What The Ruling In The Epic Games V. Apple Lawsuit Means For iPhone Users

Bobby Allyn

September 10, 2021 / 4:15 pm

caption: A federal judge on Friday ordered Apple to loosen some of the rules on its App Store for how payments are processed.

A federal judge on Friday issued a long-awaited ruling in Fortnite maker Epic Games' legal battle with Apple over its App Store policies.

Both sides are using the 185-page ruling to vindicate their own positions, which is possible because the details are complicated.

U.S. District Judge Yvonne Gonzalez Rogers said Apple is breaking the law by forcing people to pay for apps and in-app items through the App Store, where it usually takes a 30% slice of the payment as commission. Gonzalez Rogers told Apple to ease up, within 90 days. That's a win for Epic.

But Gonzalez Rogers upheld the App Store's overall structure as legal. She said Apple does not have an illegal monopoly over how developers can process payments for mobile games. That's a victory for Apple.

"It's a split decision," said Mark Lemley, a Stanford Law School professor who studies antitrust issues and technology. "It will improve competition on the edges, but it's not the fundamental change that Epic and advocates of the antitrust case would have hoped for."

OK. But what does this mean for people who buy apps for their iPhones and iPads?

It means that when you pay for, say, a Spotify subscription on your iPhone, or a cool new outfit for your avatar in the mobile version of Roblox, you could get the option to pay through Spotify or Roblox's own systems.

Apple long has banned app developers from offering these alternative payment methods. Gonzalez Rogers ruled that Apple was hiding information from consumers and limiting choice. That's prohibited under California competition laws.

So will this make apps and in-app items cheaper?

It could. When Epic violated Apple's rules and allowed people to buy credits for Fortnite through its own system, it offered a 30% discount, since there was no Apple levy involved.

If developers are no longer forced to use Apple's payment system — and can avoid the 30% commission — they could lower their prices. Or, they could just pocket the savings.

Will there be any visible changes to apps downloaded from the App Store?

Maybe. You might see a new button in some of your favorite apps that lets you buy things through the developer's own payment system, for example. Or, there could be a link inside the app directing customers to complete a payment on a browser. Whatever it looks like, Apple solely controlling what critics call a "toll booth" in the App Store will be no longer.

The appeals process will likely cause delays, so don't expect changes any time soon.

Is Apple's 30% commission going away?

Only if Apple chooses to make that change. Epic Games considered Apple's take of most purchases "exorbitant" and an abuse of its market power. The judge did not completely buy this.

Yvonne-Gonzalez was skeptical of the 30% fee during the trial, and in the ruling she wrote, "the 30% is not tied to anything in particular and can be changed," but did not order Apple to do so.

She noted that while Epic chose to target Apple (and Google) over the fee, Nintendo's Switch, Microsoft's Xbox and Sony's PlayStation all charge a similar cut on game sales.

"Antitrust law doesn't let you complain that the prices are too high," Stanford's Lemley said. "You have to show that some sort of conduct is preventing competition."

A separate case Epic filed against Google is scheduled to go to trial thjs year.

So then, why is this a big blow to Apple?

Apple's App Store, and the commission that critics call the "Apple tax" are just one aspect of the tech giant's empire. But developers' complaints about feeling mistreated and getting a raw deal on the App Store have grown louder in recent years. South Korea recently banned Apple and Google from forcing developers to use its payment system. Congress has introduced legislation to rein in the tech giants' strict App Store rules.

The ruling on Friday from U.S. District Judge Yvonne Gonzalez Rogers could trigger the most consequential changes yet to the multibillion-dollar mobile economy. Although she didn't go as far as Epic Games had hoped, she still put a dent in the all-powerful fortress Apple has built and maintained over how apps are distributed on iPhones and iPads.

"Apple has so far gotten a pass in the Big Tech antitrust scrutiny of the past several years, but this says that is not going to continue," Lemley said. "Apple's control over what goes on the phone and at what price may get hard for Apple to sustain."

Both Apple and Epic Games are claiming victory and both are likely to appeal the decision. Huh?

Apple is expected to fight Gonzalez Rogers' determination that it is violating the law by blocking alternative ways to make payments, known as an "anti-steering provision." Ever notice why Netflix makes you visit its website to sign up for a subscription in iPhones and iPads? This is why. It wanted to avoid the Apple tax.

Epic was unhappy with the judge's decision that Apple is not an illegal monopoly because it has competitors in its definition of the "relevant market" — the $100 billion world of digital gaming transactions.

In antitrust cases, the term "relevant market" is important. It's legalese for: what exact part of the economy are we talking about?

Gonzalez Rogers said this fight was not about how digital video games are distributed, as Epic had argued, but how digital video game payments are processed. And in that market, which includes gaming outside of iPhones and iPads, the judge said there's a lot of competition, so Apple is not a monopoly. Epic is expected to try to convince an appeals court that the judge got that wrong.

"An appellate court can look at the market definition and say, 'wait a minute,'" Lemley said. "And if that piece was overturned, Apple could be found to be a monopolist."

The price tag for challenging the App Store's control

When Epic introduced its own payment system for Fortnite, breaking the App Store rules and effectively challenging Apple to kick it out, the judge ruled that it breached its contract with Apple.

During this time, Epic made more than $12 million of revenue. None of it went to Apple. So now, the judge said Epic owes Apple 30% of that amount, per the terms of its contract.

Epic turned Apple's move booting it from the App Store not just into a lawsuit, but a publicity stunt dubbed "Project Liberty" complete with the #FreeFortnite hashtag and a video mocking a famous Apple ad from 1984.

Unless revised by an appeals court, Friday's ruling means the cost of its PR crusade against Apple just got $3 million more expensive.