Apple-Epic Judge Hints at Compromise in Feud Over App Store

(Bloomberg) -- The judge overseeing the high-stakes trial between Epic Games Inc. and Apple Inc. hinted at a compromise that could quell at least some of the game maker’s concerns: the ability for app developers to inform users that the iPhone maker’s virtual store isn’t their only shopping option.

U.S. District Judge Yvonne Gonzalez Rogers appeared to be looking for middle ground while hearing from economists called by both companies as expert witnesses in a case that threatens to upend the multibillion-dollar marketplace for apps which run on mobile phones around the world.

Epic and Apple are feuding over access to V-Bucks, the virtual currency used to buy upgrades inside of the blockbuster game Fortnite. To buy V-Bucks, Apple requires use of its own payment system that takes up to a 30% cut from developers. Epic tried to replace that system with its own, circumventing Apple’s fees and leading to Fortnite’s removal from the App Store and the ongoing trial.

The judge this week questioned that Apple rule, which also blocks developers from including a link or other information in their apps to steer users away from the store to buy virtual goods elsewhere online at a discounted rate.

The anti-steering policy is targeted in the lawsuit Epic filed last year alleging that Apple maintains a near-monopoly and juices profits with its App Store rules and fees. Epic is seeking to unravel those rules and pave the way for alternative payment systems.

There’s more at stake than Fortnite V-Bucks. If Apple were to remove its anti-steering policy, it would likely do so for all app developers. Spotify Technology SA, Netflix Inc., and Match Group Inc. all have complained about the policy, and the major music and video streaming services have removed the ability for users to subscribe to their services from their iPhone apps altogether.

Evidence in the case shows that Microsoft Corp. sought an App Store work-around as early as 2012. Representatives of the Windows software maker asked Apple if users could be allowed to subscribe to Office on Microsoft’s website, rather than inside the iPad app, to ensure a consistent user interface. Apple rejected that request despite Microsoft saying it would still pay a commission to the Cupertino, California-based company.

“What’s so bad about it anyway, for consumers to have choice?” Gonzalez Rogers asked Richard Schmalensee, an economist and Massachusetts Institute of Technology professor, who was testifying Wednesday as an expert witness for Apple in the second week of trial in Oakland, California.

Apple, Epic Games Have Simple Way to Avoid Trial: Fully Charged

Her question drew pushback from Schmalensee, who highlighted the downside for Apple: a decline in its App Store “revenue stream.”

The professor noted that the U.S. Supreme Court, in a 2018 ruling, threw out a lawsuit that accused American Express Co. of thwarting competition by prohibiting merchants from steering customers to cards with lower fees.

“If the app vendor can say, if you press this button you can buy this for less, that means the App Store can’t collect its commission,” Schmalensee said. That amounts to “undercutting” Apple’s App Store sales, he said.

Sensor Tower estimates the App Store generated $22 billion in commissions last year for Apple, much of which stemmed from in-app-purchases.

Gonzalez Rogers said she didn’t think the situations were “factually the same.” At real stores, customers can see signs that say they can use Visa, MasterCard and other credit card options -- unlike in the App Store. “Visual indications of options don’t exist in this circumstance.”

“If Apple didn’t have these rules, would the problem be solved?” Rogers asked Epic’s economist, David Evans, who also pushed back at the compromise solution when he was on the witness stand Tuesday.

“That wouldn’t eliminate the market power Apple has here, but it would certainly diminish it,” Evans said. For many apps, including game apps that don’t have alternative payment systems, “it would not be much of a solution at all,” he said.

Gonzalez Rogers has been wrestling with antitrust claims against Apple’s App Store for almost a decade. An antitrust case filed by app buyers in 2011 that claims Apple’s 30% fee on developers raises consumer prices went all the way to the U.S. Supreme Court before returning to her court, where it’s still pending.

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