The U.S. Supreme Court refused to accept dueling appeals from Apple (AAPL) and “Fortnite” developer Epic Games.
In a decision released Tuesday, the court said it would not hear two appeals asking the justices to reconsider a decision affecting Apple’s control of its lucrative App Store. As a result, an appeals court decision in favor of Apple will mostly prevail, although it may require some changes.
In the appellate case, the Ninth Circuit upheld the California court’s decision, holding that although the trial court erred in its analysis, Epic still failed to show that Apple had an illegal monopoly in the relevant market.
As a result, the court said the tech giant did not violate federal antitrust law; this outcome saved Apple from having to disband or divest its closely guarded App Store.
However, the decision is not very positive for Apple. The Ninth Circuit’s decision revives a measure that required the smartphone giant to allow developers to include links and buttons in their apps that direct users to pay for app purchases outside the App Store.
This measure puts Apple’s billions of dollars in revenue at risk. The company, which holds about 15% of the global smartphone market, earns fees from in-app purchases generated by more than 30 million iOS app developers. The Ninth Circuit said during Epic’s lawsuit against Apple that the number of video games on Apple’s operating system grew from 131 to more than 300,000 in the early days of the iPhone. These gaming apps generate an estimated $100 billion in annual revenue, the court said.
The appeals court said Epic failed in the case because it failed to adequately show that Apple’s App Store qualifies as a relevant app marketplace. The court also said Epic failed to provide some less restrictive ways for Apple to protect the iOS ecosystem.
In a narrow win for Epic, the Ninth Circuit also upheld U.S. District Court Judge Gonzalez Rogers’ finding that Apple violated California’s Unfair Competition law. To remedy the violation, the court ordered Apple to allow Epic and other app developers to offer alternative in-app payment methods.
Epic was hoping the Supreme Court would accept its broader argument that developers should be able to push their apps to iPhones through third-party app stores as well as Apple’s App Store.
While the Supreme Court’s decision not to hear Epic’s appeal may help Apple by ensuring it keeps its App Store intact, the court’s decision not to hear Apple’s appeal could seriously hurt the tech giant. Apple benefits greatly from the 15% and 30% fees it charges app developers for selling products through the App Store when using Apple’s payment service.
If app developers could offer their own payment options in apps, they could bypass Apple’s fees, reducing the company’s App Store revenue. Developers can further sweeten the deal for consumers by selling apps and in-app products at a discount because they will no longer have to recoup Apple’s fees.
Apple doesn’t disclose App Store revenue figures, instead including them as part of the company’s overall services business. This segment, which includes subscriptions for products such as Apple TV+ and Apple Care, generated $85.2 billion of Apple’s $383.3 billion in total revenue in 2023.
The Epic-Apple dispute began more than two years ago, when “Fortnite,” which has nearly 350 million registered players, was booted from Apple and Google’s (GOOG, GOOGL) app stores and banned from their operating systems.
The bans were a response to Epic’s gaming program that bypasses platforms by offering direct in-game purchases at a 20% discount. Apple and Google justified the removal from stores by saying the move violated their terms of service.
Epic later filed separate lawsuits against Google and Apple with nearly identical allegations that the removals violated federal and California antitrust laws.
While both cases focused on what level of control tech giants should have over third-party developers, the jury in the case against Google reached the opposite conclusion.
At the jury trial, jurors sided with Epic and found that Google abused its dominance in the Android OS app distribution and in-app billing markets by charging exorbitant fees to Epic and other third-party app makers. A separate portion of the hearing to determine resolution of the breach is scheduled for late January. However, since Google is expected to appeal the case, the final outcome will likely take years.
While Apple prohibits users from installing apps on their iPhones from outside the App Store, Google’s Android allows users to install apps from third-party app stores, albeit after forcing them to make changes in their device’s settings menu and read a warning about doing so.
Apple’s App Store is facing pressure from governments around the world. Regulators from South Korea and Japan to the UK and the EU are looking at or looking at ways to get the iPhone maker to open up its devices to allow third-party app stores or offer alternative payment options in apps.
The Supreme Court’s decision to disregard appeals against Epic and Apple could also impact the U.S. Justice Department’s ongoing investigation into Apple’s App Store and other businesses.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Daniel Howley He is the technology editor of Yahoo Finance. He has been interested in the technology sector since 2011. You can follow him on Twitter. @DanielHowley.
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