27 Aug 2021 | 21:35 GMT | Comment
By Michael Acton, Max Fillion and Khushita Vasant
Apple’s $100 million App Store settlement with small developers in California has done nothing to appease its loudest critics, mainly because the concessions the tech giant made over how it runs the iOS app ecosystem are not revolutionary. Apple has cast the agreement as something of a peace treaty with the vast majority of developers in its store, but the deal also implies a calculation by the lawyers for the plaintiffs, who have decided that walking away with guaranteed cash now is smarter than waiting for Judge Yvonne Gonzalez Rogers’ highly-anticipated ruling in Epic Games’ parallel monopolization case. The core antitrust issues in that case were not addressed in the settlement.
Apple’s $100 million App Store settlement with small developers in California has done nothing to appease its loudest critics, mainly because the concessions the tech giant has made over how it runs the iOS app ecosystem are not revolutionary.

Apple has cast the agreement as something of a peace treaty with the vast majority of developers in its store, but the deal also implies a calculation by the lawyers for the plaintiffs, who have decided that walking away with guaranteed cash now is smarter than waiting for Judge Yvonne Gonzalez Rogers’ highly-anticipated ruling in Epic Games’ parallel monopolization case.

Compare what Apple has agreed to with the substance of the Epic trial in May, and it’s clear that the core antitrust issues in that case have not been addressed in this settlement.

Judge Gonzalez Rogers still has to approve the proposed settlement, putting her in an interesting situation as she prepares her judgment in the Epic case. Epic Games CEO Tim Sweeney tweeted yesterday that the company will “fight on” with its own case. Apple said the settlement is not an attempt to influence the judge’s decision.

When news of the settlement dropped, a slew of Apple critics were quick to poke holes in it, particularly members of the Coalition for App Fairness, the app association driven by Epic during its legal fight with Apple.

Tim Dawson, who serves as managing director for flight navigation app and CAF member Skydemon, told MLex in a written statement that the lifting of the prohibition against developers emailing their users to advise on cheaper pricing options “was hard to enforce and rarely policed by Apple.”

“Its removal, while welcome, will not make much of a difference to many developers,” Dawson wrote. “The single biggest hurdle Apple put in developers’ way is the prohibition against telling users, at the point of signup, that there are other ways to make payment (usually cheaper).” 

Dawson was echoed by parental control app Boomerang’s president, Justin Payeur, another CAF member, who said his company had already sent users notifications about other payment options via email. “We were probably small enough that we passed under the radar on that one,” said Payeur, who said his app has fewer than a million users.

Music streaming app Deezer said that news of the settlement and the changes to Apple’s policy regarding some of the marketing practices by small developers is a “welcome first step.”

“But it’s important to realize that it doesn’t address the majority of the challenges that Deezer and other service providers face on Apple’s platform,” Alexander Holland, the company’s chief content officer said.

Responses were not universally critical. Allen Ding, CEO of Malaysia-headquartered web and mobile app developer Snappymob — a CAF member — told MLex the settlement news is likely “under-appreciated in terms of long term impact.” And Apple’s commitment to transparency over how the App Store is policed was praised by app trade association ACT (see here).

— Steering provisions —

Apple said it has listened to concerns raised by Judge Gonzalez Rogers at trial about App Store guidelines that prevent developers from reaching out to their customers outside of the app to induce them to purchase subscriptions, for example, outside the store. According to the deal, however, it can change that policy after three years.

Consumers who purchase digital goods in-app are currently subject to Apple’s commission fee, which ranges from 15 percent to 30 percent. Buying outside the store would allow them to bypass that fee.

Apple is not, however, addressing an issue that Judge Gonzalez Rogers raised at trial. She expressed concern that Apple’s rules prevent developers from advertising alternative payment options within the app itself.

