The dispute between Epic vs Apple: What does it mean for app developers and users?
On September 10, 2021, the U.S. Federal Court of Northern California handed down a ruling in the landmark case between computer game maker Epic Games and technology leader Apple. It provides a glimpse into the future of the in-app payments in the iOS environment.
The Genesis Of the Dispute
In August 2020, Epic Games initiated court proceedings and applied to the court for permission to allow Epic Games to use a payment system developed by Epic, not Apple, for transactions which occur while playing Fortnite — the most popular game. One of the main reasons for Epic Games’ dissatisfaction was that Apple typically charges a 15–30% commission on payments made in Apple’s ecosystem.
Apple objected to this attempt and had removed Fortnight from the App Store.
This landmark case was resolved relatively quickly — within a year. In the following passages, let’s take a quick look to the main arguments of the Court (the judgment itself is 185-pages long!) and what this judgment will mean for users of iPhones and iPads as well as app developers.
The Main Holdings of the Court
First, the Court ordered Apple to ease restrictions on app developers regarding payments that consumers make while using specific applications. Judge Rogers, who heard the case, held that Apple could not prohibit app developers from directing users to third-party websites where payments should be made.
In addition, the obligation to allow app developers to direct users to websites and make payments there, “should encourage competition, increase transparency, provide more alternatives and information to users while preserving Apple’s iOS ecosystem.”
Second, the Court rejected plaintiff Epic Games' attempts to demand that Apple allow apps for mobile phones and iPad tablets to be downloaded not from the App Store but from elsewhere (e.g., directly from a third-party website).
According to the judge, “Apple does not have a monopolistic position in the market for mobile games payments”, but at the same time stated that “certain actions of Apple by which Apple imposes restrictions on directing consumers to third-party websites are anti-competitive.”
Third, the Court noted that Apple had every right to remove Fortnite from the App Store and ruled that Epic Games had breached its contractual obligations. The Court also ordered Epic Games to pay damages for contractual violations with Apple.
“Success is not illegal.” — Judge Yvonne Gonzalez Roberts
Fourth, the court also did not abolish the 15–30% commission fees charged by Apple. Instead, the Court stated that the commission is not in itself illegal, but agreed that Apple were not able to provide convincing arguments as to whether such a fee is proportionate. The court agreed that in the absence of a profit margin, it is unclear whether Apple could support the full operation of the iOS ecosystem and ensure information security.
Reactions by Various Stakeholders
In summary, the trial court has taken a fairly impartial position, with a more or less similar solution expected in Silicon Valley.
Following the announcement, Apple spokespersons stated that “Today the Court has affirmed what we’ve known all along: the App Store is not in violation of antitrust law,” and noted that Apple “remain committed to ensuring the App Store is a safe and trusted marketplace that supports a thriving developer community and more than 2.1 million U.S. jobs, and where the rules apply equally to everyone. “
In his Twitter account, Epic Games CEO Tim Sweeney stated that:
Most technology and competition law experts welcome this decision, albeit a divided one, especially as the trial judge was able to assess the possible technological and economic consequences of a decision which might require rapid and drastic changes.
It is noteworthy that the iOS ecosystem rules supported by Apple have been in place for more than a decade. During that period, application developers increasingly demanded more transparency and clarity about the process of publishing apps in the App Store.
What Are the Consequences of this Court Decision?
The long-awaited court ruling immediately affected Apple’s stock price, which fell 3.3% on Friday (i.e., Apple shares fell $ 85 billion). According to market experts, Apple should recover the lost share of value within months, if not days, after implementing the requirements of this decision.
Meanwhile, Apple now has 90 days to make the necessary changes in the App Store.
iPhone and iPad users can expect that, over time, some apps will be able to pay for purchases or services in a particular app, not only through Apple’s system, but also in other ways (such as by clicking a link to a specific website).
App developers can expect Apple to continue to work to improve the application development and publishing process, maintain good relationships with app developers, and gradually open up the iOS system.
This dispute essentially reflects two different approaches to how applications used in mobile devices should work. The first approach is the vision of Apple developer Steve Jobs’ which could be described “closed yard” or “walled garden” approach, where the quality and settings of all published gadgets are controlled by a single supervisor (in this case, Apple). The moderator applies uniform criteria and strives to ensure that all gadgets are safe and meet user expectations.
Another approach could be referred to as the “open yard” model, where everyone can play by their own rules and where there is no single highly empowered supervisor. It is this model that is more acceptable to the CEO of Epic Games Tim Sweeney, who pledged to try to break through the enclosed courtyard wall.
Given that most of the digital space is currently in the grip of four or five technology whales (ie Google, Facebook, Amazon, Apple and Microsoft), more changes can be expected, which will give consumers more room to decide for themselves, how to behave in the digital space.
Perhaps the most interesting angle from which we can approach this court decision is really in the context of a more open ecosystem and a more consumer driven market overall. The key point is that it shouldn’t be the large technology monopolies or data prisons deciding what’s best for the consumer, when there is a choice for the consumer decide for themselves.
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