Judge orders Apple to ease curbs on app developers

SAN FRANCISCO • A US federal judge has struck a serious blow to Apple's control of its app store, giving companies a way to avoid handing Apple a cut of their app sales and potentially upending the US$100 billion (S$134 billion) online market.

Apple counts on revenue from its app store to fuel its expansive profits, and the decision could eat away at that money.

It was a damaging loss for the company, which is facing increasingly pointed questions from regulators and politicians around the world about its business.

Over the past month, regulators in Japan and South Korea have forced Apple to tweak how it manages the app store. In the United States, the Department of Justice has opened an antitrust investigation into the business.

The Senate introduced antitrust legislation aimed at promoting app store competition after a House committee last year said "Apple exerts monopoly power in the mobile app store market".

The European Union, Britain and India also are investigating Apple's app store dominance.

Together, the legal setbacks and tighter regulatory controls indicate that Apple's long run of calling all the shots on the app store - one of the linchpins of the Internet economy - may be ending.

That could represent one of the tech industry's most substantial changes in years, as smaller companies keep more of their profits and Apple's ability to be an unavoidable toll collector slips away.

Apple "was enjoying a tremendous advantage because of the popularity of its platform, and that advantage has been whittled away now", said Mr Jonathan Rubin, a partner at the antitrust law firm MoginRubin.

The order on Friday was part of a ruling in a prominent legal case between Apple and Epic Games, which makes the popular game Fortnite and sued Apple last year over its app store policies.

Justice Yvonne Gonzalez Rogers of the US District Court for the Northern District of California, said Apple violated California's laws against unfair competition by barring app developers from directing customers to other ways to pay for their services.

She ordered Apple to start letting developers include links in their apps to other payment methods within 90 days.

That means when customers sign up for a subscription or buy a digital service or item in an iPhone app, companies can now steer those customers to outside websites to complete the transaction.

That would allow those companies to avoid Apple's commission on the sale, which can be as high as 30 per cent.

But Justice Gonzalez Rogers stopped short of declaring that Apple had a monopoly in the market of mobile games, which would have been a worst-case scenario for the company.

She also said Epic had breached its contract with Apple when it allowed Fortnite users to pay it directly, instead of via Apple, inside its iPhone app last year.

Apple is widely expected to ask a judge to keep the order from going into effect.

Either company could also appeal to the 9th US Circuit Court of Appeals. In that court, a three-judge panel could review the decision, a process that could take a year or more. After a ruling there, Apple or Epic could appeal to the Supreme Court.

The ruling allows both sides to claim a partial victory. Apple now has a court ruling that says it does not run a monopoly in an important digital marketplace, which undercuts its opponents' efforts to claim that it violates antitrust laws.

But Epic's lawsuit could also force Apple to crack open its airtight iPhone software to create an avenue for developers to avoid its commission.

Apple's shares fell nearly 3 per cent on the Nasdaq exchange after the ruling was announced.

NYTIMES