Apple seeks to delay ruling loosening its grip on App Store

Apple said in its filing that it wants to maintain the status quo as there is "no reason to expend resources" on App Store changes during the appeals process.
Apple said in its filing that it wants to maintain the status quo as there is "no reason to expend resources" on App Store changes during the appeals process.PHOTO: AFP

LOS ANGELES (BLOOMBERG) - Apple is angling to delay making the most significant change to its App Store business model since the platform was launched in 2008, an overhaul that could cost the tech giant a few billion dollars annually.

The iPhone maker gave notice last Friday (Oct 8) that it will appeal a judge's ruling in its fight with Epic Games ordering the California-based company to stop blocking developers from letting users complete in-app purchases on the Web.

It also asked the judge to put the Dec 9 deadline for App Store rule changes on hold during the appeal, which, if allowed, could keep business as usual for Apple for at least a year.

The Sept 10 ruling largely vindicated Apple's business model, which charges commissions on developers for App Store transactions, but the judge said Apple must allow direct communication between users and app makers and permit links to the Web to complete transactions.

Bloomberg Intelligence has said that pressure on Apple to lower its commissions, which currently run as high as 30 per cent, could squeeze revenue by US$2 billion (S$2.7 billion) to US$4 billion in a worst-case scenario.

Apple said in its filing that it wants to maintain the status quo as there is "no reason to expend resources" on App Store changes during the appeals process. It also argued that there could be "unintended downstream consequences for consumers and the iOS platform" if the judge's order goes into effect on Dec 9.

A postponement would give the company time to address concerns in a way that could potentially do away with the need to let developers allow consumers to make Web purchases, Apple said.

"Apple is working hard to address these difficult issues in a changing world, enhancing information flow without compromising the consumer experience," the company said.

A hearing on Apple's stay request has been set for Nov 16, but the company said in a briefing that it is seeking to move the proceeding to Nov 2. If US District Judge Yvonne Gonzalez Rogers refuses to grant the stay, Apple said, the company could go to the Ninth Circuit Court of Appeals.

When the ruling came out, following a three-week trial in May, Apple hailed it as a victory because the judge did not find that the company had violated federal antitrust law.

Mr Tim Sweeney, Epic Games' founder and chief executive officer, said in a tweet that "the ruling isn't a win for developers or for consumers" and his company promptly filed notice that it will appeal.

Epic Games declined to comment on Apple's appeal on Friday but Mr Sweeney tweeted an image of Agent Peely, a banana action figure in Epic's popular battle-royale game Fortnite that briefly became a source of controversy in the trial.

Apple has announced that it plans to keep Fortnite off of the App Store until appeals are exhausted, a process that could take as long as five years if the fight goes all the way to the United States Supreme Court.

While the judge said Apple could no longer ban developers from pointing users to the Web to complete transactions - bypassing the App Store's in-app purchase system - she did not state outright that Apple could not collect its commissions. That has led some observers to believe that Apple could still take its cut of revenue via other means, but lawyers and analysts say doing so poses logistical hurdles and risks political blowback.

Mr Paul Gallant, an analyst at Cowen & Co, has said Apple would want to put off changing App Store rules "because things could get messy if developers get to do workarounds starting in December".

Mr Gallant said in a research note last month that Apple has a good chance of winning a stay at the Ninth Circuit.

"That would prevent developers from using non-Apple payment mechanisms (and avoiding the 30 per cent commission) until at least late-2022," he wrote.

Before the September ruling, Apple announced two App Store changes in settlements with small US developers and the Japan Federal Trade Commission.

Both concessions are similar to the court's injunction. Apple is letting developers communicate directly with users about alternative payment methods and next year, it will begin allowing so-called "reader" apps - those that deal with media content like video, photos and news - to point users to the Web to subscribe, bypassing Apple's fees.

The company highlighted those changes in Friday's filing.