A federal judge ordered Apple on Friday to crack open the tightly controlled App Store and “steer” people using apps to payment methods other than Apple’s own processor, which usually collects a 30% commission on app purchases.
The decision by U.S. District Judge Yvonne Gonzalez Rogers is the most significant strike yet against Apple’s commission, something critics call “the Apple tax.” It could force the tech giant to revamp its entire business model for apps on iPhones and iPads.
Gonzalez Rogers declared that Apple is violating the law by blocking consumers from accessing other payment methods. She wrote that Apple’s policies “hide critical information from consumers and illegally stifle consumer choice.” Along with what she called the tech giant’s “incipient antitrust violations,” she ordered that Apple make changes within 90 days.
But she did not go as far as Fortnite maker Epic Games, which sued Apple, had hoped in loosening Apple’s grip on a big part of the $100 billion mobile gaming economy.
Moreover, Gonzalez Rogers ordered Epic to pay Apple a fee for violating App Store policies last year. Epic had introduced its own payment method within Fortnite. Apple kicked it out of the App Store, setting the legal battle into motion.
“Today’s ruling isn’t a win for developers or for consumers,” Epic Games CEO Tim Sweeney tweeted, adding that his company was fighting for “fair competition among in-app payment methods and app stores.”
Curiously, both Epic and Apple found parts of the decision to celebrate.
In a statement, Apple seized on one part of Gonzalez Rogers’ 185-page ruling. She had declared the “relevant market” in the case to be digital mobile gaming transactions. And in that market, she concluded, Apple does not have monopoly power, given the many other competitors, noting that “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,” an Apple spokesman said.
An Epic spokesperson said the company is appealing the ruling. Apple said it is “considering all legal options.”
Apple made concessions to app developers ahead of the ruling
Apple recently extended an olive branch to some developers, including Netflix and Spotify, by letting them send messages to customers directing them to payment processors outside the App Store. Apple did not apply the new rule to mobile games, the most lucrative segment of apps for the company.
Gonzalez Rogers’ decision forces Apple to go much further by allowing developers, directly within their apps, to steer customers to alternative payment methods. She said Apple must make this change for all of the millions of apps available in the App Store.
The ruling comes after a three-week trial that culminated in Apple CEO Tim Cook taking the witness stand. Cook defended the 30% commission Apple usually charges app makers whenever someone purchases an app through Apple’s App Store or when someone buys something in an app downloaded on an iPhone.
In the most dramatic moment of the trial, Gonzales Rogers drilled into Cook about Apple’s commission rate, opening a line of questioning that seemed to track with Epic’s perspective that Apple’s closed system of downloading and processing payments in the App Store has cut out competition and led to higher prices and fewer choices for consumers.
“If there was real competition, that number would move. And it hasn’t,” Gonzales Rogers said of Apple’s 30% cut.
Apple said the revenue from that fee pays for safeguarding the privacy and security of apps. Google subjects developers to the same fee rate for app purchases on the company’s Android devices. In response to pressure, both Apple and Google lowered the commission to 15% for certain smaller developers, though the bulk of the money generated for the tech giants comes from fees levied on large app developers.
Big Tech companies face multiple antitrust lawsuits
Courts have emerged as a key battlefield between tech giants and their critics, while lawmakers and regulators in Washington debate ways to police the industry. The Justice Department and state attorneys general are reportedly investigating whether Apple’s App Store commission violates U.S. competition laws. And in Europe, regulators have launched a probe into whether the iPhone’s ironclad grip on the mobile economy violates European law.
Sweeney, the maverick CEO of Epic Games, had launched an all-out campaign against Apple after provoking the tech giant by offering Fortnite players a way to buy game items outside the App Store.
In response to breaking its rules, Apple kicked Fortnite out of the App Store. That led Epic to sue and launch a public relations campaign aimed at drumming up support for its crusade against Apple. Sweeney has long claimed he is not acting just for the benefit of his nearly $30 billion video game empire but for developers everywhere who feel squeezed by Apple.
“Everybody doesn’t have a great incentive to challenge Apple and Google’s 30% because they want to be the next bastard to charge 30%,” Sweeney told NPR last year.
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