Court ruling eases Apple restrictions on app developers
SAN RAMON — A federal judge ordered Apple to dismantle a lucrative part of the competitive barricade guarding its iPhone app store, but rejected allegations that the company has been running an illegal monopoly that stifles competition and innovation.
The ruling issued Friday continues to chip away at the “walled garden” that Apple has built around its crown jewel, the iPhone, and its app store, without toppling it completely.
The 185-page decision from U.S. District Judge Yvonne Gonzalez Rogers also provided Apple with some vindication. The judge didn’t brand Apple a monopolist or require it to allow competing stores to offer apps for iPhones, iPads and iPods.
Those were two of the biggest objectives sought by Epic Games, the maker of the popular Fortnite video game that filed what it hoped would be a landmark antitrust case last year after brazenly defying an exclusive payment system that funnels 15% to 30% of all in-app digital transactions on iPhones to Apple.
Such transactions can include everything from Netflix or Spotify subscriptions to the sale of digital items 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.
While parts of her decision raised questions about whether Apple’s fees were driving up prices for consumers, Gonzalez Rogers left the fee structure intact and upheld the company’s right to block other stores from offering apps for its iPhone.
But the judge did conclude Apple has been engaging in unfair competition under California law, prompting her to order the company to allow developers throughout the U.S. to insert links to other payment options besides its own within iPhone apps. That change would make it easier for app developers to avoid paying Apple’s commissions, potentially affecting billions of dollars in revenue annually.
The prospect of Apple taking a hit to its lofty profit margins rattled investors, causing the company’s stock price to fall by more than 3% in Friday’s trading. That downturn delivered an $80 billion blow to Apple’s market value.
Yet Apple did its best to frame the decision as a victory, even as it acknowledged it may appeal the portion of the ruling that will make it easier for app developers to sidestep Apple’s commissions.
“We are very pleased with the court’s ruling and we consider this a huge win for Apple,” said Kate Adams, the company’s general counsel. “This decision validates that Apple’s ‘success is not illegal,’ as the judge said.”
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, or 30% of the revenue it collected while violating Apple’s commissions. 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.
Since the trial ended, Apple has taken 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.
A bill introduced in Congress earlier this year proposes to obliterate Apple’s commission system and open up the market to more competition.
“Much more must be done,” said Sen. Amy Klobuchar, DMinn., who is pushing for app store reforms.
Although the figures were kept confidential during the trial, analysts have estimated that Apple’s app store division brings in $15 billion to $18 billion annually, helping to fuel the company’s rapidly growing services division. That division’s revenue has swelled from $24 billion in 2016 to $54 billion last year.