U.S. judge in ‘Fortnite’ case strikes down Apple’s in-app payment restrictions

September 10, 2021

By Stephen Nellis

(Reuters) -A U.S. judge on Friday issued a ruling in “Fortnite” creator Epic Games’ antitrust lawsuit against Apple Inc’s App Store, striking down some of Apple’s restrictions on how developers can collect payments in apps.

The ruling is similar to a move that Apple made to settle an antitrust ruling in Japan last week and says Apple cannot bar developers from providing buttons or links in their apps that direct customers to other ways to pay outside of Apple’s own in-app purchase system, which charges developers commissions of up to 30%. The ruling also said that Apple cannot ban developers from communicating with customers via contact information that the developers obtained when customers signed up within the app.

The ruling comes after a three-week trial in May before Judge Yvonne Gonzalez Rogers of the U.S. District Court for the Northern District of California.

Apple shares moved down about 3.4% on news of the decision, knocking $87 billion off the company’s market value. Shares of Alphabet Inc, which operates an app store for Android smartphones, reversed an earlier gain and were last down 0.8%.

Shares of videogame makers that offer their games on Apple’s app store rallied. Zynga surged 8%, while Electronic Arts and Activision Blizzard each rose over 2%.

The decision strikes down a core part of Apple’s App Store rules, which prohibit developers from telling users about other places they can go to pay the developer directly rather than using Apple’s payment mechanisms. Gonzalez Rogers issued a nationwide order that allows developers to put into their apps “buttons, external links, or other calls to action that direct customers to purchasing mechanisms.”

But Gonzalez Rogers stopped short of granting Epic some of its other wishes, such as forcing Apple to open the iPhone up to third-party app stores.

Apple said in a statement: “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.”

The orders are similar to a move that Apple made last week to conclude an investigation by the Japan Fair Trade Commission in which Apple said it would allow such “reader” apps like Netflix Inc to provide a link to customers to sign up for a paid account outside of the app, skipping Apple’s commission.

Last week, analysts estimated that the JFTC settlement would shave off only 1% to 2% of Apple’s profit because “reader” apps are a small part of the company’s App Store revenue. But games are a much larger portion.

“While reader apps collectively make up just 14% of (the past 12 months’) App Store developer revenue, Gaming apps are the App Store cash cow, accounting for 63% of developer revenue” over the past year, Morgan Stanley analyst Katy Huberty wrote in a note.

The judge ruled Epic failed to demonstrate Apple is an illegal monopolist, but did show the smartphone giant engaged in “anticompetitive conduct” under California laws.

The judge issued a nationwide injunction blocking Apple “anti-steering provisions” — rules that limit app developers from pointing users outside of Apple’s ecosystem.

The judge said these rules “hide critical information from consumers and illegally stifle consumer choice.”

(Reporting by Nivedita Balu in Bengaluru, Stephen Nellis in San Francisco and Jan Wolfe in New YorkEditing by Patrick Graham, Peter Henderson and Matthew Lewis)

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