Apple is not a monopolist but must let app developers sell in-app purchases outside of its control, a judge has ruled as a pyrrhic victory by Fortnite publisher Epic Games triggers significant changes within Apple’s app and content ecosystem.
Longstanding App Store policies have forced developers to ensure that any extra purchases made through its apps are funnelled through Apple’s own payments system – which extracts a 30 per cent commission for anything sold through an app.
This policy has turned the App Store into what Apple fellow Phil Schiller has called “an economic miracle” that generated $87b ($US64b) in direct revenues and facilitated $870b ($US643b) in billings and sales during 2020 alone.
Yet its commission structure has posed major issues for companies like Amazon, which was forced to make customers buy products like Kindle e-books through its own website rather than paying Apple the hefty commission on every e-book.
Game publishers have been particularly affected by the policies, with gamers producing 70 per cent of in-app revenues – from embellishments such as power-ups, new levels, new characters and customisations – even though they comprise less than 10 per cent of App Store users.
Having railed against the policies for some time, Epic last year changed its app to work around the App Store payment system – leading to Fortnite being banned from the App Store and Google’s Play Store, and Epic subsequently suing Apple in a high-stakes case with global implications.
Epic has already appealed the latest court decision – which comes just as Apple is slated to release a slew of new products including its iPhone 13 and Apple Watch Series 7 in a live-streamed event – after US District Court judge found Apple’s App Store payments policy is an anti-competitive violation of California’s anti-steering laws.
Apple last year reduced commissions to 15 per cent for developers making less than $1.4m ($US1m) annually, but the company has now been ordered to let developers use alternative payment mechanisms outside of its control.
Yet in finding for Apple on nine out of 10 Epic allegations, the judge reserved plenty of criticism for Epic – which, among other things has been ordered to pay breach-of-contract damages comprising 30% of revenues it earned since Fortnite was banned, equivalent to around $4.75m ($US3.5m).
One of the most significant conclusions was the determination that Apple is not a monopolist: despite enjoying “considerable market share of over 55 per cent and extraordinarily high profit margins,” the judge wrote, “these factors alone do not show antitrust conduct.”
“Success is not illegal.”
Loosening the chains
The Epic v Apple verdict comes amidst a flurry of legal action related to Apple’s payment platforms.
Pre-empting the judge’s decision in the Epic case, in late August Apple settled a class action civil suit from US developers with seven proposed policies – one of which is allowing developers to share purchase options outside of their apps.
Other proposed agreements include expanding the number of prices developers can charge from 100 to over 500; allowing developers to appeal the rejection of an app; establishing a fund to assist small US developers; and changes to App Store searches to ensure results are “based on objective characteristics”.
At the same time, Apple introduced a News Partner Program that lowers commission rates for “robust news” publishers – in Australia, Canada, the US and UK – that optimise their content for delivery through the company’s Apple News apps.
The moves mean Apple’s latest upgrades to its core products – including the new iPhone, “show-stopping” iOS 15 update, Monterey operating system, and an ecosystem of updated apps – will debut into an applications market that is being reshaped by increasing questioning of its tightly-controlled ecosystem.
Echoing a growing chorus of voices in regions like the Netherlands, Germany, and Europe, Australian authorities this week announced they will formally investigate Apple’s controversial policy of limiting access to the NFC chip used to process secure payments at retail outlets.
The investigation comes on the heels of ongoing bitterness between Apple and institutions such as the Commonwealth Bank, which has railed at Apple’s policy forbidding apps other than its own Apple Pay from accessing the NFC chip in the phone.
Apple claims the restriction is a way of maintaining security over potentially sensitive transactions – as well as controlling access to other applications that may use the NFC chip, such as using a phone for unlocking a car or home – but banks see it as a way of forcing them to pay Apple a commission on every transaction.
The Australian Competition and Consumer Commission (ACCC) is concerned that preventing developers from accessing the device’s hardware is anti-competitive and anti-innovation.
Regulators have been monitoring overseas actions around the chip for some time, with chair Rod Sims arguing last month that intervention was valuable in addressing “the ‘gatekeeper’ or ‘strategic’ market power of major digital platforms.”
“Unfair and potentially anti-competitive terms” such as Apple’s NFC restrictions and in-app payment restrictions, Sims said, have “potential to harm innovation, competition and consumer choice.”