Judge Loosens Apple Stranglehold on App Developer Profits

Apple’s notoriously strict terms of doing business in its App Store appear to be loosening. A federal judge has ordered the company to allow developers to offer customers alternative payment methods after ruling that all payments go through Apple violate California’s unfair competition laws. Apple is ordered to within 90 days begin allowing developers to include in their apps payment links to processors other than the App Store. Developers now see a path to avoid handing Apple commissions of up to 30 percent for handling sales through the $100 billion online market. 

The order by judge Yvonne Gonzalez Rogers of U.S. District Court for the Northern District of California came at the close of a legal battle between Apple and Epic Games, maker of “Fortnite.” Last year, Epic sued Apple over its App Store policies. While either company may appeal, if the ruling sticks smaller companies that do business through the App Store may have a path to keep more of their profits.

The court’s decision is a loss for Apple, which is facing increased scrutiny about business practices from lawmakers around the world. In the past month, regulators in Japan and South Korea demanded Apple change App Store management practices, and the company is also the focus of inquiry in the European Union, Britain and India.

Last year, the U.S. Senate wrote “Apple exerts monopoly power in the mobile app store market” and introduced an antitrust bill geared toward app sales practices. In June, it leaked that the Justice Department had opened an antitrust investigation into the Cupertino-based company, an investigation Bloomberg said began during the Trump administration.

Apple “was enjoying a tremendous advantage because of the popularity of its platform, and that advantage has been whittled away now,” explained MoginRubin partner Jonathan Rubin, as reported by The New York Times. Now, when customers purchase games, subscriptions or other digital services from the App Store they can be directed to a third party for payment, avoiding part or all of Apple’s commission on the sale.

The judge’s decision fell short of declaring Apple a monopolist in the mobile games market. She also ruled Epic Games breached its Apple contract last year when it programmed its iPhone app to accept direct payment from “Fortnite” customers.

Epic’s chief executive Tim Sweeney wrote on Twitter that the ruling does not go far enough because it stopped short of allowing developers to complete in-app transactions within their own apps or websites, offering only a third-party payment system alternative to Apple. He said “Fortnite” would withdraw from business in the App Store until those restraints were removed.

“Today’s ruling isn’t a win for developers or for consumers,” he said. “We will fight on.”

“Today the court has affirmed what we’ve known all along: The App Store is not in violation of antitrust law,” Apple said in a statement. “As the court recognized, ‘Success is not illegal.’ 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.”

Related:
A Nick to Apple’s Profits Could Be a Windfall for App Developers, The New York Times, 9/11/21