US Supreme Court Declines to Hear Apple vs. Epic Games Case

[Carnegie]

The ruling explicitly states that third parties can direct their app users to other payment mechanisms, outside the app store, which avoids the app tax. So I can provide a free app, and then direct users to pay for additional app content by telling them to go to my website. This is a big deal, which is why Apple was spending millions to fight it.

The ruling also discusses and recognizes Apple's right to collect commissions on sales even when those sales take place outside the app and through alternate payment mechanisms. Indeed, this is one of several reasons why Apple prevailed on all the antitrust claims. It has a legitimate, pro-competitive, interest in collecting such commissions.

Judge Rogers' opinion makes it clear that Apple can continue to collect commissions for, among other things, the use of its IP - even when payments are made through other parties - and it can facilitate such commissions through contracts (i.e. developer agreements) and, e.g., audit requirements. It will require a little more effort because of this injunction, but Apple can still do so.

 

[farmboy]

The ruling also discusses and recognizes Apple's right to collect commissions on sales even when those sales take place outside the app and through alternate payment mechanisms. Indeed, this is one of several reasons why Apple prevailed on all the antitrust claims. It has a legitimate, pro-competitive, interest in collecting such commissions.

Judge Rogers' opinion makes it clear that Apple can continue to collect commissions for, among other things, the use of its IP - even when payments are made through other parties - and it can facilitate such commissions through contracts (i.e. developer agreements) and, e.g., audit requirements. It will require a little more effort because of this injunction, but Apple can still do so.

Thanks for all the really good analyses. I like it, and hopefully it provides some clarity to the netizens here.

 

[Abazigal]

The point being that a dev can pretty easily skirt some of Apple's fees.

I think Apple is aware that they may not be able to ascertain the full value of the developer's revenue. The idea isn't so much to bill every last cent they can, but to disincentivise developers from going outside of the App Store, by making the process more expensive and inconvenient for them.

 

[Analog Kid]

I would not simply call Epic “never had much of a leg to stand on” or “lazy in their approach” outside of the arguably poorly presented argument they present to the judge.

How can you say they "tried, really tried, very hard" if they presented their argument poorly to the judge? That's when it matters right? Everything else is just posturing.

To me it’s a bit more on Epic not having deep pocket to get a better lawyer than Apple can supply

Epic's annual revenue is over $5B on a software product. They were willing to forego all iOS revenue to make a point. If I'm doing the math right on these ballpark estimates, Epic was making something like $250M a year from Fortnite on iOS-- that can pay for some pretty good lawyers especially if you have a winning argument. But they didn't have a winning argument, they had a "Mom, Apple's being mean to me!" argument.

For context, Masimo has revenue on the order of $1.2B in a hardware heavy business and a total operating income around what Epic threw away just on iOS--and Masimo seems to be having some impact...

On the other hand, if Epic was deemed “lazy” and ill-prepared during this whole ordeal, one has to question why they even bother in the first place

Yep, that's the question. I think it was a Sweeney tantrum and he convinced himself that the rest of the world hated Apple as much as he did and would bend the law for that reason. That's what I mean by delusional.

whatever ruling that puts a small dent on Apple’s monopolistic behaviour gets to stay

It was a California law, not a Federal law, that stuck.

 

[Analog Kid]

The ruling also discusses and recognizes Apple's right to collect commissions on sales even when those sales take place outside the app and through alternate payment mechanisms. Indeed, this is one of several reasons why Apple prevailed on all the antitrust claims. It has a legitimate, pro-competitive, interest in collecting such commissions.

Judge Rogers' opinion makes it clear that Apple can continue to collect commissions for, among other things, the use of its IP - even when payments are made through other parties - and it can facilitate such commissions through contracts (i.e. developer agreements) and, e.g., audit requirements. It will require a little more effort because of this injunction, but Apple can still do so.

For reference, on page 67 of the order:

"Under current e-commerce models, even plaintiff’s [Epic's] expert conceded that similar functionalities for other digital companies were not separate products. Under all models, Apple would be entitled to a commission or licensing fee, even if IAP was optional."

 

[Analog Kid]

While I've got the PDF open, some other interesting points for people thinking things will get cheaper without Apple's 15% commission:

Like other platforms, the Epic Games Store uses a commission model and markets an 88/12 split of all revenues to developers from the sale of their games. The evidence is also undisputed that this 88/12 commission is a below-cost price and the store is expected to operate at a loss for many years at this rate.

So, Epic can't make it work at 12%-- how much cheaper will it become outside Apple? Also worth noting that Apple would draw serious scrutiny if they offered a service like this below cost as that could be seen as anti-competitive-- which means whatever Epic is doing now, they wouldn't be able to maintain it if they were successful, that price would eventually rise or services would fall one way or another.

