Epic v. Apple ruling blocks Apple from banning links to alternative payments

But the company's anti-steering provisions are deemed illegal, judge says.

An image of the Fortnite app icon on iOS.

Apple may have to change its rules around controlling how developers communicate with customers.

Photo: Getty Images

The Epic v. Apple lawsuit has concluded. The verdict sees Apple come out largely unscathed — but with one of its central App Store policies deemed illegal.

In a decision filed Friday morning, Judge Yvonne Gonzalez Rogers ruled Epic Games failed to prove Apple holds an illegal monopoly over its app ecosystem, but that its so-called anti-steering provisions — its rules preventing developers from directing customers outside the App Store — are anticompetitive and must be changed. The ruling marks an end to a high-profile legal battle that started more than a year ago and has become one of the most explosive and consequential technology antitrust cases in recent memory.

Gonzalez Rogers, of the U.S. District Court for the Northern District of California, issued her verdict after more than three months of deliberation following a month-long trial that took place in Oakland this past May.

"Apple Inc. and its officers, agents, servants, employees, and any person in active concert or participation with them ("Apple"), are hereby permanently restrained and enjoined from prohibiting developers from (i) including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and (ii) communicating with customers through points of contact obtained voluntarily from customers through account registration within the app," the ruling reads.

Gonzalez Rogers said in her decision that both Epic and Apple had failed to determine the relevant market — a key first step in competition cases. The case should be focused on the market for transactions in mobile games, she reasoned, a $100 billion industry that accounts for the majority of the App Store revenue.

Because neither side offered enough evidence about that specific market, such as barriers to entry or the alleged effect of Apple's "considerable market share," Gonzalez Rogers said she couldn't actually make a call whether the company's control of the App Store made it an illegal monopolist. "Given the trial record, the Court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws," she wrote.

Nonetheless, Gonzalez Rogers concluded, Apple's steering rules — which she repeatedly criticized during the trial — were a problem and should be blocked. "Apple's anti-steering provisions hide critical information from consumers and illegally stifle consumer choice," she wrote. "When coupled with Apple's incipient antitrust violations, these anti-steering provisions are anticompetitive and a nationwide remedy to eliminate those provisions is warranted."

Apple issued a statement expressing overall satisfaction with the ruling, though the company has not yet said if it will appeal.

"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 company told Protocol. "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."

Epic CEO Tim Sweeney was less satisfied. "Today's ruling isn't a win for developers or for consumers," he said in a series of tweets. "Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers."

Fortnite is staying off iOS for now, Sweeney added, saying the game "will return to the iOS App Store when and where Epic can offer in-app payment in fair competition with Apple in-app payment, passing along the savings to consumers. ... We will fight on."

"Primarily a game store"

Knocking down Apple's anti-steering provisions could have a large effect on the overall App Store economy. Gonzalez Rogers noted that a majority of the App Store's revenue comes from games: in 2016, 81% of all billings were for mobile game transactions, while in 2017, 76% of all App Store revenue came from gaming. Nor is the spending evenly spread: Just 6% of people who spent any money on games in 2017 accounted for a massive 88% of all game billings that year.

"Indeed, in strategizing on the development of the App Store and Apple's gaming business, Apple noted that it 'need[s] to primarily consider how [its] service[s] would impact engagement and spend of this 6%,'" the judge wrote. "Thus, in most economic ways, and in particular with respect to the challenged conduct, the App Store is primarily a game store and secondarily an 'every other' app store."

It was never likely that all of Epic's demands, which included the option to install its own app store on the iOS platform in addition to bypassing Apple's 30% commission on digital purchases, would be granted. The final verdict does, however, offer a compromise that should open the door for Epic to direct Fortnite players from inside the app to cheaper in-game currency options on the web. In a broader sense, the ruling also threatens the lucrative mobile game market from which Apple profits handsomely: If every game maker begins directing users to alternative payment options, it could significantly affect the App Store's bottom line.

Epic kicked off the dispute when it updated the Fortnite iOS app in August of last year to include its own in-app payment system, bypassing Apple's and skirting the 30% commission requirement of all digital purchases on iOS. After Apple removed the app for violating its policies around in-app payments, Epic retaliated with a prepared antitrust lawsuit. Epic also updated the Android version of Fortnite to include its own payment option, and the company sued Google on similar grounds when the Android version was removed. The Google lawsuit has yet to go to trial.

The trial was notable for including testimony from some of the most powerful and longest-serving executives at Apple, including former marketing chief Phil Schiller and CEO Tim Cook. It involved exhaustive histories of the iPhone's creation and the rise of the mobile app economy, while also delving deep into the decision making that went into creating the App Store and Apple's many strategic decisions designed to protect it over the years as it grew into the massive and lucrative backbone of Apple's services business.

