Google and Epic Games Settle Federal Antitrust Battle Over the Play Store

Report from Bloomberg

In Brief – Google and Epic Games have agreed to settle their long-running antitrust battle over the rules and fees of the Android Play Store, with Google agreeing to implement changes both sides say will lower fees and expand choices for developers and consumers. The two sides are asking District Judge James Donato to approve the settlement to resolve Epic’s 2020 antitrust lawsuit that accused Google of monopolizing Android app downloads and in-app payments. A jury fully sided with Epic in 2023 and Judge Donato imposed a sweeping nationwide injunction ordering major changes to the Play Store that Google appealed. Google and Epic have now agreed on a modified set of rules that allow users to more easily download and install third-party app stores that meet security and safety standards, while developers will be allowed to direct users to alternative payment methods both within apps and via external web links. Google said it would implement a capped service fee of either 9% or 20% on transactions in Play-distributed apps that use alternative payment options. Of note, where Donato’s injunction only applied in the US and for three years, the settlement applies for six years with the fee levels being global. Epic Games CEO Tim Sweeney, who has been personally engaged in the company’s legal and regulatory campaign to change the Apple and Google mobile ecosystems and lower both company’s fees, called the agreement “awesome”.

Context – Epic’s 2020 antitrust lawsuits against Apple and Google opened a global lobbying and litigation campaign to drive down their fees. Apple, despite earning more money from developers and running a closed system largely prevailed, while Google, with a more open ecosystem, lost. However, Apple did lose on a single complaint involving California’s Unfair Competition Law and eventually was hit with an injunction at least as restrictive as the one Google faced after losing across the board. Apple is still appealing. Globally, both companies face similar demands in Europe, Japan, South Korea and India, with each new result feeding more.

Character.AI Setting an 18-Year-Old Age Limit for Its Companion Chatbots

Report from New York Times

In Brief – AI “companion” company Character.AI has announced that they will bar users under 18 from its chatbots in a sweeping move to address concerns over teen safety. The move follows mounting scrutiny over how AI chatbot companions can affect mental health. Character.AI users currently self-report their age. Those who have indicated to the company that they are under 18 will immediately face a daily chat limit of two hours that will gradually shrink to zero on November 25. Users under 18 will still be able to generate AI videos and images through a structured menu of prompts, within certain safety limits. The company also says that they have been developing age verification technology in house, and it said it will combine that age assurance capability with services from third-party providers. Character.AI's chief executive said, “We’re making a very bold step to say for teen users, chatbots are not the way for entertainment, but there are much better ways to serve them,” and that they planned to establish an AI safety lab.

Context – Alleged harms to young users from engaging with AI “companions” has emerged as an AI version of the worst of social media. Social media platforms have largely been shielded from liability caused by user-generated content by Sec. 230, so that industry’s critics have been resorting to legislation and lawsuits targeting allegedly addictive platform characteristics like auto-play and algorithmic feeds. It’s an open question whether Sec. 230 applies to generative AI services. Supreme Court Justice Gorsuch has opined that it probably does not, as have Sec. 230’s congressional authors. But an argument can be made that everything created by a generative AI chatbot is just an algorithmic re-ordering of existing third-party content. California recently enacted a law requiring companion chatbot developers to implement safeguards so that users are not misled into believing that they are interacting with a human, but Governor Gavin Newsome (D) vetoed a separate bill that required companion companies to block those under 18 if they could not guarantee that their chatbots would block objectionable content.

Apple in European Court Because the DMA Outlaws Apple’s Business Model

Report from Bloomberg

In Brief – In a hearing before the EU General Court in Luxembourg, Apple launched a sweeping legal attack against the EU’s Digital Markets Act (DMA), arguing that the bloc’s landmark Big Tech regulation imposes “hugely onerous and intrusive” burdens on the company and conflicts with fundamental property, privacy, and security protections under EU law. The landmark 2023 law seeks to curb the dominance of digital “gatekeepers” by imposing a collection of regulatory mandates, including opening their ecosystems to rivals products and services. Apple contends that these interoperability mandates, such as forcing its iPhone to work with competitors’ hardware and software, pose serious risks to user privacy, device security, and intellectual property. The company also disputes regulators’ classification of its App Store as a separate service under the DMA. The company has already been hit with a €500 million fine for app store policies and fees. The EU Commission defended the law to the judges, accusing Apple of maintaining “absolute control” over the iPhone ecosystem to generate “supernormal profits” while hindering competition. They argued that Apple’s restrictive practices effectively “lock in” more than a third of European smartphone users, reinforcing the need for the EU’s tough gatekeeper rules.

Context – We’ve long said that the DMA challenges Apple’s core user proposition more than the other tech giants. The others generally use technical and non-transparent practices to shape their platforms. Apple’s business model has been to create openly structured and controlled “walled gardens” with customer value propositions based on privacy, security, and seamless premium user experiences. And their devices consistently proved very popular with EU users. The DMA basically told the company that its highly successful business model was no longer legal in Europe. Meta, themselves a major critic of Apple’s walled gardens, feels equally hard done by as the Commission has used the DMA to force the company, with a business built on targeted ads, to offer free versions of its platforms that only include less-targeted, and therefore less-valuable, ads.