Apple stock drops as judge rules against app store restrictions

A California judge said Friday that Apple must stop restricting developers from directing users away from in-app purchasing, a move that could let developers avoid the company’s 30 percent cut it takes on some sales.

The ruling is major setback for Apple, which made more than $64 billion in gross sales last year from the App Store alone. Apple shares fell more than 3.3 percent on the day after US District Judge Yvonne Gonzalez Rogers ordered the injunction, which was requested in a high-profile case between Fortnite maker Epic Games and Apple.

The fees have become a major source of cash for the company as iPhones became central to modern life, with many services moving into apps and giving Apple a cut of sales. 

The fees, though, have also become a burden on smaller companies that reach customers through the App Store. For example, earlier this year, an executive at Match Group, the owner of Tinder, testified to Congress that app-store fees are Match’s largest expense and would soon exceed $500 million a year, or 20 percent of revenue.

Meanwhile, in her full decision Friday, Rogers stopped short of calling Apple a monopoly, noting that “success is not illegal.”

But, she added, the company “is engaging in anti-competitive 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,” Rogers wrote. “When coupled with Apple’s incipient antitrust violations, these anti-steering provisions are anticompetitive and a nationwide remedy to eliminate those provisions is warranted.”

Despite the order to ease its restrictions on in-app purchases, Rogers ruled in favor of Apple on nine of 10 counts.

Rogers sided with Apple in ruling that Epic breached its contract with Apple when it let Fortnite users pay it directly, refusing to go through Apple.

“Today the Court has affirmed what we’ve known all along: the App Store is not in violation of antitrust law. As the Court recognized ‘success is not illegal,’” Apple said in a statement. “Apple faces rigorous competition in every segment in which we do business, and we believe customers and developers choose us because our products and services are the best in the world.”

The judge’s injunction order takes effect in 90 days, though the company didn’t say Friday if it indeed plans to.

In a statement on Twitter, Epic Games CEO Tim Sweeney slammed the ruling.

“Today’s ruling isn’t a win for developers or for consumers,” Sweeney tweeted. “Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers.”

“We will fight on,” he said, with a spokesman adding that the company will appeal the ruling to the Ninth Circuit.

Friday’s ruling is the latest move that chips away at Apple’s control over its fee-based App Store business. Last month, South Korea passed a law that forces Apple and Google to allow developers to use alternative payment systems.

And days earlier, Apple settled another lawsuit with smaller developers over its fees, paying $100 million and agreeing to allow developers to tell customers in an email about other ways they can pay, avoiding Apple’s fee.

It was a partial concession, but some industry watchers said it was Apple’s preferred outcome and a PR effort to satiate growing calls for reform.

Friday’s ruling could impact other companies, like Google, that also operate their own app stores. Epic is currently in a similar lawsuit with Google for commissions on its Android system.