A U.S. federal judge struck down a core part of Apple Inc.’s App Store rules on Friday, forcing the company to allow developers to send their users to other payment systems in a win for Fortnite creator Epic Games and other app makers.
But the judge did not require Apple to let app makers use their own in-app payment systems, one of Epic’s top requests, and allowed Apple to continue to charge commissions of 15 per cent to 30 per cent for its own in-app payment system.
Epic said it would appeal the ruling, with CEO Tim Sweeney tweeting that the ruling “isn’t a win for developers or for consumers.”
U.S. District Judge Yvonne Gonzalez Rogers described her ruling as requiring a “measured” change to Apple’s rules. Analysts said the impact may depend heavily on how the iPhone maker chooses to implement the decision.
Apple shares dropped on news of the ruling and were down by more than two per cent or $4 US in Friday afternoon trading, reflecting investor fears that the ruling would siphon away billions of dollars in annual revenue from the company.
The legal battle targeted commissions of up to 30 per cent that Apple charges on digital transactions within apps. Such transactions can include everything from Netflix or Spotify subscriptions to the sale of digital item such as songs, movies or virtual tchotchkes for video games.
Epic cast that highly lucrative fee as a price-gouging tactic that wouldn’t be possible if competing stores were allowed to offer iPhone apps.
Although the ruling requires Apple to make some changes in its app store, it also upheld the company’s right to block other stores from offering apps for its iPhone.
‘Success is not illegal’
She sided with Apple on every other key point of the case, and in particularly didn’t find the company is operating an illegal monopoly as Epic had charged.
“As the Court recognized `success is not illegal,'” Apple said in a statement. “Apple faces rigorous competition in every segment in which we do business, and we believe customers and developers choose us because our products and services are the best in the world.”
The Cupertino, Calif., company didn’t say whether it would appeal the injunction requiring that iPhone app developers be allowed to offer other payment options.
Gonzalez Rogers also dealt Epic a blow by ruling that the game maker breached its contract with Apple when Fortnite added a non-Apple payment system to its app. That defiance prompted Apple to oust Fortnite from its app store 13 months ago, triggering Epic’s lawsuit.
She ordered Epic to pay Apple nearly $3.7 million US, or 30 per cent of the revenue it collected while violating Apple’s commissions.
Epic, a privately held company based in Cary, N.C., didn’t immediately respond to a request for comment. But Epic CEO Tim Sweeney denounced the ruling in a tweet, writing that it “isn’t a win for developers or for consumers.”
He said Fortnite will return to Apple’s app store once it can offer competitive in-app payments.
“We will fight on,” he added in a subsequent tweet.
The 185-page ruling caps a trial focused on one of the pillars holding up Apple’s $2-trillion empire — one that Apple’s late co-founder Steve Jobs began to shape 20 years ago.
Since that trial ended three months ago, Apple has taken two steps to loosen some of its app store rules — one to settle a lawsuit and another to appease Japanese regulators without altering its commissions. Those concessions make it easier for many apps to prod their users to pay for digital transactions in ways that avoid triggering Apple’s fees.
Now Gonzalez Rogers is ordering Apple to go even further by allowing links and buttons for non-Apple payment options directly within apps, something Apple has steadfastly resisted.
Apple also maintains that blocking other payment links within apps helps protect the security and privacy of people using its iPhones, iPads and iPods.
FACTBOX: Highlights from the case
Epic CEO Tim Sweeney said Apple exercised “total control over” all software on iOS when he testified in May, and that he knew he was breaking Apple’s App Store rules by putting Epic’s own in-app payment system into the game. Apple countered it was simply trying to protect the security and privacy of its one billion iPhone users.
Experts make the case that Apple’s iPhone users are so loyal that the device constitutes a single-brand market. Apple has long argued that it is a minority player in thriving markets, but a decision otherwise could have far reaching implications for its business.
Apple made at least $100 million — and likely more — from Fortnite in just two years, showing how lucrative the App Store model can be for the iPhone maker.
Gonzalez Rogers questioned Apple Chief Executive Tim Cook, pressing him to concede that game developers generate most App Store revenue and help subsidize other apps on the store that pay no commission.
Epic has asked the judge to order Apple to allow users to put third-party software onto their iPhones and ease its in-app payment rules.
Apple saved Cook to be its star closing witness, but then Judge Gonzalez Rogers grilled him hard enough to throw the normally unflappable Cook off balance.
When Gonzalez Rogers cited a survey that found 39 per cent of software developers were unhappy with Apple’s app distribution services, Cook replied that “we turn the place upside down” to respond to developer complaints. He later conceded that he does not receive regular reports on how developers feel about working with Apple.
Gamers voice out
In an effort to make the trial accessible to the media and the public, Gonzalez Rogers set up audio-only phone lines that
both groups could dial into, but the effort was hamstrung by the aging technology available to underfunded federal courts.
Through the trial, the masking and Plexiglas required by COVID-19 precautions made some witnesses — including Sweeney — almost unintelligible on the phone lines.
During the first day of trial, when the court’s staff, struggling to get the lines working, inadvertently left the public lines unmuted, it revealed a cacophony of chatter from Fortnite fans who had dialed in, including some foul language
and commentary such as, “if Apple wins, destroy all your Apple devices!”