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

Sep 10, 2021
Originally published on September 14, 2021 4:14 am

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 double down on their own positions, which is possible because the details are complicated.

If anything, though, Apple and Google did land small wins, but neither got what it wanted.

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 and let in other payment options, within 90 days. That will please Apple, but it is far from what Epic sought.

For Apple, Gonzalez Rogers upheld the App Store's overall structure as legal, a major victory for the tech giant. She also said Apple does not have an illegal monopoly over how developers can process payments for mobile games, which Apple applauded.

"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?

No, but Apple can choose to drop the rate, and for certain developers, it has.

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 was suspicious about Apple's justification of the commission, writing that "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, it seemed odd considering that 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 this 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 policies.

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 had wins in the ruling 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 Apple's commission.

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 $3.6 million more expensive.

Editor's note: Apple is among NPR's financial supporters.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

AILSA CHANG, HOST:

Epic Games, the maker of the video game Fortnite, and Apple have been locked in a legal battle. Epic sued Apple over some of its App Store policies. You see; Apple charges developers like Epic a fee every time someone downloads their apps or buy something within them. A federal judge has ruled on the case and largely said Apple's actions were just fine with one critical exception. NPR's Bobby Allyn joins us now to explain, and we should note Apple is among NPR's financial supporters. Hey, Bobby.

BOBBY ALLYN, BYLINE: Hey there, Ailsa.

CHANG: All right, so can you just break down exactly what this ruling said?

ALLYN: Yeah. So Apple, of course, as we all know, you know, makes a lot of money by selling computers, phones and other physical stuff. But as iPhone sales flatline, Apple is trying to make a lot more money off things like fees and subscriptions. And on iPhones and iPads, that's big business. I mean, the mobile gaming market alone is a $100 billion industry.

So - OK, so every time you use Candy Crush, say, want to buy a cool outfit for your avatar on Roblox - whatever you're doing on your iPhone, you know, Apple is taking a 30% cut. It's sort of invisible, but it's happening. And the judge here said Apple is making money there but that, quote, "success is not a crime." But the judge did say Apple needs to give people options before they buy that outfit on Roblox. So that could look like, do you want to buy it through Apple, or do you want to use Roblox's own processor? And it's a subtle thing, Ailsa, but it's actually a really big deal.

CHANG: Right. OK. Tell us a little more about that. Like, what makes it such a big deal?

ALLYN: Right. So let me just use a personal example. So I'm training for a marathon now, and every time I go on a run, I use the app Strava to record my runs, right?

CHANG: Yeah.

ALLYN: I think I pay, like, five bucks a month for a fancier version of the app. Baked into that price is Apple's 30% commission. Now, the judge in this case, Yvonne Gonzalez Rogers, basically said before I buy that Strava subscription, I shouldn't be forced to complete my payment through Apple. Strava should be giving me more options here. And if I did have an option, say, to process it through Strava, it might be cheaper to me, and Strava might make more money off it. And for years, you know, developers - if they had one complaint about Apple, it's that the App Store is just too tightly controlled by Apple. And, you know, Stanford law professor Mark Lemley told me Apple giving up even a little bit of its gatekeeper role here means there might be more to come.

MARK LEMLEY: Big Tech has come under a lot of antitrust scrutiny in the last several years, but Apple has so far mostly gotten a pass. And I think this suit, even the way it resolves, is maybe an indication that that's not going to continue.

CHANG: Interesting. OK, Bobby, so what happens next in this case?

ALLYN: You can probably guess - an appeals process. But the battle lines are actually kind of interesting because both sides are appealing. Nobody here is happy. Epic is appealing because Apple was not declared an illegal monopoly as they had hoped, and Apple is appealing because they don't want to make the changes to its payment system that the judge is ordering. They're really holding on tight to its 30% arrangement.

CHANG: OK, so any changes will have to wait on those appeals. But if this ruling does stand, will iPhone and iPad users notice anything different?

ALLYN: Yeah, yeah. So in theory, yes, if there are more payment options, Ailsa, for you and I every time we buy something on our iPhone or iPad, you know, prices could get cheaper. You know, analysts say those lower prices could also force Apple to drop its commission just to stay competitive, right? That's how markets work. But also, developers could just pocket the extra money, so we shall see. We don't know yet for sure how it's going to play out for consumers. But, you know, the most optimistic take is if this does survive the appeals process, yes, this could mean consumers will save a little bit of money when you're buying things in Apple's App Store.

CHANG: That is NPR's Bobby Allyn. Thank you, Bobby.

ALLYN: Thanks, Ailsa.

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