Apple’s Stranglehold on In-App Purchases Smacked Down in Epic Court Decision

Apple’s Stranglehold on In-App Purchases Smacked Down in Epic Court Decision
The Apple logo on an iPhone alongside the Epic Games logo on a laptop, April 2021. (Photo: Andrew Caballero-Reynolds / AFP, Getty Images)

The federal judge overseeing the antitrust lawsuit brought by Epic Games against Apple, United States District Judge Yvonne Gonzalez Rogers, has issued a permanent injunction that will serve as a massive blow to the walled-garden business model of Apple’s App Store.

At issue was Apple’s practice of forcing iOS app developers to give the tech giant a 30% cut of the revenue from each and every subscription or purchase and its prohibition on apps linking to third-party payment services. In the injunction, the court found that Apple will now be required to allow developers to direct users to third-party payment processors, meaning developers can now collect revenue directly, and can no longer disallow developers from using account registration data to contact users outside the app. Per the injunction:

[Apple will be] … permanently restrained and enjoined from prohibiting developers from 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.

Apple and Epic have been locked in a bitter, years-long feud over the App Store model, which Epic claimed was an anti-competitive abuse of Apple’s monopoly on iOS devices. Epic, the developer of the wildly popular Fortnite, tried to break out of Apple’s control by installing a third-party payment option in the game in August 2020. Apple subsequently responded by blacklisting Fortnite from the App Store, triggering the massive legal battle that blew up in its face today.

The injunction is a major win for developers, but it’s very far from a complete victory. Gonzalez Rogers ruled against the gaming company on every single other count, finding that while Apple violated California’s Unfair Competition law, the case did not establish Apple to be an illegal monopolist. The court ruled in favour of Apple’s counterclaim against Epic for breach of conduct, meaning Epic has to shell out $US3.65 ($5) million, or 30% of the revenue it collected between the August 2020 rollout of its non-Apple payment portal and October 2020.

Apple is also under no obligation to let Fortnite back on the App Store. On Thursday, Apple shot down Epic’s request to at least let it return to the official iOS store in South Korea, which had passed a law mandating Apple and Google remove prohibitions on alternate payment systems.

Epic, whose real aim in the case was always winning the right to open their own competing iOS store, has expressed its displeasure that the ruling didn’t go much farther. Tim Sweeney, the CEO and founder of Epic, tweeted that it wasn’t “a win for developers or consumers” and that the company is “fighting for fair competition among in-app payment methods and app stores for a billion customers.” He added Fortnite wouldn’t be returning to the App Store until there was “fair competition with Apple in-app payment and app stores” that would allow them to cut prices for players.

The injunction will take effect in 90 days. Apple could, and likely will, appeal the decision.

In an emailed statement to Gizmodo, an Apple spokesperson wrote, “Today the Court has affirmed what we’ve known all along: the App Store is not in violation of antitrust law. As the Court recognised ‘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 Apple spokesperson added.

In late August, Apple had already proposed a settlement in a separate lawsuit that would have allowed developers to use registration data such as email to inform users of ways to pay outside the App Store — which would serve as a workaround of sorts to shelling out nearly a third of every transaction to Apple but would be a far cry from the kind of changes ordered by the new injunction. In a settlement in yet another case with the Japan Fair Trade Commission announced last week, Apple conceded that it would allow developers of subscription-based apps that provide content like movies, music, newspapers, and e-books to link within the app to other payment portals. However, that settlement did not cover iOS games — a massively lucrative market for in-app purchases.

It’s not clear, as of this moment, how wide the ramifications will be beyond the App Store specifically. Google, which also booted Fortnite from its Play Store in response to Epic’s moves, is facing a similar lawsuit that has yet to be resolved.

As flagged by the Verge, Gonzalez Rogers also resolved another baffling dispute in the case: Whether or not the Fortnite character Peely the banana, who is technically naked because his bare peel is his skin, would have to wear clothes while appearing in court. The issue arose when an Apple attorney cross-examining an Epic executive quipped that Apple had opted to show Peely wearing a tuxedo in his “Agent Peely” cosmetics, as it was more appropriate for federal court. (No one wears tuxedos to court but My Cousin Vinny, but hey.) An attorney for Epic, responding to the joke, later asked the executive if there is “there anything inappropriate about Peely without clothes,” to which he responded, “It’s just a banana man.”

Gonzalez Rogers wrote in an aside in the ruling that the court agreed that “as Peely is ‘just a banana man,’ additional attire was not necessary but informative.” So that’s settled.

This is a breaking news story and will be updated…