A Verdict With No Clear Winners

Apple has 90 days to allow in-app payment options beyond those which go directly through the App Store, according to a federal judge’s ruling delivered Friday on the months-long legal battle between Apple and “Fortnite” maker Epic Games.

The ruling, which goes into effect on December 9, will benefit Epic Games. The video game maker, led by Tim Sweeney, created its own in-app payment system to avoid Apple’s 30% cut of its in-app purchases, which resulted in a ban of “Fortnite” from the App Store.  Shortly after in August 2020, Epic sued Apple, arguing that Apple was abusing its monopolistic position and engaging in anti-competitive practices by only allowing Apple payment systems in apps. But the verdict, written by the U.S. District Judge Yvonne Gonzalez Rogers, did not fully support Epic, either.

“The Court does not find that Apple is an antitrust monopolist in the submarket for mobile gaming transactions,” Judge Gonzalez Rogers wrote. “However, it does find that Apple’s conduct in enforcing anti-steering restrictions is anticompetitive.”

The judge also addressed Epic’s clandestine efforts to go around Apple’s payment system, stating it had breached its contract with the Cupertino, Calif.-based company, led by Tim Cook. Epic will have to pay Apple 30% of revenue collected from their own system, which amounts to roughly $3.5 million. Epic did not immediately respond to a request for comment.

Analysts agree that this ruling has little financial impact on Apple. According to Dan Ives, analyst at Wedbush Securities, the ruling is “a containable legal blow to Apple.” By his estimates, there is less than 5% of revenue from the App Store at risk as a result of this change. “The Apple App Store remains a moat and this does not significantly move the needle.”

Apple currently collects 15% to 30% of app developers’ revenue if the payments were transacted through its App Store. 

A statement from Apple released shortly after the ruling focused only on Judge Gonzalez Rogers’ conclusion that Apple is not an antitrust monopolist. “Today the Court has affirmed what we’ve known all along: the App Store is not in violation of antitrust law,” the statement read. “As the Court recognized ‘success is not illegal.’ Apple faces rigorous 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. We remain committed to ensuring the App Store is a safe and trusted marketplace.” 

No mention of the new requirement for alternative app store payments. “The ruling is definitely not as positive as Apple is trying to make it,” said Harsh Kumar, an analyst at Piper Sandler. “The ruling is irrelevant in terms of how much of a financial impact it will have on Apple. But Apple wants to have complete control [over the App Store], and that is clearly not what happened.” 

Gene Munster, managing partner and cofounder of venture firm Loup Ventures, agrees. “It’s a mixed bag for both Apple and Epic,” he said. “Epic won the steering count and Apple won [in] that it’s not a monopoly. As for impact, overall the App Store is about 7% of total revenue and 14% of profits. I expect this to have at most a 2% headwind to overall revenue and 4% to earnings.” 

Deeper implications of the App Store with this ruling remains to be seen. Currently, app developers like Epic Games can publish its applications on Apple’s operating system for free. “I suspect what will happen is that the model for the App Store might be tweaked down the line where you as an app developer will have to pay upfront if it’s going to have a significant amount of transactions down the line,” said Kumar of Pipe Sandler. “There is just no point for Apple to keep an app on its App Store if they’re not going to make money off of it.” 

Regardless of whether Apple will enact an upfront cost for app developers, it still owns the largest app market. “The fact remains that the App Store is the world’s most popular place to find apps,” said Kumar. “I suspect most app developers will find a happy medium at some point in time.”