Thursday, Nov 18, 2021, 17:10 Economy

Apple Appeals App Store Payment Method Ruling + US$100 Million Settlement Met With Developers

Apple's been in a bit of a tricky legal position of late, be it rulings from the FTC, the court battle with Epic Games, or even a recent ruling concerning the App Store following the lawsuit. Some of Cupertino's common practices are on ice right now and although the company achieved an almost unanimous victory in its defense against Epic Games, the company's still on thin ice. Judge Gonzalez Rogers determined in Epic v. Apple that Cupertino did not in fact behave in a monopolizing manner (however, this does not apply to all areas of the company's practice) when it banned Epic Games from the App Store for allowing users of its "Fortnite" app to purchase in-app content from an external store not subject to Apple's 30% commission on in-app purchases. As per Apple's terms of service, "third party app stores" are explicitly prohibited, essentially forcing all developers to either raise the price of their apps and in-app content to achieve desired sales due to Apple's 30% commission – or to keep static and simply accept the loss. This is a big problem, especially for small developers – although Apple did recently adjust the "App Store tax" for smaller developers (see last paragraph of linked article). Despite Judge Yvonne Gonzalez Rogers having declared Apple the victor of the court battle, she did see some need for change: developers should be able to allow for external payment methods in and for apps via a button or link.

A Small Change With A Big Impact For Apple
Although the matter might seem relatively minor, it carries great meaning for Apple. At the moment, all developers (excluding a few, e.g. Amazon or other retail sites) are subject to Cupertino's 30% commission on all sales and in-app purchases (however, that number is reduced to 15% if developers have less than US$1 million yearly sales). It's strictly forbidden to circumnavigate this process by directing customers to external payment methods via the app. Despite the fact that the Judge didn't see Apple's ban of Epic Games from the app store as monopolizing, she did view the circumstances surrounding the App Store platform's rules that led to Epic Games' ban as a "distortion of competition". In September, Judge Rogers ruled that Apple would have 90 days to remove the relevant passage from its terms of service and also to provide developers with other means of billing customers – meaning that developers should be allowed to redirect customers to external payment methods via the app. It would thus be possible for developers to completely ignore Apple's in-app payment system and to handle transactions entirely via external service providers offering better conditions. If so, Apple would stand to lose billions.

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No Postponement Of Ruling
Just last week, Apple requested more time to implement Judge Rogers' decision with Cupertino stated that the ruling should only be implemented once the proceedings are completed. However, since Apple failed to bring forth any sensible arguments justifying a delay in the ruling, Judge Rogers struck down the request which was mostly seen as an attempt to save Apple some of the commission revenue from Christmas sales. The ruling still stands to be implemented as expected on the 9th of December.

Apple: The Judge "Went Too Far"
The word from Apple's court team is now that the judge has gone "too far" and exercised judgement beyond her scope of practice. After all, applying a decision from just one legal battle to all developers and the entire platform is a bit much – according to Apple, at least. Apple is currently represented by Gibson, Dunn & Crutcher LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP in the matter.

Judge Approves US$100 Million Settlement
In 2019, a number of developers joined forces to sue Apple over the company's 30% "tax", demanding a reduction. As a result of the lawsuit, Cupertino began the "Apple Small Business Program" for developers with less than US$1 million in yearly sales on Apple's App Store platform. Those within the margin were only subjected to a 15% commission as opposed to the massive 30% "Apple tax" which previously applied to all companies. The same judge handling Epic v. Apple has now approved a US$100 million settlement between Apple and the developers of the 2019 lawsuit, thus resolving the matter. Each US developer will receive between US$250 and US$30,000 from a US$100 million pot for apps sold on the App Store between the 4th of June 2015 and the 26th of April 2021. The agreement also provides that developers will now be allowed to notify customers of offers outside of the App Store platform via email.

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