Epic Games acknowledges that its commission is not merely a “payment processing” fee. The 12 percent fee is principally for access to Epic Games’ customers, but also is intended to cover all of Epic Games’ variable operating costs associated with selling incremental games to customers.

So access to customers of a platform is seen by Epic as having value-- there are more iPhone customers than Epic customers, so the value of the AppStore can be seen as higher.

 

[vipergts2207]

By committing fraud? That seems more risky that easy.

And who’s going to be checking? Is Apple going to audit every single dev accepting payments through in-app links? Even if they wanted to that would presumably require a court order of discovery to enable Apple to go through another company’s books.

 

[Analog Kid]

And who’s going to be checking? Is Apple going to audit every single dev accepting payments through in-app links? Even if they wanted to that would presumably require a court order of discovery to enable Apple to go through another company’s books.

Not if it's a contractual obligation.

 

[Glideslope]

I'm pretty sure Epic is a private company and Sweeney has a controlling interest.

Thanks, I didn't realize Epic was not Publicly Traded. I should have checked. Shows what a Dedicated Gamer I am.

 

[BaldiMac]

And who’s going to be checking? Is Apple going to audit every single dev accepting payments through in-app links? Even if they wanted to that would presumably require a court order of discovery to enable Apple to go through another company’s books.

Random audits would do the trick and could be covered by developer terms. So would documentation requirements or required software counters.

But I still don't get where you are going here. Fraud would hardly be worth it. Small developers wouldn't save enough to be worth the risk. And large developers would be more likely to be caught. Why risk your developer account?

 

[vipergts2207]

Not if it's a contractual obligation.

Presumably if they did fudge numbers they wouldn't want to simply give Apple that evidence and would rather break their contract, forcing Apple to go to court if they want the numbers. However, unless we're talking a behemoth developer, Apple's better recourse would probably be to simply remove their app(s) from the app store until they provide the numbers.

 

[Analog Kid]

Presumably if they did fudge numbers they wouldn't want to simply give Apple that evidence and would rather break their contract, forcing Apple to go to court if they want the numbers. However, unless we're talking a behemoth developer, Apple's better recourse would probably be to simply remove their app(s) from the app store until they provide the numbers.

Yep. Contracts will likely include an audit clause, and refusal of audits would be a breach of contract. We see above what happened when a behemoth developer is in breach. Who knows how they'll handle the little guys.

 

[Flight Plan]

It's unlikely that the $100/year per developer covers Apple's hosting costs, let alone the rest of the costs of running the App Store. But feel free to source your claim if you have evidence.

Feel free to source YOUR claim. I don’t object to you (or anybody really) asking for sources. But if you’re gonna ask, you should be willing to put up your own evidence.

Potato, potaahto. 😉

The European Union (EU) should learn from this case, American companies should not be punished for being successful! Maxism is a failed Economic theory! The Free Market System self policies economies!

”Maxism” is shopping the BOGO sales at my local grocery store...so I agree that we shouldn’t punish grocery stores; they usually only have a 2% to 4% margin anyway.

Oh, and the EU is going to go bankrupt…you know, when they run out of everybody ELSE’s money and they can’t print anymore. Are they called “greenbacks” anywhere else but in the US?

 

[CarAnalogy]

I think this is overblown. A few dozen apps get headlines for claiming to be rejected for arbitrary purposes. Meanwhile, all we hear is one side of the argument.


I disagree. I think the policies are overwhelming pro consumer.


Nothing arbitrary about that. Reader apps are allowed to do that per longstanding policy. Yes, I'm aware of the recent controversy around the Hey calendar app. It was an edge case that was quickly resolved.


I don't think any of that is accurate. They didn't claim what you said. And the anti-steering provisions aren't new.


I disagree. I think their rules are enforced extremely consistently. No, they are not perfect, but that''s a ridiculous standard.

I guess we’ve just been interpreting the same news stories wildly differently. Or maybe you haven’t looked into the details of some of them.

 

[HurtinMinorKey]

The ruling also discusses and recognizes Apple's right to collect commissions on sales even when those sales take place outside the app and through alternate payment mechanisms. Indeed, this is one of several reasons why Apple prevailed on all the antitrust claims. It has a legitimate, pro-competitive, interest in collecting such commissions.

Judge Rogers' opinion makes it clear that Apple can continue to collect commissions for, among other things, the use of its IP - even when payments are made through other parties - and it can facilitate such commissions through contracts (i.e. developer agreements) and, e.g., audit requirements. It will require a little more effort because of this injunction, but Apple can still do so.

