NorCal judge rules Apple can’t force developers to exclusively use App Store payment system – CBS Sacramento

(CNN) – Apple can no longer ban app developers from directing users to payment options outside of its App Store, a judge ruled on Friday. The ruling, which follows a controversial legal battle with the creator of the hugely popular video game Fortnite, is a blow to Apple – but the company also scored a partial victory as the judge declined to call it a monopoly.

Judge Yvonne Gonzalez Rogers of the U.S. District Court for the Northern District of California ruled on Friday that Apple violated California’s unfair competition law by forcing Fortnite and its maker Epic Games to use Apple’s payment systems on the App Store, the maker of the iPhone extracting a 30% commission on every in-app purchase in the process. It issued an injunction saying that Apple can no longer prohibit developers from adding links in their apps to external payment options; for example, alerting users to the possibility of paying for a subscription on a web browser, rather than through the app.

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But Gonzalez Rogers sided with Apple on the lawsuit’s other allegations and said she couldn’t find the iPhone maker to be a monopoly.

“Based on the trial record, the court ultimately cannot conclude that Apple is a monopoly under federal or state antitrust laws,” the court documents say. “Success is not illegal. The final trial record did not contain evidence of other critical factors, such as barriers to entry and a decline in production or innovation in the relevant market.

The decision, which will almost certainly be appealed, came after a months-long legal fight that could change the way we use our smartphones.

Apple stock was down nearly 3% by midday Friday after the decision. In a statement and a follow-up press appeal, Apple called the decision a victory for the company and said the court found it was not a monopoly.

“Today, the court confirmed what we have known from the start: the App Store does not violate antitrust law,” Apple said in a statement. “Apple faces stiff 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. “

In a series of tweets, Epic Games founder and CEO Tim Sweeney said the company “will continue to fight.”

“Today’s decision is not a victory for developers or for consumers. Epic is fighting for fair competition between in-app payment methods and app stores for a billion consumers, ”tweeted Sweeney, continuing,“ Fortnite will return to the iOS App Store when and where Epic can offer in-app payment. -app in fair competition with Apple. in-app payment, passing the savings on to consumers.

A spokesperson for Epic confirmed that the company plans to appeal the decision.

The fight began last August when Apple kicked Fortnite from the App Store for flouting its rules on in-app payments on the iPhone.

In a software update from Fortnite, Epic encouraged iOS gamers to purchase the in-game digital currency, known as V-Bucks, directly from Epic, rather than through Apple’s in-app purchase system. . To sweeten the deal, Epic offered a discount to those who bought V-Bucks directly.

While consumers may have viewed it as a loyalty bonus, Apple viewed it as a blatant breach of its contract with Epic and an attempt to undermine a key revenue stream. The iPhone maker started Fortnite from the App Store, and Epic immediately filed what appeared to be a largely premeditated lawsuit.

In a contentious lawsuit that began in May and lasted nearly a month, Epic argued that the App Store is a monopoly because it is the only way to access hundreds of millions of users of iPhone, and that Apple has hurt competition by banning other app stores or payment. methods on their devices.

The games company stressed that it was not seeking any monetary compensation in the lawsuit, but wanted the judge to force Apple to relax some of those restrictions. “Epic is only looking to change Apple’s future behavior,” company CEO Tim Sweeney said at the booth.

Apple and its CEO Tim Cook have sought to thwart this argument by pointing out that the iPhone is one of the many devices on which Fortnite users can play the game and buy V-bucks, including Android smartphones ( Epic is leading a similar lawsuit against Google) and video game consoles such as the PlayStation and Xbox, many of which also don’t allow alternative payment methods and charge similar commissions.

It is not illegal to have a monopoly under US law; it is only illegal to try to preserve a monopoly at the expense of competition.

Apple also justified its 30% commission by claiming that revenue from in-app payments helps improve security and privacy for iPhone users, giving developers a massive captive audience.

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“We made a choice,” Cook told the judge. “There are clearly other ways to monetize, but we chose this one because this one is overall the best way. “

Apple’s in-app payments commissions – often referred to by developers as the “Apple tax” – have been criticized by developers, lawmakers and regulators around the world for years. And while the Epic lawsuit is one of the most high-profile legal challenges, it is one of many in the past year alone. Other notable antagonists have been music streaming service Spotify and the parent company of dating app Tinder, Match Group, with the former targeting Apple in the United States and Europe for alleged anti-competitive behavior. In the weeks leading up to the verdict, Apple made several adjustments to App Store policies with the possible goal of avoiding further criticism of its practices. In late August, the company announced a settlement in a class action lawsuit that allows app developers to email their users alternative payment methods.

Days later, the company said it would further ease restrictions on “player” apps – a designation that applies to companies like Spotify and Netflix that distribute media – and allow those apps to connect to. external websites for users to set up and manage accounts. . This update, which will take effect in 2022, followed an investigation by the Japanese Fair Trade Commission.

These changes have received skeptical reception from major developers taking Apple.

“This is a crude demonstration of their monopoly power: to make wayward changes designed to spur good PR to their advantage as legislation, regulatory scrutiny, and developer complaints draw closer to them,” a Match Group spokesperson said in response to Apple’s class action lawsuit. regulation relaxing email rules for developers. “We hope everyone sees this for what it is – a sham.”

Gonzalez Rogers on Friday ordered Apple to change that system, saying the company could no longer ban developers from directing users to external payment mechanisms.

The practical result of the 180-page order will likely be that developers of the Apple App Store are no longer required to use Apple’s built-in payment system to raise funds from iOS users., said Josh Davis, a University of California professor at San Francisco Law School. He added that Apple will have to be careful how it implements the order to avoid being in contempt of court after the injunction goes into effect in 90 days.

“They are not only free to characterize this order as they wish,” he said.

Still, Stanford law professor Mark Lemley said it was possible only a few large, well-known apps can benefit from no longer having to rely on Apple’s in-app payment system.

“For your regular app that I use, I never quit the app, I just use it on the phone,” he said. “But it opens up the possibility for those who can persuade you to go or for whom you are already going. [to another platform] … they can say, ‘Hey, go buy your [Fortnite] downloads or your emoticons via [the Epic Store]. ‘”

Gonzalez Rogers also ruled in Apple’s favor on a counterclaim that Epic was in breach of contract for hijacking Apple’s in-app payment system and ordered the developer to pay damages equivalent to 30% of the $ 12,167,719 in income he received from the Fornite iOS app between August and October 2020, plus 30% of the income generated by the app from November 2020 to the date of judgment, and interest.

Meanwhile, pressure on Apple continues to build, with the company still facing antitrust scrutiny from the US House and Senate, as well as UK and US regulators. Europe.

South Korea has already taken one of the toughest measures against Apple’s payment restrictions in apps, passing a law in early September obliging Apple and Google to offer alternative payment systems to their users in the country. .

Gonzalez Rogers’ decision that Apple did not violate federal antitrust law could increase pressure on U.S. lawmakers to push forward bills that would reform antitrust laws for tech giants.

“I imagine that opinion could add to the momentum behind these bills,” said Davis of the UCSF, “to the extent that I could imagine lawmakers saying,“ Wait, we all know Apple has market power. These technical details of antitrust doctrine are a bit of an obstacle. We need to reform the law.

Friday’s decision is expected to be appealed, and the case could drag on for months or even years.

Update: This article and title have been updated to better clarify how Apple has been ordered to relax restrictions on developers.

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