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Apple wins Epic court battle while ceding ground on App Store

Apple wins Epic court battle while ceding ground on App Store
A customer holds a new Apple Inc. iPhone 12 Pro at an Apple Inc. store in San Francisco, California, U.S., on Friday, 23 October 2020. (Photo: David Paul Morris/Bloomberg)

Apple notched another victory in its long-running court battle to block Epic Games from breaking down barriers in the App Store, but the iPhone maker’s money-making fortress remains under siege.

Years of complaints from app developers and scrutiny from governments globally have already forced Apple to rewrite some of the rules protecting its dominance in the $160-billion app distribution marketplace — and more changes are on the way. But the overall impact on Apple’s bottom line and hold on the App store is likely limited, with the fees it charges not changing.

While Epic, the maker of the popular Fortnite game, on Monday lost an appeals court fight to lift Apple’s ban on third-party app marketplaces on its operating system, the intense pressure coming from rivals including Spotify Technology SA and subscription app makers like Match Group has opened up the App Store like never before in its 15-year history. 

A collective push forced the European Union and other markets to implement laws such as the Digital Markets Act that will require Apple to redesign the architecture for its software to support third-party app download stores and increased interoperability with rival apps and services. 

Legislation known in Washington as the Open App Markets Act failed last year amid ramped-up defensive lobbying by Apple, but Spotify’s CEO has this year continued his crusade against the iPhone maker in the US capital.

What Bloomberg Intelligence Says

“US antitrust threats to Apple’s business model will continue through 2023, even though passage of intrusive new laws has become less likely given gridlock in Congress. Litigation over its App Store is still a risk, with ceaseless private lawsuits and a possible action by the Justice Department.”

— Jennifer Rie, Senior Litigation Analyst

Legislation and lobbying from developers has created an immense amount of change for the App Store in recent years. The appeals court upheld a lower court judge’s ruling that forces Apple to allow app developers to direct users to outside payment methods. Shortly before the judge’s ruling in September 2021, Apple announced that it would let people sign up on the web for subscriptions in so-called reader apps — cloud services, video and music players, and book readers — and then log into the corresponding app on Apple devices. That bypasses Apple’s fees.

The company also said it would allow developers to advertise lower pricing from outside the App Store via email or other forms of communication, reversing a longtime stance. Individual app categories are also gaining new rules. For instance, in the Netherlands, dating apps can use outside payment platforms and in turn give Apple a slightly lower revenue share because of new local laws.

Epic’s CEO Tim Sweeney said on Twitter Apple prevailed, even though the appeals court upheld a ruling that Apple’s restraints have “a substantial anticompetitive effect that harms consumers”.

He noted the court rejected Apple’s anti-steering provisions for payments.

Fortunately, the court’s positive decision rejecting Apple’s anti-steering provisions frees iOS developers to send consumers to the web to do business with them directly there. We’re working on next steps.

— Tim Sweeney (@TimSweeneyEpic) April 24, 2023

Apple called the appeals court decision a “resounding victory”, with nine of 10 claims decided in its favour.

“For the second time in two years, a federal court has ruled that Apple abides by antitrust laws at the state and federal levels,” the company said. It added it disagreed with the ruling on the anti=steering claim and is considering further review of it.

Either company can ask the full court to review the three-judge panel decision.

Despite plans to open up the iPhone to third-party download stores, Apple may still seek to charge developers for a profile that actually will allow the app to run — something that wouldn’t violate Europe’s new law.

The company continues to report strong earnings from its services segment, which houses the App Store. It’s also fine-tuning its platforms to drive more developers and apps that help it sell new devices. In June, Apple is introducing its first mixed-reality headset and xrOS, a place where it will sell developers on making new types of apps and services. For Apple, it will be another avenue to collect revenue.


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