On Epic's side, the trial brought out CEO Tim Sweeney to testify and also inadvertently revealed some of the game industry's most closely held secrets through discovery and messy document dumps. Those included the financial terms of fiercely guarded exclusivity deals, the profitability of the console business and Microsoft's Xbox division in particular, just how successful Fortnite has been and to what degree Sony's PlayStation platform reaped the benefits of its leading market position. Scores of sensitive emails and documents also revealed the extent to which Epic carefully calculated its plan to subvert Apple and Google's mobile app store policies with legal challenges and a coordinated public relations assault.

Beyond Epic

In the months since the trial concluded, Apple has faced intensifying antitrust pressure worldwide that has resulted in stunning reversals of longtime App Store policies. In August, the company settled a class action lawsuit with U.S.-based developers, which was also before Gonzalez Rogers, by pledging to set up a $100 million fund for small app-makers. As part of the settlement, the company also agreed to clarify its anti-steering policies around advertising alternative payment options that bypass its App Store commission.

The concessions only applied to communications outside the app and modified policies that already had loopholes, and as such were relatively minor. Apple came out largely unscathed and without having to make major changes to its business model.

Just a week after that settlement was announced, however, South Korea passed a landmark law forbidding Apple and Google from requiring the use of their respective payment systems on iOS and Android, opening the door for alternative options not only to be advertised within mobile apps, but also fully integrated into them. Days later, Apple agreed as part of a settlement with Japanese regulators to further loosen its anti-steering developer rules and allow "reader" apps, such as those developed by Netflix and Spotify, to include links to outside websites so users can sign up online. The App Store model has also been under attack in several state legislatures, and in a bipartisan bill in the Senate.

The anti-steering provisions built into the App Store became one of the central contentions in the Epic v. Apple trial, with Gonzalez Rogers grilling Apple executives over the restrictions around advertising cheaper products and services and what logic the company used to justify forbidding the practice. "It would be akin to Apple down at Best Buy saying, 'Best Buy, put in a sign there where we are advertising that you can go across the street and get an iPhone,'" Apple CEO Tim Cook said on the stand.

Cook and other Apple witnesses portrayed the App Store as a secure, well curated environment that attracts the customers who build digital businesses — and said the store requires the money it extracts from fees for upkeep. However, Gonzalez Rogers routinely expressed skepticism of Apple's defenses of anti-steering, indicating her eventual verdict would involve a narrow ruling striking a compromise for both sides.

"What is the problem with allowing users to have choice, especially in a gaming context, to find a cheaper option for content?" Gonzalez Rogers asked Cook on the final day of testimony in May. "I understand this notion that somehow Apple's bringing the customers to the users. But after that first time, after that first interaction, the [developers] are keeping the customer with the games. Apple's just profiting off that, it seems to me."

Gonzalez Rogers' line of questioning struck at the heart of the Fortnite dispute, revealing how Cook and Apple at large view the company's relationship with developers and underscoring how much control Apple feels it is justified in exerting over commerce on the iOS platform.

"It doesn't seem to me you feel any pressure or competition to actually change the manner in which you act to address the concerns of the developers," she concluded at the time, noting that Apple has only improved its treatment of developers when under legal or regulatory pressure.

Ultimately, Gonzalez Rogers found, "Epic Games overreached, as the Court does not find that Apple is an antitrust monopolist in the submarket for mobile gaming transactions." Still, Apple's "anticompetitive" enforcement of anti-steering restrictions does have to go, she ruled, trying to thread the needle without drastically shaping up the status quo. "This measured remedy will increase competition, increase transparency, increase consumer choice and information while preserving Apple's iOS ecosystem," she concluded.

It's what happens now — whether game developers en masse direct customers outside the App Store, and whether Apple fights on appeal to prevent that — that will determine just how far-reaching the ruling is.

Hollywood averted its first streaming strike with an 11th-hour deal

IATSE's 60,000 members threatened to strike for better working conditions; at the core of the conflict was Hollywood's move to streaming.

60,000 Hollywood workers are set to go on strike this week.

Photo: Myung J. Chun/Los Angeles Times via Getty Images

The union representing 60,000 studio workers struck an agreement with major studios and production companies.

A last-minute agreement between the International Alliance of Theatrical Stage Employees (IATSE) and the Alliance of Motion Picture and Television Producers (AMPTP) helped avert a strike that would have shut down Hollywood: The two sides agreed on a new contract that includes pay raises as well as improved break schedules, Deadline reported Saturday evening.

