Context: After the Supreme Court of the United States denied petitions by both Apple and Epic Games to review their App Store antitrust and unfair competition case, a September 2021 permanent injunction requiring Apple, under California Unfair Competition Law but with U.S.-wide effect, to allow apps to inform (U.S.) users of, and provides links to, alternative purchasing options has entered into immediate force (previous article on this dispute).
What’s new: This article is an in-depth analysis of Apple’s notice of compliance to the United States District Court for the Northern District of California and the new developer rules relating to Apple’s purported compliance with the anti-anti-steering injunction (i.e., an injunction that allows app developers to “steer” users to other purchasing methods by doing away (the first “anti”) with Apple’s “anti-steering” rule). Apple had everything prepared, therefore filed the notice on Tuesday within hours of the denial mentioned above. Apple’s rules are designed to make it economically counterproductive for any app developer to seek to benefit from the injunction through links that lead users directly to an alternative payment option, leaving promotions that merely inform users of such alternatives as the only viable option.
Direct impact: Epic has already announced that it will contest this set of rules in court. The legal question is then going to be whether one or more of those aspects of those rules constitute contempt of court despite the fact that injunctions are always interpreted in a defendant’s favor when being enfoced; and whether any other issues could be addressed through subsequent litigation, which apart from being costly and lengthy would raise issues if Epic was the plaintiff as Apple would presumably argue Epic can’t relitigate certain questions and that Epic lacks standing as Apple terminated its developer agreement in 2020. All things considered, Epic’s enforcement efforts could draw attention to Apple’s attitude, but games fray believes it is very unlikely that in-app links to alternative purchasing methods could become bottom-line beneficial to app makers and consumers through enforcement of the existing injunction. Therefore, the only practical way for app makers to benefit from the injunction will be mere (link-free) promotions of alternative purchasing options.
Wider ramifications: Apple’s decision to play hardball in the U.S. is consistent with its response to regulatory and legislative developments in other jurisdictions. If it wasn’t already foreseeable before, it is now that Apple is going to impose a near-30% tax on in-app purchases and app download fees in the EU even if apps are downloaded directly (“sideloading”) or from rival app stores, giving rise to further litigation there.
Apple’s rules for links to external payment options (Apple developer website) include, but are not limited to:
- a 27% (or 12% for small developers) tax on web purchases, which combined with the separate transaction fee charged by payment service providers means neither developers nor consumers will save money;
- restrictions on where and how the information on alternative purchasing options is communicated;
- prohibiting that apps pass on any data point that would enable the alternative purchasing website to offer a particular item (be it in-app currency or a digital item) and to consider the user already authenticated;
- a technical requirement that would apparently developers serving a global audience to split their customer base between U.S. and rest-of-world users (different so-called shelf-keeping units (SKUs));
- a scare screen to discourage users from actually making use of those alternative purchasing options;
- various risks that developers may see their apps rejected and their developr accounts terminated by Apple; and
- the risk of costly audits that Apple would be allowed to perform and developers might have to pay.
Some of those rules would single-handedly render the injunction useless in scenarios where developers wish to provide clickable links in their apps that lead users to an external purchasing option. Even if Epic’s enforcement efforts succeeded to a very significant extent, developers would still not benefit from the injunction as the remainder of the obstacles put in the way by Apple would still not make such links to alternative purchasing options commercially beneficial.
Further below you will find an analysis of how Apple seeks to justify certain rules and how likely it is that Epic’s enforcement efforts can address a given item. Contempt proceedings (with Apple certain to appeal any unfavorable ruling) would take some time anyway, and follow-on litigation on the merits would take years to result in an additional injunction.
Injunction could still be somewhat beneficial with respect to link-free promotions
As there is no way in which the injunction can realistically become useful (at least not anytime soon) with respect to links to alternative purchasing options outside an app, it is more advisable for app makers to focus on link-free promotions. Those will be less effective as users wouldn’t have convenient access to an alternative purchasing option. Also, Apple’s App Review department might reject submissions if the promotional messages are deemed by Apple to disparage its in-app purchasing system or its rules. Still, Apple will be at a far greater risk of running afoul of the injunction if it restricts the (reasonable) provision of information on alternative purchasing options to end users.
The September 10, 2021 injunction says in relevant part:
“Apple Inc. and its officers, agents, servants, employees, and any person in active concert or participation with them (“Apple”), are hereby permanently restrained and enjoined from prohibiting developers from (i) including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and (ii) communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.”
United States District Court for the Northern District of California
Part (ii) is a non-issue as Apple already agreed to that years ago. Previously there even were restrictions on what promotional messages app makers could send to registered users.
