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Sunday, June 26, 2022

A new ruling could change the mobile app ecosystem forever.

On Friday, a federal court in Oakland, California, ruled that Apple does not maintain an illegal monopoly through its App Store, but that its anti-steering rules (which forbid developers to direct users to third-party payment systems) are anticompetitive and must be changed. Though the rest of the ruling is mostly a win for Apple, the striking down of its anti-steering rules will likely have a substantial effect on its profits—and the mobile app ecosystem at large. The company’s shares fell by 2.8 percent after the court handed down the ruling.

Epic, the developer of the blockbuster mobile game Fortnite, brought the suit against Apple in August 2020 as part of a tit for tat between the two companies over how the App Store handles payments. Under Apple’s rules, all in-app payments must be made through its own processing system, which typically takes a 30 percent cut of the proceeds. Epic also alleged that Apple is operating an illegal monopoly and that it must allow downloads of third-party apps from places other than the App Store.

Judge Yvonne Gonzalez Rogers mostly sided with Apple, ruling in favor of the company on all counts except one. For that final count, Rogers found that by barring apps from directing users to other payment systems, Apple was violating California’s Unfair Competition law. She issued a permanent injunction dictating that the App Store must allow developers to inform users on ways make purchases outside the company’s own payment system. “The Court concludes that Apple’s anti-steering provisions hide critical information from consumers and illegally stifle consumer choice,” Rogers wrote in her decision.

Nevertheless, Apple promptly declared victory. “Today the Court has affirmed what we’ve known all along: the App Store is not in violation of antitrust law,” a statement from Apple reads in part. “As the Court recognized ‘success is not illegal.’ ”

Epic CEO Tim Sweeney wrote in a tweet, “Today’s ruling isn’t a win for developers or for consumers. Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers.” The company has said it will appeal. There’s a decent chance that Apple will also try to appeal the injunction.

The suit began after Epic’s talks with Apple about the 30 percent in-app payment fee came to an impasse. Epic declared war when it unilaterally issued an update to Fortnite allowing users to purchase the in-game currency V-bucks directly from the company, thus bypassing Apple’s commission fee. Apple shot back by kicking Fortnite off of the App Store and blocking updates to the game, at which point Epic went ahead and sued. At around the same time, the gaming company launched a PR campaign against Apple that included a parody of the device-maker’s famous “1984” ad. Apple then filed a counter suit accusing Epic of breaching its contract by making the update.

Over the course of the three-week trial in May, Epic argued that Apple was breaking anti-competition rules by maintaining its payment policy, and also sought to force iOS to host competitors’ online stores. Epic is seeking to get its Epic Games Store onto iPhones and iPads, though that currently isn’t allowed under Apple’s rules. The lineup of witnesses included Apple CEO Tim Cook, who argued that allowing third-party developers to use their own payment systems and put their own online stores on Apple devices would threaten users’ privacy and safety. Emails released through discovery as part of the trial gave the public a behind-the-scenes peek at Apple’s inner workings, revealing that the company apparently failed to contact users affected by the largest known iPhone hack and that it was willing to bend its payment rules for partners like Netflix.

Aside from the injunction, Rogers further ruled that Epic will have to pay at least $4 million in damages to Apple for breaching the contract. However, the prohibition on Apple’s anti-steering provisions could potentially cost the company billions. This would allow, say, Netflix to link to its own payment system inside of its app that costumers could use instead of Apple’s. The ruling could also have impacts on other marketplaces besides the App Store, such as the Google Play Store, which is fighting off a lawsuit that Epic brought on similar grounds.

So what happens now? As of Friday afternoon, it’s unclear. Epic asked Apple on Thursday to restore Fortnite on iOS in South Korea. Apple denied the request, saying that it would only let Epic resume operations on its devices if the game developer agrees to its rules. Epic also still has suits against Apple open in the U.K., Australia, and the European Union.


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