A decision by the US Supreme Court has thrown a spanner into the business model behind Apple’s App Store, while at the same time frustrating the efforts of app developers like Spotify and Epic Games, which are seeking to break Apple’s restrictive policies on in-app purchases on its devices.
All signs now point to a continuing conflict between Apple and app developers, with the head of Epic Games accusing the Silicon Valley giant of “bad-faith compliance” with a court ruling regarding its App Store. Meanwhile, Spotify has accused Apple, in the wake of the Supreme Court decision, of “imposing a 27% fee for transactions made outside of an app on a developer’s website”.
The Supreme Court on Tuesday (January 16) declined to hear an appeal of Epic Games v. Apple, leaving in place an appeals court’s ruling that was a partial win for Apple, but also a partial victory for Epic Games, Spotify and other app developers whose products are subject to stiff fees in Apple’s App Store.
In 2020, Epic Games, maker of Fortnite, launched a lawsuit in a federal court in California, accusing Apple of violating antitrust laws with its practice of requiring all in-app purchases made on its devices to go through its app store, where Apple charges a 15% or 30% fee on all purchases.
It also accused Apple of violating the law with its “anti-steering” policies, under which Apple prevented app developers from informing customers about their ability to make purchases on other platforms, outside the app store.
In a 2021 ruling, the court sided mostly with Apple, concluding that the Apple app store’s policies don’t amount to an antitrust violation. However, it also ruled that Apple’s “anti-steering” policy violated California’s Unfair Competition Law.
In 2023, the 9th Circuit Court of Appeals upheld that court ruling. Unsatisfied with that outcome, both Apple and Epic Games appealed to the Supreme Court.
The top court’s refusal to hear the case means that Apple can no longer prevent app makers from advertising the ability to make purchases outside the app store. The court’s decision was likely behind a 2.7% drop in Apple’s share price Tuesday, though it had pared about half those losses back as of the end of the trading day.
For Apple, billions of dollars are at stake, Bloomberg reported, citing a Sensor Tower report forecasting that in-app purchases will reach USD $182 billion in 2024, and $205 billion in 2025.
Apple reported last year that its App Store facilitated $104 billion in sales of digital goods and services in 2022.
Since the court case began, Apple has softened its “anti-steering” policies, removing them for subscription services such as digital newspapers, books and audio, but not for video games.
“Apple has introduced an anticompetitive new 27% tax on web purchases. Apple has never done this before, and it kills price competition.”
Tim Sweeney, Epic Games
In the wake of the appeal court’s ruling, Apple has developed a new policy that will allow app developers to use outside payment systems, but only if they apply for an “external purchase link entitlement” from Apple.
Since the ruling on Tuesday, Epic Games’ CEO has suggested that Apple is frustrating efforts to bypass the app store by making it difficult for users to make purchases outside the app store – and making those purchases nearly as expensive for app developers as they were within the app store.
“Apple has introduced an anticompetitive new 27% tax on web purchases. Apple has never done this before, and it kills price competition,” Epic Games founder and CEO Tim Sweeney posted on social platform X.
Sweeney also suggested that Apple is making it difficult for users to make purchases outside the app store.
“Apple requires developers to open a generic web browser session, forcing the user to log in to the developer’s website again, to make a purchase… Users will have to search all over again for the digital item they wanted to buy.”
Additionally, “Apple will front-run competing payment processors with their own ‘scare screen’ to disadvantage them,” Sweeney wrote.
He shared a screenshot of what appears to be an Apple App Store warning, stating “You’re about to leave the app and go to an external website. Apple is not responsible for the privacy or security of purchases made on the web.”
“Epic will contest Apple’s bad-faith compliance plan in District Court,” Sweeney wrote.
“Apple’s latest move in the U.S. — imposing a 27% fee for transactions made outside of an app on a developer’s website — is outrageous and flies in the face of the court’s efforts to enable greater competition and user choice.”
Spotify shared Sweeney’s exasperation over Apple’s so-called “27% tax on web purchases”.
A Spotify spokesperson said today: “Once again, Apple has demonstrated that they will stop at nothing to protect the profits they exact on the backs of developers and consumers under their app store monopoly.
“Their latest move in the U.S. — imposing a 27% fee for transactions made outside of an app on a developer’s website — is outrageous and flies in the face of the court’s efforts to enable greater competition and user choice. This action follows similar moves by Apple to circumvent compliance in South Korea and The Netherlands.
“However, the EU’s Digital Markets Act (DMA) will finally put an end to this false posturing, which is essentially a recreation of Apple’s fees. We strongly urge the European Commission to act swiftly and decisively to prevent Apple from implementing similar fees, which are prohibited under the DMA.”
In April 2023, Spotify co-founder and CEO Daniel Ek traveled to Washington, DC, to lobby lawmakers in favor of a bill that would prevent Apple – as well as Google, which runs its own app store on Android devices – from requiring app developers to use the in-app payment system, and from penalizing app developers who sell on separate marketplaces.
That bill, dubbed the Open App Markets Act, was widely supported by app developers, but opposed by Apple and Google. It was advanced by the Senate Judiciary Committee in February of 2022, but has not been brought to the floor for a vote.
However, other jurisdictions have progressed with legislation restricting the power of Apple and Google app stores. The European Union’s Digital Markets Act, which comes into effect this year, requires large “core platform services” to comply with strict new rules regarding competition.
The European Commission has ruled that these rules apply to Apple’s App Store. Among the regulations is a requirement that Apple allow app developers to promote their products and services, and sign contracts with customers, outside the App Store.
Apple has reportedly challenged that decision, arguing that its App Store is, in fact, five different services, with separate app stores for iPhones, iPads, Mac computers, Apple TVs, and Apple Watches.Music Business Worldwide