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How Apple ordered to change App Store payments – Guide
Apple shares fell nearly 3% in Friday’s midday trading session after the decision. In a statement and subsequent press release, Apple framed the decision as a victory for the company and emphasized that the court found it not a monopolist.
“Today the Court affirmed what we’ve always known: the App Store does not violate antitrust law,” Apple said in a statement. “Apple faces stiff competition in every segment we do business in, and we believe that customers and developers choose us because our products and services are the best in the world.”
In a series of tweets, Epic Games founder and CEO Tim Sweeney said the company “will keep fighting”
“Today’s decision is not a win for developers or consumers. Epic is fighting for fair competition between in-app payment methods and app stores for a billion consumers,” Sweeney tweeted, continuing: “Fortnite will return to the iOS App Store when and where Epic can offer in-app payment in competition fair with Apple payment in the app, passing the savings on to consumers”.
An Epic spokesman confirmed the company plans to appeal the decision.
The fight started last August, when Apple kicked Fortnite out of the App Store for breaking its rules on in-app payments on the iPhone.
In a software update for Fortnite, Epic encouraged iOS gamers to purchase the in-game digital currency, known as V-Bucks, directly from Epic, rather than Apple’s in-app purchase system. To sweeten the deal, Epic offered a discount to anyone who purchased V-Bucks directly.
While consumers may have seen this as a loyalty bonus, Apple saw it as a gross violation of its contract with Epic and an attempt to undermine an important revenue stream. The iPhone maker pulled Fortnite off the App Store and Epic immediately opened what appeared to be a largely premeditated lawsuit.
In a litigation that began in May and lasted nearly a month, Epic argued that the App Store constituted a monopoly because it was the only way to access hundreds of millions of iPhone users, and that Apple hurt competition by banning other stores of apps or payment methods on your devices.
The game company emphasized that it is not seeking any monetary compensation from the lawsuit, but wants the judge to force Apple to relax some of those restrictions. “Epic is just looking to change Apple’s future behavior,” Apple CEO Tim Sweeney said at the booth.
Apple and its CEO Tim Cook sought to undermine that argument by pointing out that the iPhone is one of several devices that Fortnite users can play and buy V-bucks on, including Android smartphones (Epic is fighting Google in a similar lawsuit) and video game consoles such as the PlayStation and Xbox, many of which also do not allow alternative payment methods and charge similar commissions.
It is not illegal to have a monopoly under US law; it is just illegal to try to preserve a monopoly at the expense of competition.
Apple also justified its 30% commission by saying that earnings from in-app payments help improve the security and privacy of iPhone users, giving developers a large captive audience.
“We made a choice,” Cook told the judge. “Clearly, there are other ways to generate revenue, but we chose this one because, overall, it’s the best way.”
Apple’s commissions on in-app payments — often called the “Apple Tax” by developers — have been criticized by developers, lawmakers and regulators around the world for years. And while the Epic lawsuit is one of the highest profile legal challenges, it’s one of many just last year. Music streaming service Spotify and dating app Tinder’s parent company, Match Group, have been other notable antagonists, with the former facing Apple in the US and Europe for alleged anti-competitive behavior. in the first weeks up to verdict, Apple has made several adjustments to App Store policies in a possible attempt to avoid further criticism of its practices. At the final In August, the company announced a settlement in a class action that allows app developers to email their users about alternative payment methods.
A few days later, the company said it would further relax restrictions on “reader” apps — a designation that applies to companies like Spotify and Netflix that distribute media — and allow those apps to connect to external sites for users to define. up and manage accounts. This update, which will take effect in 2022, was in response to an investigation by the Japan Fair Trade Commission.
These changes received a skeptical reception from the main developers who hired Apple.
“This is a stark demonstration of their monopoly power: making capricious changes designed to spur good public relations for their benefit, as legislation, regulatory scrutiny and developer complaints are approaching them,” said a spokesperson for the Match Group in response to Apple’s class action agreement relaxing the developer email rules. “We hope everyone sees this for what it really is – a scam.”
Gonzalez Rogers on Friday ordered Apple to change that system, saying the company can no longer ban developers from directing users to external payment mechanisms.
The practical result of the 180-page order will likely be that Apple’s app store developers will no longer be required to use Apple’s in-app payment system to collect funds from iOS users., said Josh Davis, a professor of law at the University of California at San Francisco. He added that Apple will have to be careful how it implements the order to avoid contempt of court after the injunction takes effect in 90 days.
“They are not just free to characterize this order as they please,” he said.
Still, Stanford law professor Mark Lemley said it’s possible just a few big, well-known apps can benefit from no longer relying on Apple’s in-app payment system.
“For your regular app that I’m using, I never leave the app, I’m just using it on the phone,” he said. “But it opens up the possibility for those who can persuade you to go or to whom you are already going … they might say, ‘Hey, go buy yours downloads or your emotes through . ‘”
Gonzalez Rogers also ruled in Apple’s favor in a counterclaim that Epic violated the contract by subverting Apple’s in-app payment system and ordered the developer to pay damages equal to 30% of the $12,167,719 in revenue it collected from the iOS app. Provide between August and October 2020, plus 30% of any revenue earned with the application from November 2020 to the judgment date and interest.
Meanwhile, the pressure on Apple continues to increase. up, with the company still facing antitrust scrutiny from the US House and Senate, as well as regulators in the UK and Europe.
South Korea has already taken one of the toughest 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 that Apple did not violate federal antitrust law could increase pressure on US lawmakers to bring forward bills that would reform antitrust laws for tech giants.
“I imagine that opinion might increase the momentum behind these bills,” said UCSF’s Davis, “to the point where I can imagine lawmakers saying, ‘Wait, we all know Apple has market power. These technical details of the antitrust doctrine are kind of getting in the way. We need to reform the law’”.
Friday’s decision is expected to be appealed, and the case could drag on for several months or even years.
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