Apple has won a stay on an injunction that would have required the company to make significant changes to App Store guidelines including letting developers add alternative payment systems for in-app purchases.
In the original Epic vs Apple ruling, issued on September 10, judge Yvonne Gonzalez Rogers ruled in favour of Apple on 9 out of the 10 counts but said that the company’s anti-steering laws were in violation of California’s Unfair Competition Law, and issued an injunction saying the company cannot prohibit developers from “including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing.”
This injunction was set to go into effect on December 9, but Apple asked judge Rogers to stay it until the appeals filed by both Apple and Epic are resolved. But the company’s request was denied on November 9, after which it approached the Ninth Circuit Court of Appeals, which has now granted the stay.
Why this matters? The original ruling came as a relief to millions of app developers who have been repeatedly complaining about the high commission Apple and Google charge. Currently, developers pay a 15 to 30 percent commission to these companies on all in-app sales of digital goods and services. But this latest stay could possibly delay changes to the App Store guidelines for years as the higher court will now begin hearing Apple’s arguments against the original ruling.
Why was Apple granted a stay?
According to the order issued by the Ninth Circuit Court of Appeals, Apple’s request for a stay has been granted because it raises “serious questions” about the original ruling:
“Apple has demonstrated, at minimum, that its appeal raises serious questions on the merits of the district court’s determination that Epic Games, Inc. failed to show Apple’s conduct violated any antitrust laws but did show that the same conduct violated California’s Unfair Competition Law. […] Apple has also made a sufficient showing of irreparable harm […] and that the remaining factors weigh in favour of staying part (i) of the injunction and maintaining the status quo pending appeal.”
Notably, the court does not grant a stay on the second part of the order, which ordered the company to allow developers to communicate with customers through points of contact obtained voluntarily from customers through account registration within the app.
Commenting on the win, an Apple spokesperson told The Verge:
“Our concern is that these changes would have created new privacy and security risks, and disrupted the user experience customers love about the App Store. We want to thank the court for granting this stay while the appeals process continues.”
What did Apple argue in its appeal?
In the appeal filed with the district court, the company argued the following:
- Will solve the court’s concern by enhancing information flow: “Apple is carefully working through many complex issues across a global landscape, seeking to enhance information flow while protecting both the efficient functioning of the App Store and the security and privacy of Apple’s customers. Striking the right balance may solve the Court’s concerns making the injunction (and perhaps even Apple’s appeal itself) unnecessary,” the company said.
- Epic was not harmed by anti-steering provisions: Referring to anti-steering guidelines that were deemed anti-competitive, Apple said that “Epic barely mentioned that claim during the trial and offered no evidence that it was harmed by the anti-steering provisions.”
- Will cause irreparable harm to Apple and consumers: “The precipitous implementation of this aspect of the injunction would upset the careful balance between developers and customers provided by the AppStore, and would irreparably harm both Apple and consumers,” Apple said. “Absent a stay, Apple would be forced to permit developers to engage in conduct that will disrupt Apple’s lawful App Store business model. […] Some developers (including Epic) misread the injunction to permit unconstrained in-app messaging or links. […] Apple disagrees with this broad interpretation of the injunction, but Epic’s apparent endorsement of this view threatens Apple’s ability to operate its platform,” the company said.
- Apple’s in-app purchase requirement is pro-competitive: Apple said that it is “likely to succeed on appeal” because the Court has elsewhere recognised the procompetitive justifications for Apple’s IAP requirement and the Supreme Court has recognised the procompetitive effects of anti-steering provisions in Ohio vs AmEx case. Apple also added that Epic’s own expert witness “agreed that common practices in competitive markets are efficient.”
- Epic will suffer no harm from stay because they do not have a developer account: Apple argued that Epic will not suffer from any harm if a stay is granted because Apple has rightfully rejected Epic’s request to reinstate its developer program account and thus it will not be able to make use of the injunction even if it wants to.
- Already allow developers to communicate with users about payment options: Citing a concession that Apple made in August to settle a lawsuit, the company argued that it already allows developers to inform users through communication tools like email about payment methods available outside the in-app billing system. However, this concession does not allow in-app links or buttons to third-party payment processing systems.
- Buttons and external links can be fraudulent: “Links and buttons to alternate payment mechanisms are fraught with risk. Users who click on a payment link embedded in an app—particularly one distributed through the curated App Store—will expect to be led to a webpage where they can securely provide their payment information, email address, or other personal information. A developer may thus try to take advantage of user trust, carefully cultivated by Apple’s safe and secure platform, and deceive users into providing their payment information to a malicious platform. […] While Apple could examine the links in the version of the app submitted for review, there is nothing stopping a developer from changing the landing point for that link or altering the content of the destination webpage,” Apple said.
