The U.S. Supreme Court on Monday denied Apple’s bid to block a lower court ruling that forces the company to allow developers to steer customers to outside payment options, threatening billions of dollars in iPhone revenues.
Background
The case stems from Epic Games’ August 2020 decision to offer Fortnite players an alternative way to pay for in-app purchases that avoided Apple’s 30% commission. That violated Apple’s App Store rules, and the tech giant promptly removed Fortnite from its app store.
Epic sued Apple later that month in federal court over its app store policies. Epic alleged that Apple violated antitrust laws by only allowing apps to be downloaded through the App Store and requiring developers to use Apple’s in-app purchase system, which charges commissions of up to 30%.
Last year, a California federal judge ruled that Apple had engaged in anticompetitive conduct in how it manages distribution of apps on Apple devices. But the judge said Epic had failed to prove monopoly power in the relevant market both for app distribution and in-app payment processing.
Both Epic and Apple appealed aspects of that decision to the Ninth Circuit Court of Appeals. But on Monday, the Supreme Court denied petitions filed by both companies requesting the high court review the case.
That leaves intact the portion of the lower court ruling that requires Apple to allow developers to communicate with users about alternative payment options.
What Happens Now
The Supreme Court’s move is a significant blow for Apple, as it will likely lead to substantial loss of App Store revenues. Analysts estimate Apple could lose billions of dollars in commissions per year now that developers can steer users to third-party payment options.
Apple currently charges developers a 30% commission on sales of paid apps and most in-app purchases. Many developers have claimed those commissions are exorbitantly high, but they had little choice but to pay them if they wanted access to Apple’s lucrative App Store and iPhone users.
Now developers will be free to promote and link to payment alternatives that avoid Apple’s commission. And users will have more choice in how they pay for app features and subscriptions.
| Projected Impact of Ruling | |
|---|---|
| Loss of App Store Revenue | $8-10 billion/year (30% of $27 billion/year economy) |
| Share Price Impact | 8-10% decline |
| Impact on 2024 Earnings | 15-20% decline |
In response to the Supreme Court decision, Apple said it would allow developers to link from their apps to external websites where users can pay for services. However, Apple plans to still charge developers a commission in many cases.
For one-time purchases of digital goods or services consumed outside an app, Apple will not take a commission. But for sales of physical goods and services or recurring subscriptions, Apple plans to charge developers a 27% commission when purchase options are advertised within an app then paid for outside the App Store.
Epic Plans Renewed Legal Fight
Epic CEO Tim Sweeney declared the Supreme Court ruling a “huge win,” but said it wasn’t enough. He signaled Epic intends to continue its legal fight against Apple’s commissions.
In a series of tweets, Sweeney said the ruling allowed Apple to continue to “insert themselves and their 30% tax between developers and their customers.” He said Epic would return to court to “demonstrate Apple’s anti-competitive coercion of consumers and developers” through its commissions.
Other app developers also slammed Apple’s plan to charge a 27% commission on many external app payments. They said the lower rate still allows Apple to unfairly profit from work it does not contribute to.
However, legal experts said Epic faces long odds in winning any future antitrust claims against Apple’s commissions. Proving anticompetitive conduct to justify lower commissions would be difficult given commissions are common across other software platform providers.
Broader Impacts
The Supreme Court ruling denying Apple’s appeal will likely have ripple effects across the broader app ecosystem. Other tech giants like Google, Amazon and Meta could eventually be forced to adjust their app store commission policies as well.
Many app developers have similarly alleged those companies abuse their power to force unfair terms on developers who want access to their platforms. More lawsuits along the lines of Epic v. Apple seem likely in the coming years.
For iPhone users, the ruling means you’ll start seeing more options for how you pay for app features and subscriptions. That could translate to small savings for consumers if app makers pass on cost savings from avoiding Apple’s commission.
But the ruling also raises concerns about potential confusion from managing payments across multiple platforms. There are also worries it could increase exposure to payment fraud if Apple’s role in processing transactions is reduced.
Overall though, the Supreme Court decision deals a major blow to Apple’s services segment, which has driven huge profits growth in recent years. It opens the door to potentially billions in lost revenues annually in one of Apple’s most lucrative businesses. And it signals Apple no longer holds absolute power over app developers to force its terms for access to iPhone users.
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