A federal judge ordered Apple on Friday to crack open the tightly controlled App Store and “steer” people using apps to payment methods other than Apple’s own processer, which usually collects a 30% commission on app purchases.
The decision, by U.S. District Judge Yvonne Gonzalez Rogers, is a major blow to Apple and could force the tech giant to revamp its entire business model for apps on iPhones and iPads. It is the most significant strike yet against Apple’s commission, something critics call “the Apple tax.”
But the court did not go as far as Fortnite maker Epic Games, which sued Apple, had hoped in loosening Apple’s grip on a big part of the $100 billion mobile gaming economy.
Moreover, Gonzalez Rogers ordered Epic to pay Apple a fee for violating App Store policies last year. Epic had introduced its own payment method within Fortnite. Apple kicked it out of the App Store, setting the legal battle into motion.
Apple is expected to appeal the decision.
Apple made concessions to app developers ahead of ruling
Apple recently extended an olive branch to some developers, including Netflix and Spotify, by allowing them to direct customers to payment processers outside of the App Store. But it did not do the same for developers of mobile games, the most lucrative segment of apps for Apple.
The decision Friday forces Apple to take its modest changes much further and apply them to all purchases of both apps and things bought inside apps, for its millions of apps available in the App Store.
The victory for Epic came after a lengthy legal battle, including a three-week trial.
CEO Tim Cook defended Apple’s fee in court
At the end of it, Apple CEO Tim Cook took the witness stand to defend the company policy at the center of the legal fight: the 30% commission Apple usually charges app makers whenever someone purchases their app through Apple’s App Store, or when someone buys something in an app downloaded on an iPhone.
In the most dramatic moment of the trial, Gonzales Rogers drilled into Cook about Apple’s commission rate, opening a line of questioning that seem to track with Epic’s perspective that Apple’s closed system of downloading and processing payments in the App Store has cut out competition and led to higher prices and fewer choices for consumers.
“If there was real competition, that number would move. And it hasn’t,” Gonzales Rogers said of Apple’s 30% cut.
Apple says the revenue from that fee pays for safeguarding the privacy and security of apps. Google subjects developers to the same fee rate for app purchases on the company’s Android devices. In response to pressure, both Apple and Google lowered the commission to 15% for certain smaller developers, though the bulk of the money generated for the tech giants comes from fees levied on large app developers.
The ruling, while it is expected to be appealed, is a significant rebuke to Apple, which has risen to become one of the most valuable companies in the world in an industry largely free of regulations.
Big Tech companies face multiple antitrust lawsuits
While Washington debates ways to police the tech sector, courts have emerged as a key battlefield between tech giants and their critics. The Justice Department and state attorneys general are reportedly investigating whether Apple’s App Store commission violates U.S. competition laws. And in Europe, regulators have launched a probe into whether the iPhone’s ironclad grip on the mobile economy violates European law.
Tim Sweeney, the maverick CEO of Fortnite maker Epic Games, had launched an all-out campaign against Apple after provoking the tech giant by offering Fortnite players a way to buy game items outside of the App Store.
In response to breaking its rules, Apple kicked Fortnite out of the App Store. That led Epic to sue and launch a public relations campaign aimed at drumming up support for its crusade against Apple. Sweeney has long claimed that he is not acting just for the benefit of his nearly $30 billion video game empire, but for developers everywhere who feel squeezed by Apple.
“Everybody doesn’t have a great incentive to challenge Apple and Google’s 30% because they want to be the next bastard to charge 30%,” Sweeney told NPR last year.
Editor’s note: Apple is among NPR’s financial supporters.