Apple's iPhone and App Store won a mixed victory in court Friday, when a federal judge mostly sided with the iPhone maker against Fortnite maker Epic Games in one of the tech industry's biggest lawsuits. But the judge also said that developers must be allowed to inform users of alternative ways to pay within apps, striking down a key part of Apple's App Store rules.
The question at the heart of Epic's lawsuit against Apple was how much control a tech company is allowed to exert over its products. Apple refused to allow Epic to open its own competing app store for iPhones or iPads and wouldn't allow Epic to collect payments directly from people for certain features such as a new look for their character. Epic said Apple's obstinance constituted a monopoly and asked the court to strip away some of Apple's power over the iPhone.
In her decision, Judge Yvonne Gonzalez Rogers of the US District Court for the Northern District of California said she agreed with Apple's claim that Epic had violated its developer agreements, and awarded damages equal to 30% of the $12 million Epic collected from iOS users between August and October 2020, plus 30% of any such revenue Epic's collected since then. Rogers also said Apple's rules against allowing developers to direct users to other payment systems was anti-competitive, and issued an injunction to allow developers to do so in their apps.
"Once acceptable, Apple's commission rate is now questioned by some consumers and some developers, like Epic Games, as being overly burdensome and violative of competition laws. Indeed, two related lawsuits were already pending before the Court well before the commencement of this action," she wrote as part of her ruling Friday. "The Court is not persuaded by Epic Games' broad-brush argument that it should not be bound by certain portions of the agreement."
Rogers presided over and decided the case, rather than a jury doing so. Her ruling goes into effect in 90 days.
After the announcement from the court, Epic pushed back. "Today's ruling isn't a win for developers or for consumers," Epic CEO Tim Sweeney wrote in a tweet shortly after the ruling.
Apple applauded the judge's decision, adding in a statement that it "faces rigorous competition in every segment in which we do business."
"We 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," the company added.
Though the decision is almost certain to be appealed, it marks a critical first sign of how the legal world is considering the larger questions of antitrust in the modern age. At first glance, this court battle appears to be a petty argument over who makes how much money when we buy things on our phones. But the outcome could upend the way Apple does business and change the way we get and pay for apps on our devices.
Apple isn't the only company that Epic is fighting with over these issues. The Fortnite game maker also sued Google last year in a similar disagreement over the handling of payments. Lawmakers and regulators have joined in too, pushing Apple to justify its up to 30% commission on sales made through its App Store and its tight control over its platform, while probing Google's behavior as well.
Apple and Google have defended their app stores and payment policies, saying their developer guidelines are designed to protect users and to ensure equal treatment of app makers, who've made millions of apps for both platforms combined. Apple in particular touted its "walled garden" approach -- in which it has approved every app offered through its App Store since it opened in 2008 -- as a feature of its devices, promising that users can trust any app they download because it's been vetted.
"For Big Tech, there's a sigh of relief because the walls of their gardens will not come tumbling down today, even if this ruling tries to put some cracks in it," said Paul Swanson, a lawyer at Holland & Hart who specializes in antitrust issues. "The main thrust of the Court's ruling is that 'success is not illegal.'"
But it may not stay that way. Paul Gallant, an analyst at Cowen, said the ruling may spur lawmakers in Washington to pass legislation that would force app stores to change. "The core of today's ruling is that Apple is not in violation of federal antitrust law," he wrote in a note to investors Friday. "That's been Democrats' argument -- that new antitrust laws are needed to deal with tech platforms' business models"
Issues with Apple
Although Rogers largely ruled in Apple's favor, she did criticize the company's business practices and suggested they could be anti-competitive.
"Common threads run through Apple's practices which unreasonably restrains competition and harm consumers," she wrote. "Namely the lack of information and transparency about policies which effect consumers' ability to find cheaper prices, increased customer service, and options regarding their purchases."
She noted, for example, that consumers are not explicitly told that if they subscribe to their favorite newspaper on the web, all the proceeds go to the newspaper, rather than the reduced amount by subscribing through an iPhone or iPad, and paying with their on-file credit card.
"While some consumers may want the benefits Apple offers (e.g., one-stop shopping, centralization of and easy access to all purchases, increased security due to centralized billing), Apple actively denies them the choice," she said. "Apple contractually enforces silence, in the form of anti-steering provisions, and gains a competitive advantage. Moreover, it hides information for consumer choice."
She said loosening restrictions will increase competition and force Apple to justify its centralized model, or change.
While Epic largely lost its case against Apple, Rogers said it didn't necessarily have to. Throughout her ruling, the judge took moments to underscore how she was "not persuaded" by Epic's "broad-brush" arguments.
"While the Court has found that evidence suggests Apple's 30% rate of commission appears inflated, and is potentially anticompetitive, Epic Games did not challenge the rate," she wrote. "Rather, Epic Games challenged the imposition of any commission whatsoever."
She hinted at her concerns during court proceedings earlier this year as well, telling lawyers she wanted to hear more argument about anti-steering provisions. In her ruling, Rogers repeatedly said she's worried about Apple's business practices.
"Ultimately, Epic Games overreached. As a consequence, the trial record was not as fulsome with respect to antitrust conduct in the relevant market as it could have been," Rogers wrote. "Epic Games failed in its burden to demonstrate Apple is an illegal monopolist."
CNET's Lisa Eadicicco contributed to this report.