Google to Pay $700 Million to U.S. States in App Store Settlement

Google has agreed to pay $700 million and make several other concessions to settle allegations that it had been stifling competition against its Android app store — the same issue that went to trial in another case that could result in even bigger changes.

Although Google struck the deal with state attorneys general in September, the settlement’s terms weren’t revealed until late Monday in documents filed in San Francisco federal court. The disclosure came a week after a federal court jury rebuked Google for deploying anticompetitive tactics in its Play Store for Android apps.

[time-brightcove not-tgx=”true”]

The settlement with the states includes $630 million to compensate U.S. consumers funneled into a payment processing system that state attorneys general alleged drove up the prices for digital transactions within apps downloaded from the Play Store. That store caters to the Android software that powers most of the world’s smartphones.

Like Apple does in its iPhone app store, Google collects commissions ranging from 15% to 30% on in-app purchases — fees that state attorneys general contended drove prices higher than they would have been had there been an open market for payment processing. Those commissions generated billions of dollars in profit annually for Google, according to evidence presented in the recent trial focused on its Play Store.

Eligible consumers will receive at least $2, according to the settlement, and may get additional payments based on their spending on the Play store between Aug. 16, 2016 and Sept. 30, 2023. The estimated 102 million U.S. consumers who made in-app purchases during that time frame are supposed to be automatically notified about various options for how they can receive their cut of the money.

Another $70 million of the pre-trial settlement will cover the penalties and other costs that Google is being forced to pay to the states.

Although Google is forking over a sizeable sum, it’s a fraction of the $10.5 billion in damages that the attorneys general estimated the company could be forced to pay if they had taken the case to trial instead of settling.

Google also agreed to make other changes designed to make it even easier for consumers to download and install Android apps from other outlets besides its Play Store for the next five years. It will refrain from issuing as many security warnings, or “scare screens,” when alternative choices are being used.

The makers of Android apps will also gain more flexibility to offer alternative payment choices to consumers instead of having transactions automatically processed through the Play Store and its commission system. Apps will also be able to promote lower prices available to consumers who choose an alternate to the Play Store’s payment processing.

Investors seemed unfazed by the settlement as shares in Google’s corporate parent, Alphabet Inc., rose slightly in Tuesday’s midday trading.

The settlement represents a “loud and clear message to Big Tech — attorneys general across the country are unified, and we are prepared to use the full weight of our collective authority to ensure free and fair access to the digital marketplace,” said Connecticut Attorney General William Tong.

Wilson White, Google’s vice president of government affairs and public policy, framed the deal as a positive for the company, despite the money and concessions it entails. The settlement “builds on Android’s choice and flexibility, maintains strong security protections, and retains Google’s ability to compete with other (software) makers, and invest in the Android ecosystem for users and developers,” White wrote in a blog post.

Although the state attorneys general hailed the settlement as a huge win for consumers, it didn’t go far enough for Epic Games, which spearheaded the attack on Google’s app store practices with an antitrust lawsuit filed in August 2020.

Epic, the maker of the popular Fortnite video game, rebuffed the settlement in September and instead chose to take its case to trial, even though it had already lost on most of its key claims in a similar trial targeting Apple and its iPhone app store in 2021.

The Apple trial, though, was decided by a federal judge instead of the jury that vindicated Epic with a unanimous verdict that Google had built anticompetitive barriers around the Play Store. Google has vowed to appeal the verdict.

Corie Wright, Epic’s vice president of public policy, derided the states’ settlement as little more than a one-time payout that provides “no true relief for consumers or developers,” in a blog post.

In court documents, the attorneys general said they decided to settle because of significant risks posed by a trial, including the possibility that a jury may have thought their plan to seek $10.5 billion in damages was exorbitant. The attorneys general also cited for the potential of jurors becoming confused had their case been presented alongside Epic’s claims in the trial, as had been the original plan.

But now the Epic trial’s outcome nevertheless raises the specter of Google potentially being ordered to pay even more money as punishment for its past practices and making even more dramatic changes to its lucrative Android app ecosystem.

Those changes will be determined next year by U.S. District Judge James Donato, who presided over the Epic Games trial. Donato also still must approve Google’s Play Store settlement with the states.

“In the next phase of the case, Epic will seek meaningful remedies to truly open up the Android ecosystem so consumers and developers will genuinely benefit from the competition that U.S. antitrust laws were designed to promote,” Wright pledged.

Google faces an even bigger legal threat in another antitrust case targeting its dominant search engine that serves as the centerpiece of a digital ad empire that generates more than $200 billion in sales annually. Closing arguments in a trial pitting Google against the Justice Department are scheduled for early May before a federal judge in Washington D.C.