Apple’s control over iPhone app store

An appeals court on Monday upheld Apple’s exclusive control over the distribution of iPhone apps, rejecting the latest attempt to force one of the world’s most powerful companies to dismantle the digital walls protecting its most lucrative product.

The 92-page decision issued by the U.S. Ninth Circuit Court of Appeals largely affirmed the findings of a lower-court judge who presided over a 2021 trial that revolved around an antitrust lawsuit filed by Epic Games, the maker of the popular Fortnite video game.

Epic Games’ lawsuit alleged Apple’s app store — which was launched in 2008, a year after the first iPhone went on sale — had turned into an illegal monopoly that stifles innovation and competition while generating billions of dollars in profit for Apple.

Epic tried to offer an alternative way to get its mobile app, attempting to evade the developer fees inside the app store, which collects a commission of 15% to 30% on subscriptions and other digital transactions.

Apple ousted Epic from its app store after it tried to get around restrictions that Apple says protect the security and privacy of iPhone users while also helping to recoup some of the investment that powers one of the world’s most ubiquitous devices.

U.S. District Judge Yvonne Gonzalez Rogers rejected the monopolist clams leveled against Apple in her September 2021 decision following a 16-day trial held in May of that year. The high-profile trial featured more than 500 exhibits and testimony from more than a dozen witnesses, including Apple CEO Tim Cook and Epic CEO Tim Sweeney.

After listening to oral arguments last November, the three Ninth Circuit judges handling the appeal upheld the gist of Gonzalez Rogers’ decision with a few minor exceptions.

Although the lower-court judge “erred as a matter of law on several issues, those errors were harmless,” the appeals court declared in its ruling. The appeals decision also backed Gonzalez Rogers’ opinion that Apple’s iPhone app store wasn’t violating federal antitrust law and that Epic hadn’t proven that consumers didn’t have the freedom to switch to other alternatives, such as phones powered by Google’s Android software.

“Users who place a premium on low prices can (by purchasing an Android device) select one of the several open app-transaction platforms, which provide marginally less security and privacy,” the ruling said.

Epic is pursuing an antitrust lawsuit against Google and its Play store for Android phones in a case mirroring its action against Apple. That lawsuit is scheduled for a November trial that will also be joined by the attorneys general in dozens of states pursuing similar allegations against Google.

Another section of Monday’s decision backed Apple’s assertion one of the reasons people decide to purchase iPhones stems from the company’s commitment to protect their privacy and security.

“Apple makes clear that by improving security and privacy features, it is tapping into consumer demand and differentiating its products from those of its competitors — goals that are plainly procompetitive,” the ruling said.

One of the three appeals court judges, Sidney R. Thomas, differed with the two other judges, Milan D. Smith Jr. and Michael J. McShane, on some legal issues that he believed should have been sent back to Gonzalez Rogers for further review.

Apple hailed the appeals court’s decision as further evidence that the iPhone app store “continues to promote competition, drive innovation, and expand opportunity.”

In a tweet, Epic’s Sweeney affirmed Apple’s appeals court triumph and then followed up with another tweet saying the company is “working on next steps,” without elaborating. The Cary, North Carolina, company could still ask for a review before a larger panel of Ninth Circuit judges or file an appeal with the U.S. Supreme Court.

Monday’s Ninth Circuit decision wasn’t an across-the-board victory for Apple, raising the potential that it might also pursue an additional appeal.

In her lower court ruling, Gonzalez Rogers affirmed a section of the lower-court that some of Apple’s app store rules constitute unfair competition under California law. Those so-called “anti-steering” violations stem from an Apple prohibition preventing the promotions of payment options from inside the apps installed on iPhones.

As a remedy, Gonzalez Rogers ordered Apple allow developers throughout the U.S. to insert links to other payment options besides its own within iPhone apps. That change would make it easier for app developers to avoid paying Apple’s commissions, potentially affecting billions of dollars in revenue annually.

Apple had appealed the part of Gonzalez Rogers’ decision addressing the “anti-steering” policies, but was rebuffed Monday. In its statement, Apple said it’s assessing whether it will contest the appeals court’s findings on that issue.