Apple Dealt Stinging Court Defeat on App Store Sales Commissions

Apple violated a court order requiring it to open up the App Store to third-party payment options and must stop charging commissions on purchases outside its software marketplace, a federal judge said in a ruling that referred the company to prosecutors for a possible criminal probe.

US District Judge Yvonne Gonzalez Rogers sided Wednesday with Fortnite developer Epic Games over its allegation that the iPhone maker failed to comply with an order she issued in 2021 after finding the company engaged in anticompetitive conduct in violation of California law. 

Gonzalez Rogers also referred the case to federal prosecutors to investigate whether Apple committed criminal contempt of court for flouting her 2021 ruling. The US attorney's office in San Francisco declined to comment.

The changes the company must now make could put a sizable dent in the double-digit billions of dollars in revenue the App Store generates each year. Apple is potentially facing another multibillion-dollar hit from losing payments Google makes to be the default search engine for its Safari browser, which is the subject of an ongoing Justice Department antitrust case against the Alphabet unit.

Apple's share price declined about 1.6 percent in after-hours trading Wednesday.

After several weeks of hearings last year and this, Gonzalez Rogers concluded Wednesday that Apple “willfully” violated her injunction.

“It did so with the express intent to create new anticompetitive barriers which would, by design and in effect, maintain a valued revenue stream; a revenue stream previously found to be anticompetitive,” she wrote in her 80-page ruling. “That it thought this court would tolerate such insubordination was a gross miscalculation.”

Apple said in a statement that it strongly disagreed with the decision.

“We will comply with the court's order and we will appeal,” a company representative said.

Epic Games Chief Executive Officer Tim Sweeney called the ruling a “huge victory for developers,” saying in a phone call with journalists it “forces Apple to compete with other payment services rather than blocking them.”

Following a trial in 2021, Gonzalez Rogers largely sided with Apple, saying that its App Store policies didn't violate federal antitrust law. However, she required the company to let developers bypass its in-app payment tool to avoid a commission of up to 30 percent. The ruling was ultimately upheld by the US Supreme Court last year when it declined to hear appeals in the case.

Apple allowed developers to point users to the web to complete transactions for in-app purchases, but required developers to pay the company a 27 percent cut of whatever revenue they generated. 

In Wednesday's ruling, the judge said Apple tried to cover up its noncompliance with her 2021 order.

“After two sets of evidentiary hearings, the truth emerged,” Gonzalez Rogers wrote. “Apple, despite knowing its obligations thereunder, thwarted the injunction's goals, and continued its anticompetitive conduct solely to maintain its revenue stream.” 

The judge said that Alex Roman, Apple's vice president of finance, lied on the witness stand.

“He even went so far as to testify that Apple did not look at comparables to estimate the costs of alternative payment solutions that developers would need to procure to facilitate linked-out purchases,” Gonzalez Rogers wrote, saying Apple did consider exactly that.

Because the company and its lawyers did not correct Roman's testimony, “Apple will be held to have adopted the lies and misrepresentations to this court,” the judge wrote.

Gonzalez Rogers also found that Apple abused its use of attorney-client confidentiality in seeking to shield information from Epic and must pay the company's legal fees spent to procure documents.

The case is Epic Games v. Apple 20-cv-05640, US District Court, Northern District of California (Oakland).

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