NZ’s largest app maker: Don’t believe the hot-takes – Apple actually won key case

New Zealand’s largest app developer says the first wave of headlines about a key App Store case were wrong.

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Apple did not lose the case brought by Fortnite maker Epic games, PikPok founder Mario Wynands says. A Federal Judge in fact sided with the iPhone and iPad maker in most elements of her ruling.

And even the section of the judge’s ruling that turned heads – on payment options – won’t prove viable for most app makers, Wynands says, and would raise potential security and convenience issues for customers in any case.

On Friday (Saturday NZT), Judge Yvonne Gonzalez Rogers of US District Court for the Northern District of California said Apple violated her state’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, according to a New York Times summary.

But Judge 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, the Times said.

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.

“The judge’s ruling is extensive at 185 pages, so some media rushed out headlines without understanding the substance of it,” Wynands told the Herald this morning.

“For the most part, Apple is the winner here, with Epic being ruled against in every complaint it raised.”

The single ruling against Apple was for its anti-steering behaviour. Apple is now compelled to allow developers to send consumers out of the app to alternative payment solutions said Wynands, whose Wellington-based game studio employs 190 staff and has turned out Flick Kick Football and dozens of other global hits on Apple and Google’s app stores.

But even on that point, “There is a key nuance in that an alternative transaction is taking place outside the app, it would require the developer or payment solution provider to be gathering personal payment information, potentially creating a lot of friction for the purchase and additional security and privacy concerns for users,” Wynands said.

“Additionally, it’s not clear that Apple wouldn’t still be owed its 30 per cent royalty in this instance – although I expect this to be tested fairly quickly.”

Ultimately, there might be an opportunity here, but there isn’t likely to be much impact for most developers in the short to medium term, Wynands said.

“Fully supporting alternative payments including refunds is non-trivial, so it is really only developers with a certain level of revenue scale and infrastructure that will be able to capitalise initially.

“Companies in New Zealand like Xero who have an existing multi-platform solution and payment infrastructure are well-positioned to take advantage, though I expect Apple is only ‘clipping the ticket’ on a small proportion of their revenue.”

So will Wynand’s company take advantage of the payment-steering ruling, presuming it alternately goes through?

“PikPok is unlikely to change anything in the short term while we monitor the appeal process, evaluate alternate payment solution providers, and weigh up the costs and benefits of adding alternative payment methods,” Wynands said.

'Success is no illegal'

Less surprisingly, Apple also saw the ruling going its way.

“We are very pleased with the Court’s ruling and we consider this a huge win for Apple,” senior vice president and general counsel Kate Adams said in a statement

“This decision validates that Apple’s ‘success is not illegal,” as the judge said. As the court found ‘both Apple and third-party developers like Epic Games have symbiotically benefited from the ever-increasing innovation and growth in the iOS ecosystem,” Adams said, quoting from the judgment.

“The court has confirmed, after reviewing evidence from a 16-day trial, that Apple is not a monopolist in any relevant market and that its agreements with app developers are legal under the antitrust laws. Let me repeat that: The Court found that Apple is not a monopolist under ‘either federal or state antitrust laws’.”

Adams added, “Underlying the App Store business is a framework, including App Review, curation and protection of the security and privacy of our users. The Court ruled that this framework is lawful and Apple was justified in terminating Epic’s status as a developer on the App Store. Apple’s rigorous process for app review protects consumers. As the Court observed, ‘security and privacy have remained a competitive differentiator for Apple’.”

The ruling “underscores the merit of our business both as an economic and competitive engine,” the general counsel said.

Snookered

A smaller local developer, Dave Frampton, founder of Majic Jungle – the Hawke’s Bay company behind hit games Chopper, The Blockheads and Sapiens, agreed with Wynands take.

Frampton said the key element of the decision was that Apple maintained control of distribution – and all of the market power that entailed.

While steering customers to another platform for payment looked like it would become an option, the App Store would remain the sole location for iPhone and iPad apps, with Apple setting the rules app makers must follow, and enjoying the power to decide who was in, or out.

And Frampton noted that Apple’s lawyers had rather snookered Epic’s legal team.

The judge upheld Apple’s right to bar the Fortnite maker from its App Store for breaching its terms – meaning although it did win the right to steer customers toward an alternative payment platform, Epic cannot now load an update of its game to the App Store to inform customers of this fact and implement a new payment system.

And while some analysts have said the ruling could cost Apple around 6 per cent of its annual revenue (some US$16 billion in 12-month trailing terms), Frampton does not see the status quo being up-ended.

“It’s hard to know how if it will ultimately end up changing anything for most developers,” he said.

“Apple still writes the rule book for the App Store, so they might for example require that developers set their price at the same level across all payment methods.

“In that scenario, there is no way for developers to share that 30 per cent saving with consumers.”

If that does prove to be the case, “The majority of customers would likely still choose Apple’s payment system anyway out of convenience,” Frampton said.

Strategic concessions

Apple has made no immediate comment on whether it will challenge the payment-steering element of the ruling. Adams said the company was still reviewing the lengthy ruling.

The company has already made two strategic concessions in a bid to head off a number of lawsuits and anti-trust actions.

In a settlement released on August 27, Apple gave the green lght to US companies like Netflix to notify users about alternative payment platforms by email (though not in-app notifications) – formalisting a practice that was already widespread.

And in November last year, Apple halved its commission for developers with sub-US$1 million revenue from 30 per cent to 15 per cent (Google’s app store followed suit soon after).

At the time Frampton said while he was aware it was likely a strategic concession in Apple’s legal fight against Epic and others, it would regardless benefit the majority of Kiwi app developers.

Apple has also campaigned against so-called “side-loading” which, if approved by a court, would allow developers who use the App Store to make their apps available on third-party app stores and websites too.

In a recent briefing, the company said a number of its recent App Store security and privacy initiatives, including its recent moves to force app maker to disclose if they tracked a users’ online habits, and gain informed consent, could not be policed in a world of side-loading.

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