A district judge in California ruled Friday that Apple could no longer prohibit app developers from using non-Apple payment options or in-app purchases. The decision is a significant loss for the world’s most profitable company, and could end up taking a multibillion-dollar bite out of Apple’s App Store revenue — and comes amid rising regulatory scrutiny of Apple and other tech heavyweights both in the U.S. and abroad.
In a 184-page ruling, Judge Yvonne Gonzalez Rogers of the U.S. District Court for the Northern District of California said that Apple was illegally “engaging in anti-competitive conduct” by forcing developers to exclusively use its own payment system for in-app purchases — which Apple takes a cut of. Now, Apple needs to open the door to payment options outside its infamously walled-off app ecosystem by December 9, unless a higher court intervenes.
The permanent injunction, which Apple is expected to appeal, came as part of a court fight between Apple and Epic Games, the maker of the popular Fortnite video game, which Apple kicked out of its App Store after Epic began allowing and encouraging players to purchase in-game currency directly from Epic, rather than only through Apple. Epic then sued Apple, claiming that the Apple App Store was a monopoly and that the company was hampering competition by forcing developers to only use its built-in payment system.
As Chaim Gartenberg points out at the Verge, Friday’s ruling “cuts right to the heart of the roughly $19 billion a year the App Store brings in for Apple, because at the end of the day, the App Store makes most of its money off in-app purchases inside free-to-download games”:
It’s not a total sledgehammer to the heart of Apple’s walled garden; the ruling still maintains the App Store as the only place that users can go to to buy or download new apps, and doesn’t challenge Apple’s 30 percent cut of those purchases. And the ruling only technically impacts U.S.-based companies for now, which Bloomberg notes only makes up about $6.3 billion (or about a third) of Apple’s global App Store revenue.
But for companies that make free apps with in-app purchases, subscription apps, and virtually any kind of app or service that doesn’t require an upfront payment to purchase the app itself, it’s a whole new ball game.
Gartenberg also notes that how the new payment options play out in reality for app users remains to be seen, and some app developers may decide to stick with Apple’s built-in payment system regardless.
Judge Gonzalez Rogers ruled against Epic Games on all other counts in the case. She said that the trial had not proved that Apple “is a monopolist under either federal or state antitrust laws,” and that Epic had in fact violated its contract with Apple by adding an alternate payment system, owed Apple over $3.5 million as a result, and Apple was not required to reinstate Fortnite to its App Store. Epic has already announced that it intends to appeal, and its CEO criticized the ruling on Twitter and insisted it “isn’t a win for developers or for consumers.”
Apple, meanwhile, is framing the ruling as a major victory and validation of its App Store business model — which will still require high fees and strict rules for developers. The company’s general counsel, Katherine Adams, claimed in a statement Friday that the ruling was a “huge win,” emphasizing how the judge has “confirmed” that “Apple is not a monopolist in any relevant market and that its agreements with app developers are legal under the antitrust laws.”
On the other hand, as Politico pointed out Friday, even if Epic couldn’t prove Apple was a monopolist in this case, the Justice Department is two years into its own antitrust investigation into the company — and multiple federal lawmakers are still spoiling for a fight with Apple.