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February 24, 2024

Supreme Court Deals Blow to Apple, Upholds Lower Court Ruling on App Store Payments

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Jan 18, 2024

The U.S. Supreme Court on Monday declined to hear Apple’s appeal in its legal battle with Epic Games, upholding a lower court ruling that forces Apple to allow alternative payment systems in apps on its iOS platform.

Background of the Dispute

The dispute dates back to August 2020, when Epic intentionally violated Apple’s App Store guidelines by introducing a direct payment option in its popular Fortnite game to bypass Apple’s 30% commission on in-app purchases [1]. In response, Apple removed Fortnite from the App Store. Epic then sued Apple, alleging anti-competitive behavior for requiring developers to use Apple’s payment system which takes 30% of revenues.

A federal judge ruled largely in Apple’s favor last September, but ordered Apple to allow developers to communicate with customers about alternative payment methods [2]. Both companies appealed parts of that decision to the Ninth Circuit Court of Appeals, which upheld the requirement for Apple to allow external links. Apple then asked the Supreme Court to review that decision, but the Supreme Court rejected that petition on Monday.

Supreme Court Upholds Ruling Against Apple

By declining to hear the case, the Supreme Court allowed the Ninth Circuit ruling to stand. This is a significant blow for Apple [3], as the company makes billions in commissions from App Store purchases and subscriptions every year. Allowing links to alternative payment systems threatens a key pillar of Apple’s services business segment [4].

“This is clearly a loss for Apple, both financially and reputationally,” said Ben Bajarin, principal analyst at Creative Strategies. “The core of Apple’s business model and App Store principles were at stake, and while the overall financial implications are likely insignificant relative to Apple’s overall profits, it does open up risks for them.” [5]

Apple Angers Developers with New 27% “Tax”

Shortly after the Supreme Court’s announcement, Apple unveiled changes to App Store rules that allow developers to link out to external payment systems. However, Apple said it will now charge developers a 27% “tax” on purchases made outside the App Store payment system [6].

This new policy changes little in practice while allowing Apple to collect commissions on third-party transactions. As a result, many developers and analysts blasted Apple’s response as outrageous.

“I’m sorry, but you owe me 27% because I said so,” wrote tech blogger John Gruber. “It’s simply bonkers. Apple didn’t earn this money. They have no reasonable claim to it.” [7]

Epic Games CEO Tim Sweeney called it “a sad outcome for developers and consumers.” He reiterated that Epic would continue fighting Apple’s “monopoly power” over payments on iOS [8].

Analysts agreed that the 27% fee appeared arbitrarily chosen by Apple to discourage developers from avoiding the App Store payment system. “It screams of a company trying to cling to power more than it cares about making logical policy,” said industry analyst Neil Cybart. [9].

Payment Method Apple’s Cut
App Store System 30%
External System 27%

Table 1: Apple’s commissions on iOS app transactions

What’s Next in Developer Legal Battle

The Supreme Court’s decision settles a major piece of the ongoing legal disputes around Apple’s App Store policies and reinforcement of those policies. However, Apple continues to face antitrust pressure on multiple fronts [10].

Last March, the European Union formally accused Apple of violating antitrust laws after Spotify and other app makers alleged unfair treatment. That case is still pending. Additionally, state and federal legislators in the U.S. have proposed bills targeting Apple’s App Store dominance.

While the Supreme Court ruling brings closure to a chapter of the legal battle, Epic Games and other developers have vowed to continue challenging Apple’s commissions and iOS restrictions.

Sweeney said Epic “will fight on,” while the Coalition for App Fairness advocacy group said it would support efforts by Congress to advance new App Store legislation [11]. Opening up iOS may remain an uphill battle, but Apple is likely to face ongoing antitrust scrutiny even as it tweaks App Store rules.

“Apple escaped the worst-case scenario, but the story isn’t over,” Bernstein analyst Toni Sacconaghi wrote in a note to investors [12].

The Supreme Court ruling indicates further changes to the App Store business model are probable. But Apple still maintains considerable control, and will fight relentlessly to protect its commission structure.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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