Citations? If apple can collect the same commissions outside the app store, then the ruling would have no teeth. i.e., Apple could effectively ban off-app purchasing by increasing commissions to an absurd degree off app.

 

[NetMage]

I don't believe the prices are cheaper for any of my subscriptions, but I like knowing the developers get all of it.

Then prepare to be disappointed because unless you are sending cash in the mail, the developers are still paying fees, and the more of fulfillment they take on, the more ancillary costs like PCI compliance, Hitech compliance, legal protection, etc. increase.
And how comfortable are you with multiple companies having your name, address and credit card information stored?

 

[CarAnalogy]

Then prepare to be disappointed because unless you are sending cash in the mail, the developers are still paying fees, and the more of fulfillment they take on, the more ancillary costs like PCI compliance, Hitech compliance, legal protection, etc. increase.
And how comfortable are you with multiple companies having your name, address and credit card information stored?

To quote an immortal phrase: “No sir, I don’t like it.”

 

[Shirasaki]

How can you say they "tried, really tried, very hard" if they presented their argument poorly to the judge? That's when it matters right? Everything else is just posturing.

Burning money on sth with weak or nonexistent argument to me shows their full intention to cause some damage, inside or outside of court. In case it isn’t abundantly clear, I’m not siding with Apple on this one, not like it matters to anyone.

 

[Analog Kid]

Burning money on sth with weak or nonexistent argument to me shows their full intention to cause some damage, inside or outside of court. In case it isn’t abundantly clear, I’m not siding with Apple on this one, not like it matters to anyone.

Getting intentionally kicked out of the AppStore and then seeking help from the court is like the legal version of the doctor story:

"I said 'Doc, it hurts when I do this', and he said 'then don't do that.'".

"I said 'Judge, when I breach a contract, it costs me a lot of money' and she said 'then don't breach your contract.'".

 

[BaldiMac]

Feel free to source YOUR claim. I don’t object to you (or anybody really) asking for sources. But if you’re gonna ask, you should be willing to put up your own evidence.

Potato, potaahto. 😉

Sure. My source is math and my opinion. 5 million apps. Many developers with multiple apps. So I’d guess 250-400 million in developers fees per year.

Based on that, I think it is unlikely that the AppStore costs that little to run.

I guess we’ve just been interpreting the same news stories wildly differently. Or maybe you haven’t looked into the details of some of them.

I’m aware of the stories, but I’m also considering the scale. The news stories that you are referring to are about a few dozen or maybe even a few hundred apps that constitute edge cases. A small fraction of a percent of the apps.

Again, I’m not claiming App review is perfect by any means, but perfection is an unreasonable standard.

 

[aParkerMusic]

In a capitalist society that values money only and above all, the Golden Rule applies:
"He who has the gold makes the rules!"

Very childish understanding of what capitalism is.

all economic systems involve people doing things, only capitalism allows people to choose. And capitalism has led to the greatest expansion of wealth and human comfort in history. But, sure, let’s ignore that.

 

[Onelifenofear]

Simple Analogy
Apple designs and builds a Mall that's really popular and everyone wants to use
Epic then comes along and demands to be allowed to set up a Market stall outside... but wants to still be able to use all the facilities and electricity and water etc and not pay a single dime.

 

[Onelifenofear]

As a developer I am more than happy to pay apple my 15% ( wish I was in the 30$% Bracket )

In the bad old days... I had to get CD/DVDs printed and a case and get them shipped all around the world to retailers, advertising and marketing I was lucky to make 30% Gross profit on a bit of software.

Even when we went digital only... storage and traffic costs still added up to more than 15%

 

[victorvictoria]

Very childish understanding of what capitalism is.

all economic systems involve people doing things, only capitalism allows people to choose. And capitalism has led to the greatest expansion of wealth and human comfort in history. But, sure, let’s ignore that.

So you're telling me "capitalism" is not focused on "capital?" Thanks for the enlightenment!

 

[CarAnalogy]

Sure. My source is math and my opinion. 5 million apps. Many developers with multiple apps. So I’d guess 250-400 million in developers fees per year.

Based on that, I think it is unlikely that the AppStore costs that little to run.


I’m aware of the stories, but I’m also considering the scale. The news stories that you are referring to are about a few dozen or maybe even a few hundred apps that constitute edge cases. A small fraction of a percent of the apps.

Again, I’m not claiming App review is perfect by any means, but perfection is an unreasonable standard.

I don’t expect it, or anything, to be perfect. Just alternatives in the areas where it is weak. Apple provides no safety valve for the legitimate use cases that don’t work well. And I don’t like the trend toward centralized software control.