Judge Yvonne Gonzalez Rogers of the US District Court in the Northern District of California ruled on Friday that Apple had violated California’s Unfair Competition Law by forcing Fortnite and its maker Epic Games to use Apple’s payment systems on the App Store, with the iPhone maker extracting a 30 per cent commission on every in-app purchase in the process. She issued an injunction prohibiting Apple from requiring that developers use its own in-app payment system.
But Gonzalez Rogers sided with Apple on the suit’s other claims and said she could not conclude that the iPhone maker is a monopoly.
“Given the trial record, the Court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws,” court documents read. “Success is not illegal. The final trial record did not include evidence of other critical factors, such as barriers to entry and conduct decreasing output or decreasing innovation in the relevant market.”
The decision, which is almost certain to be appealed, came after a months-long legal fight that could change how we use our smartphones.
Apple’s stock was down nearly 3 per cent in midday trading Friday following the decision.
“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. “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.”
Epic Games did not immediately respond to a request for comment.
The fight began last August when Apple kicked Fortnite off the App Store for flouting its rules on in-app payments on the iPhone.
In a software update to Fortnite, Epic encouraged iOS players to buy the game’s digital currency, known as V-Bucks, directly from Epic, as opposed to through Apple’s in-app purchase system. To sweeten the deal, Epic offered a discount to those who bought V-Bucks directly.
While consumers may have viewed it as a loyalty bonus, Apple saw it as a gross violation of its contract with Epic and an attempt to undercut a key revenue stream. The iPhone maker booted Fortnite from the App store, and Epic immediately filed what appeared to be a largely premeditated lawsuit.
In a contentious trial that began in May and lasted nearly a month, Epic argued that the App Store constituted a monopoly because it is the only way to access hundreds of millions of iPhone users, and that Apple harmed competition by prohibiting other app stores or payment methods on its devices.
The gaming company stressed that it is not seeking any monetary compensation from the lawsuit but wants the judge to compel Apple to relax some of those restrictions. “Epic is solely seeking changes to Apple’s future behaviour,” the company’s CEO, Tim Sweeney, said on the stand.
Apple and its CEO Tim Cook sought to undercut that argument by pointing out that the iPhone is one of several devices where Fortnite users can play the game and buy V-bucks, including Android smartphones (Epic is fighting a similar lawsuit against Google) and video game consoles such as the PlayStation and Xbox, many of which also don’t allow alternative payment methods and charge similar commissions.
It’s not illegal to have a monopoly under US law; it’s only illegal to try to preserve a monopoly at the expense of competition.
Apple also justified its 30 per cent commission by saying the earnings from in-app payments help improve security and privacy for the iPhone users that give developers a massive captive audience.
“We’ve made a choice,” Cook told the judge. “There are clearly other ways to monetise, but we chose this one because this one overall is the best way.”
Apple’s commissions on in-app payments — often referred to by developers as the “Apple Tax” — have been under fire from developers, lawmakers, and regulators around the world for years. And while the Epic lawsuit is one of the more high-profile legal challenges, it is one of many just within the past year alone.
Music streaming service Spotify and dating app Tinder’s parent company Match Group have been other notable antagonists, with the former taking on Apple both in the United States and Europe over alleged anti-competitive behaviour.
In the weeks leading up to the verdict, Apple made multiple tweaks to App Store policies in a possible attempt to head off further criticism about its practices. In late August, the company announced a settlement in a class action lawsuit that allows app developers to email their users about alternative payment methods.
Just days later, the company said it will further relax restrictions on “reader” apps — a designation that applies to companies like Spotify and Netflix that distribute media — and allow those apps to link out to external websites for users to set up and manage accounts. That update, which will take effect in 2022, was in response to an investigation by Japan’s Fair Trade Commission.
Those changes have received a sceptical reception from the major developers taking on Apple.
“This is a raw demonstration of their monopolistic power: making capricious changes designed to spur good PR for their benefit right as legislation, regulatory scrutiny and developer complaints are closing in on them,” a Match Group spokesperson said in response to Apple’s class action settlement relaxing email rules for developers. “We hope everyone sees this for what it is — a sham.”
Gonzalez Rogers on Friday ordered Apple to change that system, saying the company can no longer prohibit developers from directing users to outside payment mechanisms. The order will take effect in 90 days.
However, she also ruled in Apple’s favour on a counterclaim that Epic was in breach of contract for subverting Apple’s in-app payment system and ordered the developer to pay damages equal to 30 per cent of the $12,167,719 in revenue it collected from the iOS Fornite app between August and October 2020, plus 30 per cent of any revenue it earned from the app from November 2020 through the date of the judgement, and interest.
Meanwhile, the pressure on Apple keeps piling up, with the company still facing antitrust scrutiny by the US Senate as well as regulators in the United Kingdom and Europe.
South Korea has already taken one of the most severe actions against Apple’s in-app payment restrictions, passing a law in early September that requires Apple and Google to offer alternative payment systems to their users in the country.
Gonzalez Rogers’ decision is expected to be appealed, and the case could drag on for several months or even years.