Keep Reading Show less
Janko Roettgers

Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

The way we work has fundamentally changed. COVID-19 upended business dealings and office work processes, putting into hyperdrive a move towards digital collaboration platforms that allow teams to streamline processes and communicate from anywhere. According to the International Data Corporation, the revenue for worldwide collaboration applications increased 32.9 percent from 2019 to 2020, reaching $22.6 billion; it's expected to become a $50.7 billion industry by 2025.

"While consumers and early adopter businesses had widely embraced collaborative applications prior to the pandemic, the market saw five years' worth of new users in the first six months of 2020," said Wayne Kurtzman, research director of social and collaboration at IDC. "This has cemented collaboration, at least to some extent, for every business, large and small."

Keep Reading Show less
Kate Silver

Kate Silver is an award-winning reporter and editor with 15-plus years of journalism experience. Based in Chicago, she specializes in feature and business reporting. Kate's reporting has appeared in the Washington Post, The Chicago Tribune, The Atlantic's CityLab, Atlas Obscura, The Telegraph and many other outlets.

Protocol | Workplace

Instacart workers are on strike. How far can it get them?

Instacart activists want a nationwide strike to start today, but many workers are too afraid of the company and feel they can't afford a day off of work.

Gig workers protest in front of an Amazon facility in 2020.

Photo: Michael Nagle/Bloomberg via Getty Images

Starting today, an Instacart organizing group is asking the app's gig workers to go on a nationwide strike to demand better payment structures, benefits and other changes to the way the company treats its workers — but if past strikes are any indication, most Instacart users probably won't even notice.

The majority of Instacart workers on forums like Reddit and Facebook appear either unaware of the planned strike or don't plan to participate because they are skeptical of its power, afraid of retaliation from the company or are too reliant on what they do make from the app to be able to afford to take even one day off of the platform. "Not unless someone is going to pay my bills," "It will never work, you will never be able to get every shopper to organize" and "Last time there was a 'strike' Instacart took away our quality bonus pay," are just a few of the comments Instacart shoppers have left in response to news of the strike.

Keep Reading Show less
Anna Kramer

Anna Kramer is a reporter at Protocol (Twitter: @ anna_c_kramer, email: akramer@protocol.com), where she writes about labor and workplace issues. Prior to joining the team, she covered tech and small business for the San Francisco Chronicle and privacy for Bloomberg Law. She is a recent graduate of Brown University, where she studied International Relations and Arabic and wrote her senior thesis about surveillance tools and technological development in the Middle East.

Protocol | China

WeChat promises to stop accessing users’ photo albums amid public outcry

A tech blogger claimed that popular Chinese apps snoop around users' photo libraries, provoking heightened public concerns over privacy.

A survey launched by Sina Tech shows 94% of the some 30,000 responding users said they are not comfortable with apps reading their photo libraries just to allow them to share images faster in chats.

Photo: S3studio via Getty Images

A Chinese tech blogger dropped a bombshell last Friday, claiming on Chinese media that he found that several popular Chinese apps, including the Tencent-owned chat apps WeChat and QQ, as well as the Alibaba-owned ecommerce app Taobao, frequently access iPhone users' photo albums in the background even when those apps are not in use.

The original Weibo post from the tech blogger, using the handle of @Hackl0us, provoked intense debates about user privacy on the Chinese internet and consequently prompted WeChat to announce that it would stop fetching users' photo album data in the background.

Keep Reading Show less
Shen Lu

Shen Lu is a reporter with Protocol | China. Her writing has appeared in Foreign Policy, The New York Times and POLITICO, among other publications. She can be reached at shenlu@protocol.com.

Protocol | Enterprise

As businesses struggle with data, enterprise tech is cleaning up

Enterprise tech's vision of "big data" largely fell flat inside silos. But now, an army of providers think they've figured out the problems. And customers and investors are taking note.

Corporate data tends to settle in silos that makes it harder to understand the bigger picture. Enterprise tech vendors smell a lucrative opportunity.

Photo: Jim Witkowski/Unsplash

Data isn't the new oil; it's the new gold. And in any gold rush, the ones who make the most money in the long run are the tool makers and suppliers.

Enterprise tech vendors have long peddled a vision of corporate America centered around so-called "big data." But there was a big problem: Many of those projects failed to produce a return. An army of new providers think they've finally figured out the problem, and investors and customers are taking note.

Keep Reading Show less
Joe Williams

Joe Williams is a senior reporter at Protocol covering enterprise software, including industry giants like Salesforce, Microsoft, IBM and Oracle. He previously covered emerging technology for Business Insider. Joe can be reached at JWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.

Latest Stories