Apple Must Ease App Store Rules, U.S. Judge Orders, in a Blow to iPhone Maker

by sam


A U.S. federal judge struck down a core part of Apple Inc’s App Store rules on Friday, forcing the company to allow developers to send their users to other payment systems in a win for “Fortnite” creator Epic Games and other app makers.

But the judge did not require Apple to let app makers use their own in-app payment systems, one of Epic’s top requests, and allowed Apple to continue to charge commissions of 15% to 30% for its own in-app payment system.

Epic said it would appeal the ruling, with CEO Tim Sweeney tweeting that the ruling “isn’t a win for developers or for consumers.”

U.S. District Judge Yvonne Gonzalez Rogers described her ruling as requiring a “measured” change to Apple‘s rules. Analysts said the impact may depend heavily on how the iPhone maker chooses to implement the decision.

The ruling vastly expands a concession made to streaming video companies last week allowing them to direct users to outside payment methods. The decision expands that exemption to all developers, including the game developers who are the biggest cash generators for Apple‘s App Store, which itself is the foundation of its $53.8 billion services segment.

The judge ruled that Apple can no longer bar developers from providing buttons or links in their apps that direct customers to other ways to pay outside of Apple‘s own in-app purchase system. The ruling also said Apple cannot ban developers from communicating with customers via contact information obtained by the developers when customers signed up within the app.

The ruling comes after a three-week trial in May before Gonzalez Rogers of the U.S. District Court for the Northern District of California.

Apple shares were down 2.5% on Friday afternoon, shaving $63 billion off the company’s market value.

Gonzalez Rogers stopped short of granting Epic some of its other wishes, such as forcing Apple to open the iPhone up to third-party app stores.

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.”

In a media briefing, Apple‘s legal team said it does not believe the ruling requires it to allow developers to implement their own in-app purchase systems. Apple officials said the company is still debating how it will implement the requirements of the ruling and whether it will appeal.

The judge sided with Apple on key questions such as defining the relevant antitrust market as gaming transactions, rejecting Epic’s argument that the iPhone is its own app market over which Apple is a monopolist.

“Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers,” Epic’s CEO, Sweeney, said on Twitter. “We will fight on.” The Epic lawsuit began after the game maker inserted its own in-app payments system in “Fortnite.”


Challenges to Apple‘s App Store rules are far from over. Lawmakers in the United States and Europe are drafting bills that would change them. U.S. Senator Amy Klobuchar, the Minnesota Democrat who coauthored one of the bills, said the ruling addresses some of her concerns but that “more must be done.”

“We need to pass federal legislation on app store conduct to protect consumers, promote competition, and foster innovation,” Klobuchar said in a statement.

While Gonzalez Rogers did not find that Apple is a monopolist, she found that the trial showed Apple was violating California state competition laws with its “anti-steering” rules around payments.

“When coupled with Apple’s incipient antitrust violations, these anti-steering provisions are anticompetitive and a nationwide remedy to eliminate those provisions is warranted,” Gonzalez Rogers wrote.

John Newman, a law professor at the University of Miami, said the ruling leaves open avenues for U.S. regulators to challenge Apple in court. Reuters has previously reported that the U.S. Department of Justice is probing the iPhone maker.

The orders follow Apple‘s agreement last week with the Japan Fair Trade Commission, under which it eases rules for “reader” apps like Netflix Inc to provide a link to customers to sign up for a paid account outside of the app. Games are a larger portion of Apple‘s sales.

The precise financial impact to Apple is difficult to gauge immediately. On the one hand, only game makers like Epic with a well-known brand such as “Fortnite” can entice users to go through the extra steps of signing up to pay outside an app. At the same time, those large brands bring in the majority of Apple‘s game-related revenue.

“There’s only a handful of games that can pull this off,” said Ben Bajarin, head of consumer technologies at Creative Strategies. “To some degree, Apple could make it so that its in-app payments are still the easiest to use. It comes down to the implementation.”

Shares of Alphabet Inc, whose Google unit operates an app store for Android smartphones, reversed an earlier gain and were down 1.7% on Friday afternoon. Epic also is suing Google over rules blocking alternative payment systems, and the Play Store’s restrictions against apps promoting those other options are now under greater threat. Google declined to comment.

Shares of videogame makers that offer their games on Apple‘s app store rallied. Zynga Inc surged 7.4%, while Electronic Arts Inc and Activision Blizzard both rose by about 3%.

(Reporting by Nivedita Balu in Bengaluru, Stephen Nellis and Noel Randewich in San Francisco, Diane Bartz in Washington, Jan Wolfe and Jonathan Stempel in New York and Paresh Dave in Oakland, Calif.Editing by Patrick Graham, Peter Henderson and Matthew Lewis)

Copyright 2021 Thomson/Reuters