Apple Settles With App Developers Without Major Concessions (3)

Apple Inc. settled a wide-ranging class action lawsuit with U.S. app makers Thursday without agreeing to major changes to its policies, a victory for a company facing criticism that it wields too much power.

The settlement will include $100 million worth of payments to app makers ranging from $250 to $30,000 per developer, according to law firm Hagens Berman, which represented plaintiffs claiming Apple overcharged them fees for distributing their programs through the iOS App Store. A new advertising policy, meanwhile, will make it easier for developers to promote alternative pricing plans and ways to pay -- without Apple taking a cut.

Apple has long allowed developers to advertise external payment methods -- such as Netflix Inc. pointing users via email to sign up on its website instead of the app -- but has frowned upon the practice. The new policy ensures Apple won’t ban developers for these communications. It doesn’t, however, let developers advertise outside pricing or payment methods within the apps themselves. The settlement also addresses only U.S. app developers, leaving Apple’s global position unchanged.

The company is “clarifying that developers can use communications, such as email, to share information about payment methods outside of their iOS app,” Apple said in a statement.

Read more: How the App Store sparked an Epic trial

Critically for Apple, the settlement excludes more significant App Store changes that were sought by some outside developers and legislators. The company is still requiring developers to sell their apps -- as well as in-app items and subscriptions -- using Apple’s payment system, which takes between 15% and 30% in commissions. Apple reduced the cut to 15% for developers that generate $1 million or less annually last year. On Thursday, it committed to continuing that policy for the next three years.

The settlement also doesn’t require Apple to allow third-party app stores or the so-called sideloading of software. And the company doesn’t have to further reduce its revenue share. The accord will require approval from Judge Yvonne Gonzalez Rogers, who is overseeing this lawsuit. She is also the judge in Apple’s lawsuit with Epic Games Inc., which has contested the App Store policies as well. It’s unclear if this settlement will affect her opinion in that higher-stakes suit with the maker of Fortnite.

“This offer does nothing to address the structural, foundational problems facing all developers, large and small, undermining innovation and competition in the app ecosystem,” Meghan DiMuzio, executive director of the Washington-based Coalition for App Fairness, wrote in response. “Allowing developers to communicate with their customers about lower prices outside of their apps is not a concession and further highlights Apple’s total control over the app marketplace.”

Apple’s App Store practices have come under increasing scrutiny in recent months, with critics saying the tech giant is too dominant in the industry. U.S. Senators have griped about the “gatekeeper control” that Apple and Google have with their mobile operating systems and have hauled the companies into congressional hearings. And South Korea is poised to become the first country to impose curbs on the companies’ app marketplaces.

Minnesota Democrat Amy Klobuchar, who chairs the Senate antitrust subcommittee, and Connecticut Democrat Richard Blumenthal described the settlement as a good first step, although they said more needs to be done to resolve what they’ve described as Apple’s anticompetitve behavior. They co-sponsored a bill earlier this month, along with Tennessee Republican Marsha Blackburn, that would impose more drastic changes on how app stores operate.

The settlement “marks a significant step forward, but does not rectify the full and vivid range of market abuses and practices still widespread across app markets,” Blumenthal said in a statement, saying that it “adds to the momentum” for his legislation.

With Thursday’s agreement, Apple said it would retain recent changes to the App Store search engine for the next three years. “At the request of developers, Apple has agreed that its Search results will continue to be based on objective characteristics like downloads, star ratings, text relevance and user behavior signals,” Apple said.

The Cupertino, California-based company is also expanding the number of price points developers can offer from fewer than 100 to more than 500, and it will publish an annual App Store transparency report.

That report “will share meaningful statistics about the app review process, including the number of apps rejected for different reasons, the number of customer and developer accounts deactivated, objective data regarding search queries and results, and the number of apps removed from the App Store,” according to Apple. And the company plans to detail more information about its app review process on its website.

(Updates with comments from Klobuchar and Blumenthal starting in ninth paragraph)

--With assistance from Anna Edgerton.

To contact the reporter on this story:
Mark Gurman in Los Angeles at mgurman1@bloomberg.net

To contact the editors responsible for this story:
Tom Giles at tgiles5@bloomberg.net

Nick Turner, Vlad Savov

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