Last Wed, in a sharply worded ruling, a US federal district court judge ruled that Apple was in willful violation of her earlier Sep 2021 injunction. Apple was required to allow developers to include buttons, external links, and calls to action in their apps directing users to outside purchasing mechanisms; and allow them to communicate with users using information gathered voluntarily from account registration. (The original injunction actually took effect in Jan 2024, after the Supreme Court declined review.) The recent injunction expands upon the original: “Effective immediately Apple will no longer impede developers’ ability to communicate with users nor will they levy or impose a new commission on off-app purchases.” In response, Spotify, Amazon’s Kindle, Patreon, and many other developers are making changes to their apps to cut Apple out of transactions. Apple has filed an emergency motion for a stay pending appeal, requesting relief by May 28.

Background: The original antitrust case was brought by Fortnite developer Epic Games in Aug 2020 against Apple for allegedly monopolistic behavior in tying its App Store to its payment system, allowing it to extract a 30% commission on in-app transactions. The case was filed after Epic updated its popular Fortnite game to allow mobile users to pay Epic directly for in-app purchases, resulting in both Apple and Google kicking Fortnite off their respective app stores for violating their policies. (Fortnite returned in Aug 2024 to Google Play globally and Apple’s App Store in the EU, and is now set to return to the US App Store after the recent injunction.) In 2021, Obama-appointed Judge Yvonne Gonzalez Rogers of the US District Court for the Northern District Court of California (Oakland) ruled in favor of Apple on 9 out of 10 counts. The court could not conclude that Apple was a monopolist, and it upheld Apple’s ability to keep rival app stores and payment methods off its devices as well as its ability to ban Epic from its app store.

While the ruling was largely viewed as a win for Apple, Apple pushed back on the requirement to let developers link to alternative purchasing mechanisms by instituting a 27% commission on “link-out” transactions that take place within 7 days after the user’s tap-through. (The 27% commission, which Apple has instituted in other countries, reflects a 3% discount on its normal 30% cut to exclude the “value related to payment processing and related activities.”) Apple also instituted a prominent warning (what the judge calls a “scare screen”) on link-outs: “You’re about to go to an external website. Apple is not responsible for the privacy or security of purchases made on the web.”

Specifically, the recent injunction bars Apple from imposing a commission on outside purchases (which would also mean Apple would have no reason to require reporting from developers on off-app activity); from restricting the language, style, and placement of links/buttons for off-app purchases; and from restricting the use of dynamic links to bring consumers to a product page in a logged-in state with user information (static links were previously required by Apple). It also requires neutral language in warning users that they are going to a 3rd-party site. The judge furthermore referred the case to the US Attorney for the Northern District to investigate whether criminal contempt proceedings were appropriate against Apple and its VP of Finance, for avoiding compliance with the original injunction and for lying under oath.

Apple’s emergency motion was filed with the SF-based 9th US Circuit Court of Appeals, which serves the Western states. It is seeking a stay, pending appeal, on the prohibitions on charging a commission on outside transactions and setting conditions on the language/placement of link-outs. Apple argues that it expects to win an appeal on the grounds that the recent injunction is permanently imposing a zero commission on outside transactions and targeting new practices (e.g. 27% commission) that did not exist at the time of the original injunction, among other grounds.

In the meantime, Apple is complying with the recent injunction and has updated its guidelines to allow developers to link out without restrictions. This has spurred developers to release app updates to cut Apple out of transactions.

Spotify submitted a now-approved app update which includes subscription pricing and promotions; links to purchase subscriptions, upgrade from Free to Premium, and switch from Individual to Student, Duo, or Family; and off-app payment options. Amazon added a “Get book” button on book detail pages in the Kindle app, which takes users directly to the Amazon.com book webpage. (Amazon takes a 30%+ cut itself on Kindle books so it previously didn’t allow users to purchase through its iOS app.) Patreon rolled out a now-approved update that lets users subscribe and make purchases via the web. Proton has said it could reduce prices on its email and VPN services by as much as 30%. Stripe recently released a guide helping app developers set up payments outside of their app using Stripe Checkout. (Stripe’s standard fees are 2.9% plus $0.30/transaction.)

Apple has faced a barrage of challenges lately. Trump’s tariffs will impact margins to the tune of an estimated $900M in the current quarter, accelerating Apple’s shift of manufacturing for its US-market products to India and Vietnam. (Already, more than half of its US phones are made in India, and “almost all iPad, Mac, Apple Watch, and AirPods products” are made in Vietnam.) Apple is also likely to lose the $20B in revenue from Google related to exclusivity agreements, depending on the outcome of the remedies phase of Google’s search-related antitrust case. (Apple is reportedly considering a move towards AI search on Safari.) Perhaps more importantly, it has struggled to catch up in AI and integrate AI across its devices as promised.

The injunction cast a cloud over Apple’s Q2 FY25 earnings report, which took place the day after the ruling was handed down. For Services, Apple reported 12% year-over-year growth and a record $26.6B quarterly revenue, but still faced worried questions from analysts about the ruling’s impact on the business. While Apple’s share price remained relatively strong heading into the earnings report, it has fallen 7.4% since, as of this writing.

On net, the shakeup from the injunction could be good for consumers. If the injunction stands, consumers will likely see lower prices, more payment options, and perhaps more innovative bundles and other offerings. On the other hand, their in-app experience could become less seamless and more subject to scams and privacy risks from link-outs to sites outside of Apple’s ecosystem.

Apple will certainly take a hit if the injunction stands but the question is how much of a hit. Apple has estimated it could reach into the billions. (In FY24, Apple generated $94B in net income on $391B in revenue.) While it will certainly impact growth, it’s unlikely to be existential for Apple in the near term, and could end up being less negative than expected. Most of the near-term impact at least would be related to new subscriptions or subscription changes. Some consumers will take the opportunity to shave off a few dollars from their subscriptions. Others may opt to stay inside the safety of Apple’s walled garden – or at least not bother to change their existing subscriptions.

Dec 15 2023 (3 Shifts): Google’s antitrust loss v. Epic is shaking up the app economy

Sep 30 2021 (3 Shifts): Apple relaxes its App Store rules in the face of antitrust scrutiny