So let’s talk about that with that distinction in mind. And what we’re going to do is go through the document, as we do. I’m going to start with 2.1 under Section Two, accepting this agreement. It says, This agreement forms a legally binding contract between you and Google in relation to your use of Google play to distribute products. What are you seeing in this section that you like? What don’t you like as a drafting exercise and maybe how it led to the fight that we’re in now?
Arianna Mendez Sure. From a drafting perspective, this is a great paragraph. It includes everything you want in there. It can be said it’s a bit boilerplate, but it does the job quite nicely. But at the end of the day, this is what starts the relationship, starts the problem for Google, creating their relationship with Epic games and Epic has other things in mind. So even though they agreed that they were entering into this contract with Google and all the terms we’re going to analyze later on, it didn’t really matter. But hey, it’s a good paragraph.
Mike Whelan Yeah, it’s well-written and actually gets us to three. Speaking of that relationship, it defines what the relationship is, the commercial relationship, pricing payments and taxes section. Under 3.1, it says, “You hereby appoint Google as your agent or marketplace service provider as outlined here to make your products available in Google Play.” What about that relationship?
Arianna Mendez So again, this goes to the heart of the lawsuits that right now are happening, because literally this is over the marketplace, the Google Play marketplace. And technically, Epic Games did sign up for all the terms outlined here and that Google would be their agent in that marketplace, and meant that Google could distribute and give users access to the products exclusively because they were on the marketplace. So this is at the heart of the litigation. It’s good. It’s doable. Yes, it’s boilerplate, but it works. But again, it doesn’t matter in this particular case, what we’re dealing with, the bigger issue here.
Mike Whelan Yeah, it’s interesting where you have this agent language and you have this idea of, like, somebody going out and acting for you or whatever. But this is a distant relationship. I mean, most of the time, Google is not interacting really with the people who are creating things in here. So it’s interesting that you have that, you know, sort of the old school ideas of agency, but not really. And if you look at 3.4, I mean, it talks—it digs into the pricing piece of that acting as your agent with you acting as principal. Google is a merchant of record. They talk about defining the service fees, how much the payment is. What do you think about 3.4 as it fleshes out that agency relationship?
Arianna Mendez It’s pretty good. If you were to go into the service fee, it’s that 30% that is standard in the industry. For every time that you are trying to sell something on this marketplace, the marketplace gets a cut. And it used to be called the Apple tax because it was Apple the first one that started using it. But the industry has changed so much that a lot of people talk about the service fee and say, hey, is this really a good fit for today’s marketplace on app stores? So again, a good paragraph contract-wise, but this is really going into that 30% Epic Games really wants to stop Google from getting. And the argument is, hey, you’re getting this service fee, but it’s because you’re a monopoly, not because it’s actually fair.
Mike Whelan Hmm yeah. And I think getting to the meat that’s really driving this lawsuit and this confusion, let’s jump down to 4.5. This is under use of Google Play by you. 4.5 says, “You may not use Google Play to distribute or make available any product that has a purpose that facilitates the distribution of software, applications and games for use on Android devices outside of Google Play.” Here’s the breaking: tell me about 4.5 and how Epic Games dealt with this section.
Arianna Mendez So this is exactly what Epic Games decided they were going to do the opposite of. So they were going to push out a patch, quote unquote, a patch that Google was not able to detect before it went live. And it gave users the option of buying add-ons directly to Epic Games from Epic Games and bypassing that 30% tax, if you will, that Google marketplace would be putting on the transaction. So Epic Games knew what they were doing, they were offering a cheaper way for users to get the add-ons and they didn’t care, even though they signed a contract that says—they’re very black and white: you can’t do this.
Mike Whelan Yeah, and it’s interesting. Just as an aside, I was—one of my annoyances in life is when my iPhone decides to go on Amazon and give me the Kindle version of a book versus jumping over to the Amazon app and giving me the hardback, right? Because if— apparently, if I use the Amazon app, if I use an app on iPhone for a digital delivery device, a purchase like a Kindle book, well then Apple gets their 30%. But if I go buy a physical thing on Amazon’s app, it’s not true. And the way to go around that is, I have to go on my Safari browser on my phone and buy—I don’t know if you guys knew this, but this drives me crazy—I have to go to the Safari app on my phone, just the internet, and buy a Kindle thing there. So I guess maybe I’m wondering, is this a leverage thing? I know this is a bit into the big question. How come Amazon can get away with that kind of thing? Is it just that they’re so big and Epic is relatively small compared to Google? Is it just a leverage question that Amazon’s avoiding that fee and being okay?
Arianna Mendez Well, for Amazon, it’s a little bit different because Google is offering you access to millions and millions, potentially billions, of customers. So their argument is, we’re maintaining this very pristine environment for you to go there and do commerce. So this 30% tax, if you will, is for us to maintain that pristine environment, right? And by the way, you can buy games from somewhere else, so it’s not like we’re the only game in town. Amazon is a little bit different, they have other models when they do business. But for Google, if they’re to maintain the App store, maintain the, you know, the back behind the scenes stuff, that’s how they justify that 30% fee. For Epic Games, it doesn’t make sense, and their argument says, Hey, that should not be the case because you have a very wide scope of customers you have access to and you’re the gatekeeper. So we can’t really get to them any other way. That’s why you’re a monopoly.