- No way to determine if users got what they paid for: “Additionally, Apple currently has no ability to determine whether a user who clicks on an external link actually received the products or features she paid for. Apple already receives hundreds of thousands of reports each day from users, and allowing links to external payment options would only increase this burden,” the company said.
- IAP offers a number of protections to consumers: “IAP offers a number of protections for consumers, such as those against fraudulent transactions. Their effectiveness depends, in part, on information Apple receives through IAP—the more data it has, the better it can protect consumers from fraud. Deterring users from using IAP could thus adversely affect the integrity of iOS as a whole, including for those users who transact exclusively using IAP. And Apple offers a host of other user protections and benefits—such as a “content check” feature to make sure a user has not made a duplicative purchase, and an “ask to buy” feature that allow parents to approve or block a child’s in-app purchase— that are uniquely available through IAP,” the company said.
- Implementation will take time and resources cannot be recovered if it wins appeal: “Implementation of the injunction would require substantial technical and engineering changes. Beyond the mere functionality of permitting external payment links, Apple would have to develop technical solutions to address the security and privacy vulnerabilities addressed above. Apple would have to develop new App Review processes. Apple would have to write and enforce new Guidelines. And Apple would have to engineer alternative solutions for collecting its commission—an undertaking the Court acknowledged could be costly. Once Apple invests these resources, it will not be able to recover them if the injunction ultimately is overturned on appeal (even in part).”
Challenges to app stores from other parts of the world
- India: Both Google and Apple are facing regulatory scrutiny over their app stores. While the Competition Commission of India (CCI) ordered a detailed investigation into Google Play Store in November 2020, it is currently reviewing an antitrust complaint filed against Apple App Store in September 2021
- South Korea: A South Korean law passed in August requires app stores to allow alternative in-app purchase mechanisms allowing developers to use their own billing system and avoid paying Google’s or Apple’s service fees. Google in November complied with this new law but has still found a way to charge developers a commission albeit at a reduced rate.
- Japan: Earlier in September Apple made a concession to settle an investigation by Japan’s Fair Trade Commission into the Apple App Store. The concession allows developers of “reader apps” like Netflix and Spotify to include an in-app link to their website for users to set up or manage an account.
- Netherlands: The Dutch antitrust authority has found that Apple’s rules requiring app developers to use its own payment system are anti-competitive. While the Netherlands’ Authority for Consumers and Markets has not fined Apple, it has demanded changes in the company’s in-app payment policies.
- China: China’s Supreme Court in September dismissed Apple’s plea and ruled that an antitrust lawsuit filed by a consumer against the company’s China entity can proceed. In its plea, Apple had argued that the lawsuit should not be allowed because its China entity does not deal with App Store operations. The court, however, said that Apple had potentially abused its market position and undermined competition, and hence the case can be heard.
- US proposed bill: On August 11, US lawmakers introduced a new bill titled Open App Markets Act that proposes:
- Operating systems must allow third-party app stores
- Developers must be allowed to choose their choice of in-app payment system
- Pricing for various app stores or in-app payment systems can be determined by developers
- Developers can freely communicate pricing offers with users
- Google and Apple cannot use non-public data to build competing apps
- No self-preferencing in app stores
- Third-party developers must be provided with the same access to developer tools
- EU and UK: The European Union has launched an investigation into Apple App Store following a complaint from Spotify and the United Kingdom has launched a broad investigation into Google’s and Apple’s effective duopoly over the supply of operating systems (iOS and Android), app stores (App Store and Play Store), and web browsers (Safari and Chrome). Both investigations are ongoing.
- Russia: Russia’s Federal Antimonopoly Service (FAS) on October 27 launched an antitrust investigation into Apple’s App Store for not allowing developers to link to third-party payment systems.
What spurred the Apple vs Epic lawsuit?
Back in August 2020, Epic Games allowed Fortnite game users to pay directly to Epic for in-app purchases rather than through Apple’s billing system. While the company did not specify why it introduced this, it is safe to assume that it was done to avoid paying the 30 percent commission that Apple levies, which many developers have said is too high. Regardless, Epic’s move went against App Store guidelines and Apple removed the Fortnite game from App Store and suspended Epic’s developer account. This prompted Epic Games to file a lawsuit against the company. Separately, Epic has also filed a lawsuit against Google’s Play store for similar reasons, the hearings for which are yet to begin.