Judge Orders Apple To Change App Store Payment Rules

A US federal judge has ordered Apple to make major changes to its App Store, for the first time allowing developers to send their users to alternative payment systems.

The ruling is a win for “Fortnite” developer Epic Games, which had sued Apple over its App Store policies.

However – unlike a recent settlement with Japan’s trade regulator – the changes apply to all App Store developers, not just gaming companies.

The settlement with the Japan Fair Trade Commission only applied to “reader” apps such as Netflix or Spotify, allowing them to direct their users to outside payment systems.

‘Apple tax’

Currently the App Store requires apps to use Apple’s payment system, which levies a 30 percent fee in most cases – what critics call the “Apple tax”.

Developers are also currently barred from communicating with users via outside means such as email about alternative ways of setting up payments – something also now prohibited by the ruling of federal judge Yvonne Gonzalez Rogers.

Gonzalez Rogers’ decision could have a significant impact on Apple’s bottom line, since gaming companies are the biggest revenue generators for the App Store and the company’s $53.8 billion (£39bn) services business.

The judge stopped short of some of the drastic changes sought by Epic, for instance allowing Apple to continue charging its 15 to 30 percent commissions on in-app payments using its system.

Gonzalez Rogers also declined to classify Apple as a monopolist, agreeing with the company that it faces competition in mobile gaming.

“Success is not illegal,” she said in the 185-page ruling.

‘Rigorous competition’

Agreeing with Apple, she had declared the “relevant market” to be mobile gaming transactions, in which Apple does not have monopoly power.

“Apple faces rigorous competition in every segment in which we do business, and we believe customers and developers choose us because our products and services are the best in the world,” Apple said in a statement.

Epic chief executive Tim Sweeney said on Twitter that the ruling “isn’t a win for developers or for consumers” and said the company would appeal the decision.

“We will fight on,” he said.

He said Epic was seeking not just to be able to include a link to an outside form of payment, but the ability to include its own in-app payment system “in fair competition” with Apple’s in-app payments.

The ruling allows all App Store developers to include buttons or links in their products directing customers to alternative payment methods. The nationwide order allows “buttons, external links, or other calls to action that direct customers to purchasing mechanisms”.

Apple rules ‘Anticompetitive’

The judge ordered Apple to implement the ruling within 90 days.

The ruling also says Apple cannot ban developers from communicating with customers about payment methods via contaact information obtained when customers signed up within the app.

While she did not declare Apple a monopolist, Gonzalez Rogers did say Apple was violating California state competition laws with its “anti-steering” rules around payments.

“When coupled with Apple’s incipient antitrust violations, these anti-steering provisions are anticompetitive and a nationwide remedy to eliminate those provisions is warranted,” she wrote.

She also found Epic in breach of contract for adding an unauthorised app store to Fortnite, and ordered the company to pay restitution to Apple.

The judge oversaw a three-week trial in May at the U.S. District Court for the Northern District of California.

‘Cash cow’

Apple shares plunged about 2.5 percent following the ruling on Friday, removing $63bn from the company’s market value.

Industry watchers said the ruling could be far more significant than the settlement in Japan, but added that much depends on how Apple chooses to implement the order.

For instance, app developer Match Group earlier called Apple’s changes in response to the Japanese settlement “a sham” that was “designed to spur good PR for their benefit”.

Morgan Stanley analyst Katy Huberty estimated that “reader” apps make up only 14 percent of the past 12 months’ App Store developer revenue, compared to 63 percent for gaming apps.

“Gaming apps are the App Store cash cow,” she said in a note.

Authorities in the US and Europe are drafting bills that could force Apple to make further changes to the App Store, while the EU in May charged Apple with breaking antitrust law over its App Store rules.