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Judge orders Apple to allow apps that link to external payment options

Update: Ruling on the merits includes additional insight on why Epic won just one of ten counts

The Epic-Apple court case is over, and the Fortnite maker won at least a partial victory that could have significant ramifications for iOS developers going forward.

Judge Yvonne Gonzalez Rogers today issued her ruling on the case, siding with Epic on one of the ten counts it charged Apple with, but also siding with Apple on one of its counterclaims against Epic.

Gonzalez Rogers agreed with Epic that Apple's restrictions rules against apps directing people to external payment offerings was a violation of California's Unfair Competition Law, and issued a permanent injunction against Apple.

Starting on December 9, Apple will no longer be allowed to stop developers from including external links, metadata buttons, or other calls to action that point users to places where they can pay for services without Apple taking a cut of the revenues. In addition, developers will be allowed to reach out to customers directly through any contact information given to them when users register a new account via an app.

As for Apple's side, Judge Gonzalez Rogers agreed with the iPhone maker that Epic had breached its contract when it circumvented the App Store payment processing -- and the 30% charge it carried -- to allow iOS users to buy Fortnite V-Bucks directly through the app. To that end, Epic was ordered to pay 30% of the more than $12 million it collected through the iOS app from August through October last year, and 30% of any money collected in that manner since then.

One of the key points Epic lost out on was its attempt to define a market which Apple could have been said to have a monopoly within. While the judge dismissed Apple's own market definition -- all digital video games -- as overly broad, she said Epic was arguing that Apple has no competitors of any kind, "a monopoly of one" as she put it. She rejected both arguments, instead ruling that the market in question was digital mobile gaming transactions.

"Epic Games failed in its burden to demonstrate Apple is an illegal monopolist"

Judge Yvonne Gonzalez Rogers

"Given the trial record, the Court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws," Judge Gonzalez Rogers wrote. "While the Court finds that Apple enjoys considerable market share of over 55% and extraordinarily high profit margins, these factors alone do not show antitrust conduct. Success is not illegal.

"The final trial record did not include evidence of other critical factors, such as barriers to entry and conduct decreasing output or decreasing innovation in the relevant market. The Court does not find that it is impossible; only that Epic Games failed in its burden to demonstrate Apple is an illegal monopolist.

"Nonetheless, the trial did show that Apple is engaging in anticompetitive conduct under California's competition laws. The Court concludes that Apple's anti-steering provisions hide critical information from consumers and illegally stifle consumer choice. When coupled with Apple's incipient antitrust violations, these anti-steering provisions are anticompetitive and a nationwide remedy to eliminate those provisions is warranted."

The judge denied Epic's arguments that Apple's efforts to keep customers in the iOS ecosystem amounted to anticompetitive behavior, saying emails with Apple executives talking about getting people "hooked" or aiming for "serious lock in" were not nefarious, pointing out that Epic executives had used "lock-in" to refer to Fortnite players and saying that every business attempts to keep users from dropping out.

"Whether the conduct is procompetitive depends on other factors, including timing and whether the stickiness is at least partly tied to product attractiveness which can then decrease if the products become less attractive (for instance, through higher game prices)," Judge Gonzalez Rogers said, noting that Epic's lawyers did not explore the topic with Apple executives on the stand.

However, she did find that Apple's policies have at least resulted in increased prices for developers, noting that competition from the Epic Game Store in the PC space spurred Steam and Microsoft to lower their own commission rates shortly after. And while Apple argued that other mobile app stores and consoles have a 30% commission as standard, the judge said those are frequently negotiated downward. (She cited sealed evidence in the case as confirming that console makers cut breaks for large developers.)

"In light of Apple's high profit margins on the App Store, a third-party store could likely provide game distribution at a lower commission and thereby either drive down prices or increase developer profits," the judge said. "The Court must reserve on whether Apple's restrictions have increased prices for consumers as the evidence is mixed."

She also agreed with Epic that Apple's restrictions have held back innovation in the field.

"Apple conducted developer surveys in 2010 and 2017," Judge Gonzalez Rogers said. "Comparing the two indicates that Apple is not moving quickly to address developer concerns or dedicating sufficient resources to their issues. Innovators do not rest on laurels."

She added, "The point is that a third-party app store could put pressure on Apple to innovate by providing features that Apple has neglected. Because this competition is currently precluded, Apple's restrictions reduce innovation in 'core' game distribution services."

"While some consumers may want the benefits Apple offers... Apple actively denies them the choice"

Judge Yvonne Gonzalez Rogers

Additionally, she brushed aside Apple's defense that its restrictions on app distribution were necessary to have a secure platform, saying Epic showed that alternative models of app review can achieve the same ends.

"Because Apple has created an ecosystem with interlocking rules and regulations, it is difficult to evaluate any specific restriction in isolation or in a vacuum," she said. "Thus, looking at the combination of the challenged restrictions and Apple's justifications, and lack thereof, the Court finds that common threads run through Apple's practices which unreasonably restrains competition and harm consumers, namely the lack of information and transparency about policies which effect consumers' ability to find cheaper prices, increased customer service, and options regarding their purchases. Apple employs these policies so that it can extract supracompetitive commissions from this highly lucrative gaming industry."

She added, "While some consumers may want the benefits Apple offers (e.g., one-stop shopping, centralization of and easy access to all purchases, increased security due to centralized billing), Apple actively denies them the choice. These restrictions are also distinctly different from the brick-and-mortar situations. Apple created an innovative platform but it did not disclose its rules to the average consumer. Apple has used this lack of knowledge to exploit its position. Thus, loosening the restrictions will increase competition as it will force Apple to compete on the benefits of its centralized model or it will have to change its monetization model in a way that is actually tied to the value of its intellectual property."

Although it scored a partial victory, Epic did not seem satisfied with the outcome.

"Today's ruling isn't a win for developers or for consumers," said Epic Games CEO and founder Tim Sweeney on Twitter. "Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers.

"Fortnite will return to the iOS App Store when and where Epic can offer in-app payment in fair competition with Apple in-app payment, passing along the savings to consumers."

An appeal may be in the works, as Sweeney also pledged that, "We will fight on."

As of this writing, Apple has not responded to a request for comment.

For more, check out our complete rundown of all the headlines from Epic v. Apple.