Mike Whelan Yeah. And continuing with that, in Section 4.6, it says you agree to use Google Play only for the purposes that are permitted by this agreement and the relevant law, including any laws regarding the export of data or software. What do you think about Section 4.6 and this use of data conversation?
Arianna Mendez Again, this covers precisely what Epic Games did. They pushed out a patch that got consumer information, in this case, credit card information, payment information, and it went directly to them, bypassing Google. So this was drafted potentially for something like this in mind to prevent something like this to happen. But Epic was making a bit about something bigger than just this contract. At this point, this is just a piece of paper for Epic.
Mike Whelan Well, I mean, for me, this prompts, as we think big picture, to sort of categories of questions. One is, what this does socially, right? And that’s what’s behind every antitrust conversation. It’s public policy questions. And then secondarily, what it does for the drafter making decisions. So let’s start with the first one. Thinking about the social implications of this, a marketplace is there in part because this small business doesn’t have the resources, they know that Google has more than them and they’re okay with that. You know, Google will give them a place to develop a safe coding environment that, you know, that relative difference in size is an asset at that time. But at some point, Epic starts to win, right? Epic gets big, they become their own brand and they’re not able to get all the returns on that brand that they built up through Overwatch because Google has it. So socially, what do you think about this sort of—should there be a point at which it’s like, okay, now you’re cool enough, your brand can stand on its own, let’s give you your own two feet. Like, what’s the function of marketplaces in sort of an antitrust environment where we know they’re monopolies, that’s why they’re the marketplace?
Arianna Mendez Well, there’s very specific factors that need to be considered in order for you to qualify as a monopoly under the law. And the most important question is, are there alternative ways for you to get that same product or service without the company in question? Arguably, in a gaming environment, there’s a lot of options. You can go on stream, you can try Xbox, PlayStation. There’s a lot of different ways that you can get that product. What Google and Apple are both offering is access to the mobile user, and arguably they do dominate those two in that marketplace. So that’s a bigger question for the courts to analyze: is two enough? Is that enough competition, or are we talking about a dual monopoly of this marketplace? Now, on Epic’s point, they were ready for a more of a social conversation. They honestly had a video ready, making fun of Apple, and I invite your viewers to look this up. It’s hilarious. You have an evil-looking Apple-like logo, basically with Nazi-inspired imagery, trying to make this case that Epic is standing up for the small guy in gaming—that developer out there that’s trying to make a win. And we’re talking about a multimillion dollar company when it comes to Epic. So we’re not talking about somebody that fits that description, but they’re making it about that, because the potential for profits for them down the road if this changes is astronomical. So this is not so much about the user. It’s a fight between tech giants.
Mike Whelan It’s an interesting thing as an aside, especially Apple or especially Google. But even Apple shifted at some point from being a hardware company to being an audience company. The idea—their whole profit source is the access to people. And so when Epic does that, they have to go to Google because Google has the hardware connection, right to the human being. But really, it’s not a hardware conversation. It’s about the connection to the audience. Epic by doing this is attacking exactly how Google makes money and now Apple, too, post iTunes. It wasn’t about the iPod, it was about iTunes. It was about the relationship for selling software. So they’re going right after these big company’s sources of profit. As far as drafting goes, you know, pardon me, it’s going to be very rare that the viewer of this show is going to be writing an agreement like this for a giant like Google. So thinking about that specific environment. But you see a lot of software companies now, you know, platform is the new black, right, as they say. The idea is that you want to be the marketplace, you want to be the central point. So there are going to be lawyers who are watching this, who are trying to draft in a way that gives somebody those marketplace or those platform kind of advantages. What do you see in this experience that can help that lawyer that’s drafting this to say, you know, trouble is going to come if we get too big—you know, but we’re not all going to become Google. Here’s how I can learn from this Google experience to draft better the kinds of agreements that I’m writing for my-sized company.
Arianna Mendez So I think any drafting changes have to come from the stakeholders, right? So the stakeholders have to make policy changes in order for the drafting to reflect that. For example, Apple is already making changes, they’re allowing app developers to contact users directly and maybe offer cheaper alternatives to their marketplace to purchase these add-ons. So as those changes happen on the corporate level and the C-suite gets their head together and decides these are the next steps, lawyers like me can look at agreements like this and start fleshing out provisions that include language there that protects the company from violations of that new policy in the future.
Mike Whelan Well, it’s an exciting and dramatic and ongoing problem as we talk about it. This is like the one lawsuit that my kids will have a conversation with me about. You know, this is the one time that they’re like, okay, I can talk to Dad now. Because otherwise, I’m just useless to them. But this is an interesting one for people who want to learn more about your work, the litigation of these kinds of cases, how to draft better to avoid litigation later. What’s the best way to connect with you, Arianna?
Arianna Mendez Definitely on my Instagram at amendezlaw, we are updating there constantly and I have videos like this talking about different topics. So it’s a lot of fun both in English and Spanish.
Mike Whelan Awesome. Well, we’ll include a link to that as well as this document and a couple of articles about the story and what’s going on with the cases over at Law Insider dot com slash resources. And if you want to be a guest on The Contract Teardown Show, just email us. We’re at community at law insider dot com. I’d love to hang out with you. And until next time, we will hang out and learn more. I’m going to go play a video game. Thanks, Arianna. Yeah, I’m going to go.
Arianna Mendez Bye Mike, take care!