Apple Seeks to Delay Ruling Loosening Its Grip on App Store (3)

Apple Inc. is angling to delay making the most significant change to its App Store business model since the platform was launched in 2008, an overhaul that could cost the tech giant a few billion dollars annually.

The iPhone maker gave notice Friday that will appeal a judge’s ruling in its fight with Epic Games Inc. ordering the Cupertino, California-based company to stop blocking developers from letting users complete in-app purchases on the web. It also asked the judge to put her Dec. 9 deadline for App Store rule changes on hold during the appeal, which if allowed could keep business as usual for Apple for at least a year.

The Sept. 10 ruling largely vindicated Apple’s business model that charges commissions on developers for App Store transactions, but the judge said Apple must allow direct communication between users and app makers and permit links to the web to complete transactions.

Bloomberg Intelligence has said that pressure on Apple to lower its commissions, which currently run as high as 30%, could squeeze revenue by $2 billion to $4 billion in a worst-case scenario.

Apple said in its filing that it wants to “maintain the status quo” as “there’s no reason to expend resources” on App Store changes during the appeals process. It also argued there could be “unintended downstream consequences for consumers and the iOS platform” if the judge’s order goes into effect Dec. 9. A postponement would give the company time to address concerns in a way that could potentially do away with the need to let developers allow consumers to make web purchases, Apple said.

“Apple is working hard to address these difficult issues in a changing world, enhancing information flow without compromising the consumer experience,” the company said.

A hearing on Apple’s stay request has been set for Nov. 16, but the company said in a briefing it’s seeking to move the proceeding to Nov. 2. If U.S. District Judge Yvonne Gonzalez Rogers refuses to grant the stay, Apple said, the company could go to the Ninth Circuit Court of Appeals.

Read More: Apple Bans Fortnite Until Appeals Are Exhausted in Lawsuit

When the ruling came out, following a three-week trial in May, Apple hailed it as a victory because the judge didn’t find that the company violated federal antitrust law. Tim Sweeney, Epic’s founder and chief executive officer, said in a tweet “the ruling isn’t a win for developers or for consumers” and his company promptly filed notice that it will appeal.

Epic declined to comment on Apple’s appeal Friday but Sweeney tweeted an image of Agent Peely, a banana action figure in Epic’s popular battle-royale game Fortnite who briefly became a source of controversy in the trial.

Apple has announced that it plans to keep Fortnite off of the App Store until appeals are exhausted, a process that could take as long as five years if the fight goes all the way to the U.S. Supreme Court.

While Gonzalez Rogers said Apple can no longer ban developers from pointing users to the web to complete transactions -- bypassing the App Store’s in-app-purchase system -- the judge didn’t state outright that Apple can’t collect its commissions.

That has led some observers to believe that Apple could still take its cut of revenue via other means, but lawyers and analysts say doing so poses logistical hurdles and risks political blowback.

Why App Store Fees Are Drawing Fire Worldwide: QuickTake

Paul Gallant, an analyst at Cowen & Co., has said Apple would want to put off changing App Store rules “because things could get messy if developers get to do workarounds starting in December.” Gallant said in a research note last month that Apple has a good chance of winning a stay at the Ninth Circuit.

“That would prevent developers from using non-Apple payment mechanisms (and avoiding the 30% commission) until at least late 2022,” he wrote.

Before the September ruling, Apple announced two App Store changes in settlements with small U.S. developers and the Japan Federal Trade Commission. Both concessions are similar to the court’s injunction.

Apple is letting developers directly communicate with users about alternative payment methods, and next year it will begin allowing so-called “reader” apps -- those that deal with media like video, photos, and news -- to point users to the web to subscribe, bypassing Apple’s fees. The company highlighted those changes in Friday’s filing.

The case is Epic Games Inc. v. Apple Inc., 20-cv-05640, U.S. District Court, Northern District of California (San Francisco).

(Updates with Epic CEO’s tweet.)

To contact the reporters on this story:
Mark Gurman in Los Angeles at mgurman1@bloomberg.net;
Malathi Nayak in San Francisco at mnayak21@bloomberg.net

To contact the editors responsible for this story:
Katia Porzecanski at kporzecansk1@bloomberg.net;
Jillian Ward at jward56@bloomberg.net

Peter Blumberg

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