Apple refund clause: Bad for developers?

A clause in the App Store contract regarding refunds to customers could require developers to pay an extra fee that lets Apple still make money off returns.

Candace Lombardi
In a software-driven world, it's easy to forget about the nuts and bolts. Whether it's cars, robots, personal gadgetry or industrial machines, Candace Lombardi examines the moving parts that keep our world rotating. A journalist who divides her time between the United States and the United Kingdom, Lombardi has written about technology for the sites of The New York Times, CNET, USA Today, MSN, ZDNet, Silicon.com, and GameSpot. She is a member of the CNET Blog Network and is not a current employee of CNET.
Candace Lombardi
3 min read

Apple iPhone

A clause in the Apple/developer agreement for the App Store, if enforced, could put a financial pinch on developers.

As any App Store developer knows, Apple gets a 30 percent take of every sale made from its store--if an application sells for $10, the developer gets $7 and Apple gets $3. While some argue it's a hefty share for basically being a distributor, the fee includes advertising and access to Apple's loyal user base, as well as an easy way for potential customers to find the developer.

However, TechCrunch has noticed a clause regarding refunds that it says has the potential to bankrupt developers because they are required to pay a steep out-of-pocket fee to Apple if an App is returned.

CNET obtained a copy of one of these agreements from a developer who signed on recently. Here's the clause from Section 6 titled "Responsibility, Liability and Indemnity":

6.3 In the event that Apple receives any notice or claim from any end-user that: (i) the end-user wishes to cancel its license to any of the Licensed Applications within ninety (90) days of the date of download of that Licensed Application by that end-user; or (ii) a Licensed Application fails to conform to Your specifications or Your product warranty or the requirements of any applicable law, Apple may refund to the end-user the full amount of the price paid by the end-user for that Licensed Application. In the event that Apple refunds any such price to an end-user, You shall reimburse, or grant Apple a credit for, an amount equal to the price for that Licensed Application. Apple will have the right to retain its commission on the sale of that Licensed Application, notwithstanding the refund of the price to the end-user.

The clause basically says that if for any reason a customer wishes to return a previously purchased iPhone application within 90 days, Apple "may" choose to give a full refund.

Okay. Fine. Customers deserve full recourse in the event someone sells them a bum App. But here's the twist of the knife: If Apple gives a full refund to the customer, it could well expect the developer to reimburse Apple their original 30 percent take for the sale.

So essentially, if Joe iPhone plays with this developer's $10 app for a while, decides he's bored with it and manages to convince Apple to give him a full refund, the developer could have to return not only the $7 he got from the sale, but also an additional $3 he never saw. Imagine the fear building in the developers reading this who sell study aids to teens, or any sort of temporarily needed application.

The developer who spoke with CNET pretty much summed up what's likely to be a widespread sentiment, which is that Apple is the only game in town right now and as some would say in Chicago you have to pay to play."Funny, I just acknowledged that agreement last week and thought that clause was weird. Oh, well, no negotiating power I guess," he said.

Apple did not immediately respond to a request for comment.