Apple (Nasdaq: AAPL) has been contesting a lawsuit with Epic Games over its prohibition on links or communication to direct users away from in-app purchasing. Epic brought the lawsuit against Apple in August 2020 over Apple's restrictions over any other purchasing methods other than in-app purchases of which Apple receives a 30% cut.
Ruling
Federal Judge Yvonne Gonzalez Rogers placed an injunction on Apple who will no longer be allowed to prevent developers from providing links or other communications that direct users away from Apple's in-app purchasing. She said that Apple's practices were not fair and "stifled consumer choice".
However, most expect that Apple will appeal the ruling. The issue has been closely watched, and Epic is one of the few companies with the heft to fight Apple given that most app-makers are so dependent on Apple for revenue that they wouldn't risk a confrontation. However, Epic's games including "Fortnite" and "Gears of War" are so popular that some people would give up their iPhones if it meant not being able to play these games. Epic has also sued Google (Nasdaq: GOOGL) over similar practices with the Android app store.
Typically, Apple takes a 15% to 30% cut of gross sales, and it generated about $64 billion in revenue last year. Following the ruling, Apple's stock dropped about 3%. The injunction will take effect in December and could lead to Apple lowering its cut of in-app revenues so developers don't bother with rerouting users to make purchases or subscriptions from outside the app.
Overall, Apple did win 9 out of 10 counts but lost on the most important one. In recent weeks, Apple has already relaxed some rules including allowing customers to be emailed about off-app purchases and allowing links in the app to sales pages.
Background
Epic's CEO Tim Sweeney was critical of the ruling. Epic wants to create its own app store on iPhones to bypass Apple's cut and impose its own fees. Epic's games generate substantial amounts of revenues through virtual economies and virtual goods. Further, third-party games are built on Epic's platform which means that currently, Apple takes a cut, then Epic takes a cut with even less left for developers.
Epic's first step was to give players a discount of up to 20% if they made purchases directly from the company on their website rather than the app. As punishment, Apple removed Fortnite from the app store which prevented new downloads and updates. This was the start of the current lawsuit.
According to Judge Rogers, Epic will have to pay damages to "Fortnite" for breach of contract which equates to 30% of all revenue from direct payments on iPhones and iPad.