Apple notched another victory in its ongoing campaign to protect App Store profits after a US Supreme Court justice denied an attempt by Epic to force the iPhone maker to change payment practices.
As widely reported, Justice Elena Kagan denied Epic’s attempt to reverse a prior court decision to delay implementation of an injunction against Apple’s decision to force developers to only use its own payment systems for apps. Kagan’s decision means Apple can continue to run its App Store business as it already does, pending an appeal of that earlier case.
A short history of the Epic case
Epic in 2020 filed an antitrust suit against Apple, who it accused of being a monopolist because it insists consumers only acquire apps via the App Store, charging up to 30% commission on each sale. While the truth is that the vast majority of developers pay just a 15% commission, that 30% number resonated and became unfairly known as an “Apple tax."
The judge in that lawsuit, US District Judge Yvonne Gonzalez Rogers didn’t agree with nine out of 10 of the antitrust claims but did find Apple to be in breach of California's Unfair Competition Law by insisting developers only use its own payment methods.
She rejected Apple’s argument that opening up payments could expose customers to fraud and other scams and declared that the company should permit developers to link to external payment services. That decision was put on hold, and Epic objected to that hold. That latter objection has now been declined by the Supreme Court, which means the Apple doesn’t need to offer alternative payment services until the appeal is heard.
That appeal isn’t cut and dried, of course. Apple has until the end of the year to file it, but in the event the Supreme Court refuses to hear the case, the original ruling comes into effect.
Winners and losers
In basic terms, what's at stake is the opportunity for developers to take payments from consumers directly using services other than Apple’s. While this might help developers make more money from the sale, the actual cost of setting up and securing payment services means most will use existing alternative payment systems, all of which also charge fees.
Apple, in its turn, seems to have prevailed in its arguments that the platform it offers developers on which to do business is its own, which means it is entitled to charge something and will charge some form of fee.
In the Netherlands, where local regulations require it to permit developers of dating apps to support external payment systems, Apple is demanding 27% of sales, no matter which payment system is used.
In its latest court filing, the company argued that a stay be put on opening up payments, because: "Apple will be required to change its business model to comply with the injunction before judicial review has been completed. The undisputed evidence establishes that the injunction will limit Apple's ability to protect users from fraud, scams, malware, spyware, and objectionable content."
Deepwater Asset Management co-founder, Gene Munster offered the following observation. Calling this a “Big day in Cupertino,” he explained the decision means Apple will be able to maintain App Store revenue at the current levels, and could also reduce the chance it will be forced to make changes to App Store policy in future.
What I think
I continue to believe much of this matter is a storm in a teacup. Apple does not charge the majority of developers more than 15%, in exchange for which they gain access to a highly secure market of 1.4 billion users on the highly engaged platform Apple built from scratch.
There are other smartphone platforms, so arguments that Apple is in some way a monopolist are also flawed. The biggest beneficiaries of the challenge to Apple’s system won’t be consumers or smaller developers, but larger entities capable of running their own payment services.
It is highly unlikely competition in App Store payments will help consumers stay safe or gain access to lower prices. The bigger developers will just keep more of the cash while consumers are exposed to potential fraud and Apple will be forced to raise the cost of doing business on its platforms in other ways.
However, what the litigation has accomplished is to force Apple to improve the offer it makes to developers, including lowered commissions for small developers, better customer connections, wider price choices and improved developer support.
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