Judge Orders Apple to Let App Developers Direct Users to Other Payment Systems, Epic Games to Appeal Ruling in Case

Court's decision found Apple's App Store is not a monopoly and 30% commission is justified

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UPDATED: A federal judge issued a permanent injunction barring Apple from preventing developers from promoting other forms of in-app payment in their iOS apps, in a limited victory for Epic Games, which had sued the tech giant over its App Store policies.

The injunction is scheduled to take effect Dec. 9, which is 90 days from the issuance of the order Friday, unless the ruling is overturned.

However, the court did not find evidence that Apple’s App Store represents a monopoly. In addition, the judge denied Epic’s request that Apple reinstate “Fortnite” to the App Store and ruled that Apple’s termination of Epic’s App Store account was “valid, lawful and enforceable” because the games company was in breach of its contract with Apple. Furthermore, Epic Games was ordered to pay $12.2 million in damages to Apple to account for the time it sold direct in-app purchases through the iOS version of “Fortnite” without paying the App Store’s 30% fee, plus 30% of any revenue Epic collected from Nov. 1 through the date of judgment.

Epic on Friday said it would appeal the ruling. Asked for comment, Epic reps pointed to a tweet by CEO Tim Sweeney, who was obviously disappointed with the outcome. “Today’s ruling isn’t a win for developers or for consumers,” Sweeney tweeted. “Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers.”

Sweeney added, “Fortnite will return to the iOS App Store when and where Epic can offer in-app payment in fair competition with Apple in-app payment, passing along the savings to consumers.”

In August 2020, Epic Games, creator of massively popular game “Fortnite,” sued over the 30% cut Apple takes on all in-app purchases and its policy that forbids outside payment methods. After Apple kicked “Fortnite” off the App Store, the game’s iOS players dropped 60% in less than a month, Epic has claimed.

Overall, Apple characterized the ruling as a major win. The company said it was carefully reviewing the full 180-page decision before taking next steps.

“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. We remain committed to ensuring the App Store is a safe and trusted marketplace that supports a thriving developer community and more than 2.1 million U.S. jobs, and where the rules apply equally to everyone.”

The judge in the case, U.S. District Court Judge Yvonne Gonzalez Rogers, determined that Apple violated California’s Unfair Competition Law.

“The court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws,” Gonzalez Rogers wrote in her opinion. “Nonetheless, the trial did show that Apple is engaging in anticompetitive conduct under California’s competition laws.”

According to the order issued Friday, Apple is permanently restrained and enjoined from “prohibiting developers from (i) including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and (ii) communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.”

The ruling does not require Apple’s App Store to directly embed alternative in-app payment systems.

In the decision, Gonzalez Rogers wrote that “Epic Games fails to quantify the actual cost to consumers on downloading and purchasing apps and in-app purchases.” She also rejected Epic’s claim that Apple has hiked prices: “Epic Games’ arguments that Apple has otherwise repeatedly increased prices does not persuade, where Apple’s rate has always been 30%.”

The judge also pointed out that Epic Games titles incur a 30% commission fee from console makers, and that the Epic Games Store commission model of an 88/12 split of revenue to developers from the sale of their games “is a below-cost price and the store is expected to operate at a loss for many years at this rate” designed for Epic to gain market share.

Apple is entitled to license its intellectual property for a fee, Gonzalez Rogers ruled, and the requirement of usage of the App Store’s in-app payment (IAP) system “accomplishes this goal in the easiest and most direct manner, whereas Epic Games’ only proposed alternative would severely undermine it. Indeed, to the extent Epic Games suggests that Apple receive nothing from in-app purchases made on its platform, such a remedy is inconsistent with prevailing intellectual property law.”

The ruling in the year-long case comes after Apple reached a settlement in a 2019 class-action lawsuit on behalf of app developers alleging that the tech giant’s App Store policies are anticompetitive and result in exorbitant fees. Under that agreement, Apple agreed to not block app developers’ efforts to communicate to users that they can use third-party payment platforms where Apple does not get a cut of sales — although Apple was still blocking such messaging within the apps themselves. The new injunction would require Apple to let app developers include links to non-Apple payment mechanisms in iOS apps directly.

In 2020, consumers worldwide spent $72.3 billion in the Apple App Store, up 30% year over year, according to estimates by research firm Sensor Tower.

The backlash among developers against Apple’s App Store “tax” and restrictive policies has blossomed into a larger political issue as lawmakers and regulators in the U.S. and abroad look to curb the economic power of huge tech companies, including Google. Bills have been introduced in the Senate and House that aim to force the two big app stores to relinquish their virtual monopoly control over the app ecosystem.

Spotify, which is part of the anti-Apple lobby group Coalition for App Fairness alongside Epic Games and other developers, cheered the part of the court’s decision preventing Apple from letting apps link out to alternative payment methods.

“We are pleased with Judge Yvonne Gonzalez Rogers’ finding that Apple engaged in anti-competitive conduct and has permanently prohibited their anti-steering provisions,” Spotify head of global affairs and chief legal officer Horacio Gutierrez said in a statement. “This and other developments around the world show that there is strong need and momentum for legislation to address these and many other unfair practices, which are designed to hurt competition and consumers. This task has never been more urgent.”

Consumer Reports’ Sumit Sharma, senior researcher for tech competition, called the decision as “a small, but important victory for consumers and the app store marketplace” but said such rulings can result in only piecemeal solutions. “Congress and federal regulators should take action to help balance the playing field and create a marketplace that is more fair and competitive for all,” Sharma said in a statement.

Epic also has sued Google over the same issue, as it applies to the Google Play store, a case that remains pending; “Fortnite” also has been booted from Google Play.