The judge questioned the view of Apple expert witness Richard Schmalensee that Apple’s rules banning alternative payment options from being displayed in-app was permitted under the landmark 2018 Supreme Court ruling in American Express (see here). “I don’t think it’s factually the same,” she said. With brick-and-mortar stores, there are at least visual indications of alternative credit card payment options, even if they aren’t advertised as being cheaper, she said.

Apple did not concede that the mandatory use of its In-App Purchasing service, which carries its commission fee, is anticompetitive. App Store critics such as Epic Games are seeking to break that link entirely and offer alternative payment options on the store itself.

Giving developers the option to email their customers to prompt them to head to their web browser to purchase things like in-game currency seems unlikely to have a major impact on Apple’s bottom line.

The settlement’s steering agreement constituted “obfuscation of the highest order,” said Imagine BC, another member of the Coalition for App Fairness. “No user is going to download an app, then leave the app to go someplace else to purchase content, only to then come back to the app to experience that content,” the company said in a written statement to MLex. “That’s a ridiculous user experience and Apple knows it.” 

— Three-year commitment —

Apple offers developers earning less than $1 million annually through the App Store a discount on its 30 percent commission fee, slashing it to 15 percent. This option was instituted just as the Epic Games lawsuit was taking off towards the end of last year, and Apple argues that instead of hiking prices, it lowered them.

Yesterday’s settlement enshrines that policy for at least three years. But if the political climate remains the same, it would be hard to see Apple reversing that policy.

Apple also committed to improving search results in the App Store to ensure that smaller developers aren’t relegated to the bottom of the pile, and to enhance the transparency of the App Store review process.

In exchange, members of the proposed class agreed to a “covenant not to sue Apple on any claim that was or could have been asserted in the Action.” In other words, they have given up their right to attack Apple on the substantive question of its total control of app distribution on iOS, which lay at the heart of their original lawsuit.

What they walk away with is cold, hard cash, to the tune of $100 million. Up to $30 million of that will go to the lawyers. To put that figure in perspective, $100 million is roughly the same amount that Apple made from Epic’s Fortnite game alone while it was on the App Store (see here). Yearly gross sales on the App Store run to tens of billions of dollars.

— Political heat —

The settlement comes as US congressional pressure continues to mount against Apple and Google, with bipartisan US House and Senate bills aimed at reining in the app store’s power (see here).

The Open App Markets Act would force Apple and Google to relinquish their tight control over the app ecosystem by permitting third-party app stores and payment services on iOS and Android devices and allowing users to “sideload” apps directly from the Internet onto their devices and “prevent app stores from disadvantaging developers” (see here and here).

Connecticut Democratic Senator Richard Blumenthal, who is sponsoring that bill, said Apple’s settlement with small app developers is “a significant step forward,” but does not rectify the full range of abuses the Open App Markets Act would address. He said he is looking forward to advancing the bill when the Senate reconvenes this fall (see here). None of the other co-sponsors of the House and Senate versions of the bills responded to requests for comment on Apple’s settlement.

Meanwhile, in South Korea this week, a groundbreaking bill targeting Apple and Google’s app stores cleared a key legislative hurdle, with the draft legislation poised for a final vote by lawmakers in Seoul on Aug. 30 (see here). The bill would block Apple and Google from forcing developers to adopt their billing systems for in-app transactions with a 30 percent commission.

Apple said it is listening to 99 percent of US developers who are subject to its commission fee. But larger developers, particularly gaming companies such as Epic, say they are unfairly footing the bill for everyone else in the iOS ecosystem.

With the settlement, the tech giant is taking pains to show it’s ready to be flexible. On the substantive antitrust issues, however, it has not budged.

For that reason, don’t expect the agreement to have much of an impact on the political climate around the App Store, on Apple’s noisiest critics, or indeed on the viewpoint of Judge Gonzalez Rogers — whose ruling in the Epic Games case could come any day now.

Please email editors@mlex.com to contact the editorial staff regarding this story, or to submit the names of lawyers and advisers.

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