The economics of online gaming just shifted.
A U.S. federal judge has ordered Apple to stop forcing developers to use its payment system within their apps, in a ruling that will enable developers to bypass Apple's pesky commission, which can reach upwards of 30% of app sales, according to an initial report from The New York Times.
This could fundamentally change the economics of a $100 billion online market and represents a major blow to Apple, which depends on its App Store revenue for its world-historical profit margins.
Apple must allow game developers to enable links to alternate forms of payment within 90 days
This is the latest and arguably most damaging loss for Apple, which is already facing mounting pressure from politicians and regulators worldwide about its business practices. The new order came as part of a larger ruling in a serious case between Epic Games and Apple, the former of which develops hit video games like Fornite. Apple had sued the company last year over its App Store policies, according to the report. Judge Yvonne Gonzales Rogers of U.S. District Court for the Northern District of California said Apple had violated the laws of the state against unfair competitive practices by banning app developers from suggesting customers pay for services outside of Apple's App Store. Now, Rogers has ordered Apple to allow developers to include links within their apps that will redirect users to other payment methods, and the tech giant has just 90 days to comply.
In this time, Apple can try to block the order, but this might be difficult, since Judge Gonzalez Rogers actually ruled in Apple's favor on several other counts, a major one of which declared that the tech superpower was not a monopoly in the mobile gaming market, which is a little hard to believe. The Judge also said Epic had violated its contract with Apple when it enabled Fortnite users to pay them directly, instead of using Apple's proprietary iPhone app, in 2020. Going forward, when customers subscribe, purchase a digital service, or buy an item through an iPhone app, third-party firms can now redirect consumers to external websites to conclude the transaction. This will allow companies to charge users for service without having to pay Apple's heft sales commission.
Epic CEO thinks the ruling against Apple didn't go far enough
And this decision could send waves across the entire digital economy. If Epic wins outright in the appeals that are certainly being filed as you read this, the profit margins of game developers could soar to unprecedented heights, since they have up until now been forced to share much of the bottom line with Apple. Epic Games has sued Google for the same problem with app commissions for its Android operating system, and this skirmish is slated to go to trial later this year. In August, 26 states, including the District of Columbia, also sued the tech superpower for giving companies no choice but to use Google's payment system to enable app store access. In reply, Google basically told the states that they should be more concerned with Apple. It's commonly believed that Apple will ask a judge to prevent the order from going into effect, but both Apple and Epic could appeal to the U.S. Court of Appeals for the Ninth Circuit.
Once there, a three-judge panel might review the initial decision, but this could take a year, or longer. And, even after the Ninth Circuit court reaches a ruling, Both Epic and Apple could appeal to the Supreme Court. But as things stand, both companies have scored a major victory, despite Apple losing a hefty source of extra income. "Today the court has affirmed what we've known all along: the App Store is not in violation of antitrust law," read a statement from Apple, according to the NYTimes. "As the court recognized 'success is not illegal,' Apple faces rigorous competition and developers choose us because our products and services are the best in the world." However, Epic's CEO and Founder Tim Sweeney wasn't satisfied, tweeting that the ruling should go even farther in service to companies who wish to complete in-app transactions with their own, proprietary payment systems, instead of having to rely on external websites (like Apple). "Today's ruling isn't a win for developers or for consumers," said Sweeney, in the tweet. We will fight on," he added in a reply to himself. This might not be the final win that Epic wants, but time will tell which direction future rulings and appeals will take the online gaming market, one of the biggest in the world.
This was breaking news and was regularly updated as new information became available.