In part (i), it is the “other calls to action” that are more likely to make a practical impact in the near term than the “buttons” and “external links” (which Apple believes it can regulate through its app review guidelines).
When Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California entered the anti-anti-steering injunction under her state’s Unfair Competition Law, she identified in the simultaneous Rule 52 Order certain issues because of Apple’s prohibition of communicating to users about the 30% commission and especially about lower prices that might be found elsewhere. The following quotes from that order show that Judge Gonzalez Rogers wanted her injunction to result in greater transparency as to alternative purchasing options:
- “[D]evelopers cannot communicate lower prices on other platforms […] within iOS”
- “[C]ommercial speech, which includes price advertising, ‘performs an indispensable role in the allocation of resources in a free enterprise system.’”
- “In the context of technology markets, the open flow of information becomes even more critical.”
- “Users may also lack the ability to attribute costs to the platform versus the developer, which further prevents them from making informed choices.”
- “[Apple] enforced silence to control information and actively impede users from obtaining the knowledge to obtain digital goods on other platforms.”
- “Apple’s business justifications focus on other parts of the Apple ecosystem and will not be significantly impacted by the increase of information to and choice for consumers.”
In its notice of compliance, Apple itself says that “the underlying purpose of the Injunction” is “that users be apprised of their choices.”
There is no question that links (which can take different forms, including that of buttons) would be far more effective than mere promotional texts. If users were told that the same in-app purchase is available at, for instance, a 25% lower cost on a website directly accessible via a button, many of them might click and enter their payment information there. But Apple’s rules don’t allow that to work smoothly. Therefore, app makers may now opt for simply informing users in the U.S. of other options without providing links. If, for example, the X (formerly known as Twitter) app told people that a given subscription costs 25% less via X’s website, that would lead a significant number of users to go there and save money. It would not be as direct and effective as a link or button, but there does not appear to be any Apple rule in place at this point that would result in, for example, an obligation to pay Apple a commission.
The anti-anti-steering injunction would be very impactful if Google didn’t have a similar approach in place as Apple. Google actually needs to stop the erosion of Android’s market share in the U.S. market. If certain in-app purchases were substantially less costly on Android as a result of Google opening up, and if app makers then informed the users of their iOS apps that certain items cost much less on Android, that could increase switching rates. And if Android users found out about that (because of the iOS users among their family members, friends and colleagues telling them about it) before potentially switching to iOS, it would give some Android users pause before switching to iOS.
There are no indications of Google actually wanting to open up app distribution on Android in the U.S. market, unfortunately. But what about the likes of Samsung and OnePlus? An iOS apps could tell users that the same item can be purchased at a much lower price if one downloads the app from the Samsung Galaxy Store. Unfortunately, however, app makers would not really get a short-term benefit. For an immediate bottom-line impact, promotional texts such as “if you order via our website” are the only viable option (and only until Apple modifies its rules accordingly or it turns out that Apple’s App Review department rejects apps only because of promotional messages of the kind that the judge meant to allow.
Windows and even (though it’s an Apple platform) Mac versions of apps could also be interesting in this context. App makers could use the anti-anti-steering injunction to inform users of lower prices in the Windows and Mac versions of an app. For some apps, there is no use case outside a mobile device. For example, certain hardware components found only in smartphones may be required for an app to be useful. For some games, a touchscreen may be necessary for playability reasons. But where that is not an issue or can be addressed with a reasonable effort, and with most games and even many productivity apps being developed using cross-platform tools, the anti-anti-steering injunction may just have created an incentive to invest in Windows and Mac versions of apps, offering in-app items there at a price that saves users money compared to iOS and allows the app maker to earn more money than via Apple’s in-app purchasing system.
There are rules that Apple might change if this approach was adopted by many app makers and resulted in a significant reduction of IAP commission revenue. For example, Apple might require that items to be used in an iOS app also be purchased on iOS (while “cross-wallet” (digital currency being used across devices) and “cross-purchase” (digital purchases made on platform A being available on platform B) are presently allowed on iOS). Someone could then sue over such a new rule. Anything that Apple imposes now in terms of new restrictions is going to be more difficult to defend as Apple wouldn’t be able to argue that a given rule was already in place before the company had market power.
Is Apple’s 27%/12% tax compliant?
In a notice of compliance to the district court, Apple’s lawyers explain why they believe the new rules concerning links and buttons that lead to alternative purchasing options are a reasonable implementation of the injunction. They quote (obviously selectively) from the district court ruling and from other documents, some of which are related to the motion to stay that Apple brought in 2021. One of the documents cited by Apple in its justification of its rules is a letter that Epic’s lawyers sent to state attorneys-general in an unsuccessful atempt to dissuade them from settling with Google over its Google Play terms:
“In a publicly available letter regarding parallel litigation against Google, Epic (represented by the same counsel as in this case) acknowledged that an ‘injunction such as the one ordered in Epic v. Apple‘ would ‘not prevent Google from . . . introducing a new fee . . . on linked out-of-app transactions.’”
