Epic Games v. Apple: Judge makes decision

Apple’s lucrative App Store business took a heavy blow on Friday thanks to a ruling by a federal judge in the company’s legal battle with Epic Games.

Judge Yvonne Gonzalez Rogers issued the ruling in the closely watched process and issued an injunction stating that Apple can no longer prohibit developers from providing links or other communications that dissuade users from Apple in-app purchases. Apple typically cuts gross sales by 15% to 30%.

The injunction addresses a long-standing developer complaint and raises the possibility that developers could direct their users to their website to subscribe to or buy digital content, hurting Apple’s App Store sales, which are estimated to be $ 64 billion in 2020 brought in.

Apple stock fell more than 3% on Friday.

The decision closes the first part of the battle between the two companies over Apple’s App Store guidelines and whether they’ll stifle competition. Apple won nine out of ten but has been anticompetitive under California law and will be forced to change its app store policies and relax its control over in-app purchases. The injunction comes into effect in December.

“The court concludes that Apple’s anti-steering regulations hide critical information from consumers and illegally stifle consumer choice,” wrote Rogers. “Coupled with Apple’s incipient antitrust violations, these anti-steering regulations are anticompetitive and a state-wide remedy to remove these regulations is warranted.”

However, Rogers said Apple is not a monopoly and that “success is not illegal”.

“Given the court record, the court cannot ultimately conclude that Apple is a monopoly under either federal or state antitrust laws,” wrote Rogers.

The trial took place in Oakland, Calif., In May and included the testimony of both company bosses in court. People familiar with the process previously told CNBC that both sides expected the decision to be appealed, regardless of what it was.

“We are very pleased with the verdict from the court and see it as a great win for Apple,” said Kate Adams, Apple’s general counsel.

Apple didn’t say whether it would appeal the injunction. Epic Games will appeal the decision, a spokeswoman told CNBC.

Epic Games CEO Tim Sweeney criticized the verdict in a statement on Twitter.

“Today’s verdict is not a win for developers or consumers,” Sweeney tweeted. “Epic is fighting for fair competition between in-app payment methods and app stores for one billion consumers.”

Since the end of the process, but before the decision was announced, Apple has made several changes to appease critics, some as part of comparisons with other app developers, including relaxing some rules for emailing customers to them encourage people to make purchases outside of the app and allow some links in apps.

Rogers wrote in the ruling that she disagreed with both Apple and Epic Games over shaping the market that Apple allegedly dominates. Rogers stated that these were “digital mobile game transactions,” not all iPhone apps as Epic Games claimed, nor all video games as Apple claimed.

Battle for Fortnite

Epic Games is among the most prominent companies questioning Apple’s control of its iPhone App Store, which has strict rules about what is allowed and what is not and requires many software developers to use its in-app payment system, which is between % Of each transaction takes 15 and 30 minutes.

Epic’s most popular game is Fortnite, which makes money when players buy V-Bucks or the in-game currency to buy costumes and other cosmetic changes.

Epic didn’t want any money from Apple. Instead, it wanted to be able to install its own app store on iPhones in order to circumvent Apple’s cut and to levy its own fees for the games it sells. Epics Sweeney had chafed against Apple’s in-app buying rules back in 2015, according to court files and exhibits. Friday’s ruling does not allow Epic to offer an app store in Apple’s app store.

Apple CEO Tim Cook is cross-examined by Gary Bornstein when he was in federal court in Oakland, Calif., Jan. 21 during weeks of antitrust proceedings.

Vicki Behringer | Reuters

But the public clash between the two companies began in earnest in August 2020 when Epic implemented a plan called “Project Liberty” against Apple to challenge Apple, according to court records.

Epic Games has updated Fortnite on its servers to lower the price of its in-game currency by 20% if players bought directly from the company, circumventing Apple’s acquisition and violating Apple’s rules, users of its in-app payments distract.

Apple removed Fortnite from the App Store, meaning new users couldn’t download it and at some point it stopped working on iPhones because the app couldn’t be updated. As planned, Epic then filed a lawsuit that culminated in the May trial.

Epic Games will also have to pay Apple damages for breaching its contract, Rogers ruled. The video game developer pays Apple 30% of all revenue it has made from Fortnite on iPhones and iPads through direct payments.

During the trial, Apple CEO Tim Cook testified on a recent day and was asked by Rogers about his restrictions on directing purchases outside of the Rogers app, which eventually became the subject of Friday’s injunction.

“It seems to me that you are not feeling any pressure or competition to actually change the way you act to address developer concerns,” Rogers said at the time.

Epic Games also sued Google over its control over the Play Store for Android phones. This case is not yet on trial.

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