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Apple loses Epic fight: app developers can now avoid App Store payments

Apple App Store
(Image credit: Apple)

Apple was just hit with a permanent injunction by Judge Yvonne Gonzalez-Rogers in its legal battle with Epic Games, preventing the company from forcing developers to use the App Store's payment system for in-app purchases. This seemingly clears the way for developers to use their own or other third-party in-app payment systems to evade Apple's up to 30% revenue cut for all in-app purchases.

The decision, first reported by The Verge's Nilay Patel on Twitter, is a seismic event for the Cupertino-based tech giant. Its App Store revenue structure has been a major profit center for the company, generating a little over half a trillion dollars in revenue in one year, according to a June 2020 study. 

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The ruling has a big impact, but is very specific: Apple can't stop developers from directing users to third-party payment options. It doesn't require Apple to allow those payments within apps, nor will it explicitly pave the way for offending apps (like Epic's Fortnite) to become available on iOS. It also lets Apple keep the App Store as the only software gateway on its devices. 

You can read the full 185-page ruling here, as uploaded by The Verge. While we've outlined the big decisions here, expect more interesting revelations to crop up as reporters comb the pages, from evolving definitions of the Metaverse to dismantling Epic's claim of Apple's monopoly.

Apple has tithed app revenue since the App Store launched in 2008 – if consumers bought an app or paid money within it, Apple took a 30% cut of it. That cut was lowered to 15% in certain cases, like for subscriptions made through the app that pass the one-year mark and for developers who rake in less than $1 million in revenue. (The latter was announced in November 2020, months after Epic began its legal battle with Apple.)

The App Store has definitely helped many developers publish their apps in a 'walled garden' software store with enough curation and screening to keep out many predatory and poor-quality apps, and so paying Apple 30% was considered a reasonable trade-off in the early days. But developers both large and small have chafed under the tithing structure as Apple reaped enormous revenue from other developers products, especially from microtransactions that are key sources of revenue for modern free-to-play games.

Epic Games, the makers of the worldwide sensation Fortnite, decided to contest this revenue-share structure by attempting to redirect in-game microtransactions entirely to itself, which ran afoul of Apple who subsequently took Fortnite off the App Store entirely.  

What does this ruling mean for consumers?

Consumers shouldn't expect any seismic changes to apps or the app experience, especially at first: the injunction doesn't go into effect for another 90 days on December 9, which could in theory be delayed further if a higher court gets involved and enjoins the decision. 

But another huge conclusion of the legal saga is that Apple won't be required to let Fortnite back on the App Store, as 9to5Mac points out. Indeed, Judge Gonzalez-Rogers' decision explicitly affirms that Epic is in the wrong for breach of contract, and Apple's booting Fortnite off the App Store was valid and lawful. 

Further, Epic owes Apple for the revenue it made on its app during the short span last year (August to October 2020) in which Fortnite wasn't paying Apple its tithe – which is $12,167,719, per the court filing – and Apple owes 30% on that. 

This could chill further efforts to directly oppose Apple in the way that Epic has done – that is, by intentionally breaking the App Store's policies and attempting to prove their illegality/market harm through legal challenge. Indeed, the judge's decision went so far as to say “the court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws.”

What does this mean for Fortnite on iOS?

As previously stated, the judge has considered Apple's decision to kick Fortnite off the App Store lawful and valid, suggesting Epic would have to satisfy the tech giant's conditions to be let back on the platform.

But Epic Games CEO Tim Sweeney seemed to reject that possibility in a tweet, asserting that Fortnite will come back to iOS and the App Store when it can use its own in-app payments instead of Apple's:

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In other words, it seems like Epic isn't rushing to get Fortnite back on iPhones just yet. That could all change if Apple's policies change, like offering a secret reduced rate, as Apple reportedly did for Amazon years ago to get Prime Video on the App Store, per The Verge. Or Epic could submit to the current policies and get revenue flowing from a platform base that numbered over one billion active iPhones, per Apple's January 2021 earnings call

What does this mean for the App Store going forward?

While Epic initially insisted that its lawsuits with Apple (and Google at first) was objecting to the 30% revenue cut, its legal arguments explicitly campaigned for third-party storefronts to be allowed on iOS and Android – in essence, setting up the Epic Games Store on smartphones and tablets. 

The judge's Epic v Apple ruling does not permit this, effectively allowing the App Store to continue as the sole software store and gateway on iOS (and iPadOS by extension). Unsurprisingly, Apple is taking this as a win, according to an official statement: 

“Today the Court has affirmed what we’ve known all along: the App Store is not in violation of antitrust law. As the Court recognized ‘success is not illegal.’ 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," the statement read. "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.”

Consumers shouldn't expect the App Store to change, but will likely see apps point out payment alternatives through browsers or other ways to sidestep Apple's up to 30% cut on in-app purchases. It could work similar to how companies are currently using in-browser apps as workarounds for jumping through Apple's App Store hurdles, as Microsoft has done with Xbox Cloud Gaming, but we'll have to wait and see how developers and companies respond to the judge's ruling.

Sweeney tweeted a repudiation the decision, claiming it "isn't a win for developers or for consumers," echoing his prior position that the company's lawsuit sought to allow other payments and app stores on iPhones and other Apple devices. 

This story is developing...

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