A letter by Epic’s lawyers to state AGs doesn’t change the law and is not binding authority for the interpretation of the injunction by the courts. And Epic’s lawyers presumably didn’t mean to sugest that any fee could be lawfully imposed on “linked out-of-app transactions.” But it definitely doesn’t help Epic when challenging Apple’s decision to impose a 27% (or 12% for small developers) tax on such purchases.
games fray will steer clear of raising questions about Apple’s corporate character because of the new rule. Whether or not one agrees with Apple and whether or not one believes that Apple’s walled garden is acceptable in its current form, enforcement will be an uphill battle because Apple will only be sanctioned for a wholly unreasonable interpretation of the injunction. Selectivity does not suffice. And the court has no basis to assume that a particular commission rate (say, 5% or 10%) is reasonable as the case was never about rate-setting (and even if it had been, that point would not have been reached as Apple fended off all of the actual antitrust claims),
From a policy point of view, it is nevertheless disconcerting that Apple believes it can impose its 30% tax (here, minus the amount that a payment provider would charge anyway) even on web purchases. It is arguably an expansive take on the app tax, given that the actual transaction would take place outside a given iOS app. But Apple can argue that those linked out-of-app transactions are just an extension of an iOS app and still commercially in-app revenue, even if technically an external website is brought up.
The question must be asked what would stop Apple from imposing the same 27% tax on, say, Amazon purchases or online banking transactions of whatever kind if those are made on iOS. Apple could always claim that this is just what it is entitled to for the use of its intellectual property. Judge Gonzalez Rogers actually acknowledged in her decision that Apple has the right to seek compensation for its IP (she could hardly say otherwise), and the question is how much. Apple’s position is that it should make just as much money as if a transaction had been made inside the app. There is an attribution window of 7 days (meaning that if a user follows up on a link and makes a purchase 8 or more days later, Apple would not receive a commission), enabling Apple to argue that it even accepts that there could be some scenarios where it won’t get paid.
The issue of Apple being a self-appointed tax authority for the internet to the extent it’s accessed via iOS is a serious question for policy makers. U.S. Congress has so far not enacted the Open App Markets Act.
Are Apple’s other new rules compliant?
Even if the commission rate was reduced, the rules as a whole would not make links and buttons that lead to external purchasing alternatives a viable option for app makers. Apple’s strategy is to provide a justification for each rule (such as why a scare screen should warn users of external payment options), thereby focusing on the trees and diverting attention away from the forest.
App makers would have to convince users to do something that is far less convenient than an actual in-app purchase. That would only work if there was a strong incentive for users to do it.
The apparent effect of Apple’s rules that app makers would have to publish different apps (they could have the same name and functionality, but would have different app IDs) in the U.S. and elsewhere means that app makers would have to tell their U.S. users or those in the rest of the world to switch to a different app, which entails a number of issues such as having to authenticate again and settings being lost. That is an example of a rule that would dissuade many app makers from attempting to benefit from the injunction even if there was no (or a much lower) commission rate on out-of-app web purchases.
Judge Gonzalez Rogers stated not only in connection with the anti-anti-steering injunction, but also during the remedies part of closing argument (in the spring of 2021), that she didn’t want a situation where the court would have to micromanage Apple’s App Store terms. Epic’s counsel explained to her that a lawsuit like Epic’s can just create an obligation for Apple to abandon specific anticompetitive terms or rules. There is always a risk for a need for follow-on litigation.
What the judge can see now is that even the seemingly straightforward anti-anti-steering injunction isn’t all that easy to manage. To the extent that app makers merely display information and don’t link to external purchasing options, there may never be a need for the court to tell Apple what to do (and what not to do). As explained further above, the risk for Apple to be held in contempt if it rejects factual and reasonable promotional messages would be high. But when it comes to making links and buttons work in a way that actually has a procompetitive effect, the anti-anti-steering injunction raises more questions than it answers, particularly as the court accepted various of Apple’s positions and even stated explicitly that Apple could take measures to protect users from potential fraud.
Apple has definitely architected a set of rules meant to render the “links” and “buttons” parts of the injunction useless. But the hurdle for a contempt sanction is reasonably high. Apple is under no obligation to ensure effective competition. It just has to comply, and it will vigorously defend its approach in any contempt proceedings.