Tim Cook chose poorly
Yesterday, Judge Yvonne Gonzalez Rogers, who has presided over the Epic Games v. Apple case since it was brought by Epic in 2020, ruled that Apple violated an injunction issued in 2021 that compelled Apple to allow developers to link to external account management systems, including for payments. From the WSJ (emphasis mine):
A federal judge hammered Apple for violating an antitrust ruling related to App Store restrictions and took the extraordinary step of referring the matter to federal prosecutors for a criminal contempt investigation … The order is the latest twist in a long-running legal dispute between Apple and Epic Games, developer of the popular videogame “Fortnite.” It accused Apple of monopolistic behavior in a 2021 case related to the tight controls it imposes over app makers … Rogers largely ruled in Apple’s favor in the 2021 case but required the iPhone maker to allow developers to offer users alternative methods for paying for services and subscriptions outside the App Store … Apple said it would comply with the order. The company disagrees with the court’s decision and will appeal, a spokeswoman said.
Apple had appealed the original ruling, which was upheld roughly two years ago, in April 2023. In my coverage at the time, in a piece titled The Epic v. Apple appeal decision will change very little, I argued that forcing Apple to allow link-out and other forms of alternative payments would have little impact on the app economy so long as Apple continued to force developers to pay commission fees on those transactions. From that piece:
And Apple and Google have both dug their heels in on collecting a platform fee on alternative payments. Apple introduced entitlements related to both in-app and out-of-app alternative payments in order to collect a 27% fee on IAPs in dating apps in the Netherlands, where the domestic competition authority ruled that alternative payments (exclusively in dating apps) must be supported. And Google and Apple both extract a 26% fee on alternative payments processed in South Korea, where a law was passed in 2021 to assert the same. And Google announced last week that it will allow alternative payments in Google Play in the UK following an investigation by the UK’s competition authority, but that it will extract a 27% fee on those payments … If these fees are extracted on alternative payments, given the conversion friction inherent in monetizing users outside of native payment mechanisms, the economics of “by-the-book” alternative IAPs for mobile game developers will simply break.
I have chronicled Apple’s attempts to maintain its commission on out-of-store transactions in my Apple to developers: Heads I win, tails you lose series (see parts one, two, three, and four). My argument all along has been that, if Apple is allowed to apply its significant commission on transactions that take place out of the App Store, the economics of payment alternatives are simply unworkable. This ruling changes that, however: in a withering 80-page decision, Judge Rogers determines that Apple not only violated the injunction but also that an Apple executive lied under oath during the trial. And with this decision, with which the company must comply immediately, Apple’s ironclad grip on out-of-store payments has been broken. While other developments in this case have mostly been insignificant, this one isn’t: it’s truly a watershed moment for the app economy (noting that Apple plans to appeal).
From the decision (emphasis mine):
Apple’s response to the Injunction strains credulity. After two sets of evidentiary hearings, the truth emerged. Apple, despite knowing its obligations thereunder, thwarted the Injunction’s goals, and continued its anticompetitive conduct solely to maintain its revenue stream. Remarkably, Apple believed that this Court would not see through its obvious cover-up (the 2024 evidentiary hearing) … In stark contrast to Apple’s initial in-court testimony, contemporaneous business documents reveal that Apple knew exactly what it was doing and at every turn chose the most anticompetitive option. To hide the truth, Vice-President of Finance, Alex Roman, outright lied under oath. Internally, Phillip Schiller had advocated that Apple comply with the Injunction, but Tim Cook ignored Schiller and instead allowed Chief Financial Officer Luca Maestri and his finance team to convince him otherwise. Cook chose poorly … This is an injunction, not a negotiation. There are no do-overs once a party willfully disregards a court order. Time is of the essence. The Court will not tolerate further delays. As previously ordered, Apple will not impede competition. The Court enjoins Apple from implementing its new anticompetitive acts to avoid compliance with the Injunction. Effective immediately Apple will no longer impede developers’ ability to communicate with users nor will they levy or impose a new commission on off-app purchases.
And time truly is of the essence: today, Stripe launched an extension of its off-platform app payments option that allows for native, in-app checkout on iOS (see this video to understand how seamless the process is). Clearly, Stripe anticipated this outcome as an eventuality. And I’m certain that every app developer is currently investigating how they can launch off-platform payments.
I’ve consistently maintained that Apple has the right to charge whatever fee it chooses for App Store payments — see Three arguments against Apple anti-trust accusations for my arguments. I don’t begrudge Apple’s claim on App Store commissions, given the central role it plays in facilitating them. But Apple’s efforts to impede off-platform payments were beyond the pale, as I have detailed over the past few years in the Heads I win, Tails you lose series. This development is just and past due.
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