If you were to go by the recent coverage of the Epic v. Apple decision, you would think California District Court Judge Yvonne Gonzalez Rogers provided Epic Games a categorical win against the tech giant Apple. Some publications even claim that this decision forecloses Apple's ability to impose its commission on third-party developers. However, the court's ruling did nothing close to that. Instead, it gave Apple a relatively swift slap on the wrist for preventing Epic from steering its customers to alternative payment methods outside the App Store, while largely upholding Apple's ability to charge fees for using apps purchased in its App Store. Hence, this decision does very little to prevent Apple from imposing its fees on smaller companies.
Epic—the creator of the popular gaming app Fortnite—sued Apple for imposing fees on consumers' in-app purchases when they had downloaded Epic's games on Apple devices. Epic alleged that such a practice violated both state and federal antitrust laws. Apple’s fee system is complicated. First, it applies to some goods (like games) but not others (like stocks). Second, it affects some developers of digital goods (like many game developers) and not others (like the streaming giants). Third, it's 30% for some purchases, 15% for others—unless one of several exceptions applies. And it's paid by innovative app developers across the country.
Because 99.64% of smartphones have iOS (Apple) or Android (Google) operating systems and use Apple and Google’s app store platforms, those two companies have immense market power, making the fees they charge third-party app developers akin to a tax. What developer could hope to have a successful product if they target only that 0.36% of the market not controlled by these two companies? If Apple and Google deny an app company access to their platforms, that company, in effect, has no practical recourse. And even if Apple and Google give a developer's app access to their platforms, the developer must agree to their respective fees and developer guidelines.
Apple's App Store also presents an interesting conundrum because, unlike Google, Apple does not allow for other app stores or payment systems on its devices. As a result, developers must not only rely on Apple's code, but they must also agree to its terms to use only its payment system that imposes Apple’s commission. Even with this precedent, if a developer disagrees with any of Apple's terms, Apple is entitled to deny that developer access to 113 million iPhone users (almost 50% of the U.S. smartphone market).
Now that a federal court has endorsed app stores charging fees (barring a different result on appeal), Congress should take up the issue to provide clarity. Senators Richard Blumenthal (D-CT), Marsha Blackburn (R-TN), and Amy Klobuchar (D-MN) are attempting to do so with the Open App Markets Act, which aims to promote app store competition and combat anticompetitive conduct. According to press releases from the co-authoring senators, the bill seeks to set "fair, clear, and enforceable rules to protect competition and strengthen consumer protections within the app market." For example, Section 3(a) of the Act would outlaw Apple and Google from requiring that developers use their payment systems to access their respective platforms. These legislators intend for the Act to provide third-party developers with some leverage to challenge large app store platforms' practices, including the fees they charge.
Although Apple is now notifying developers of that alternative payment methods are available, Apple can change its mind at any time, even after the Epic v. Apple decision. Hence, barring a contrary result on appeal, the only way to prevent dominant app store platforms from charging fees is for Congress to step in.
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