In a sharply critical ruling with potentially far-reaching consequences, a federal judge has found Apple Inc. in violation of a previous court order aimed at opening up its App Store to alternative payment methods.
The judge mandated that Apple cease charging commissions on purchases made outside its proprietary system and took the extraordinary step of referring the tech giant to federal prosecutors for a potential criminal contempt of court investigation.
US District Judge Yvonne Gonzalez Rogers, presiding over the long-running dispute between Apple and Fortnite creator Epic Games Inc., delivered the stinging rebuke on Wednesday.
She sided unequivocally with Epic’s argument that Apple had failed to genuinely comply with her 2021 injunction, which stemmed from findings that Apple engaged in anticompetitive practices under California law.
That original order required Apple to allow developers to steer users toward payment options outside the App Store, thereby bypassing Apple’s standard commission, which can reach up to 30%.
While Apple did implement changes allowing external links, it subsequently imposed a new 27% fee on revenues generated through those outside transactions – a move Epic argued undermined the court’s directive.
Judge Gonzalez Rogers agreed, finding Apple’s actions were not a good-faith attempt at compliance but a deliberate effort to maintain its lucrative App Store revenue stream.
“It did so with the express intent to create new anticompetitive barriers which would, by design and in effect, maintain a valued revenue stream; a revenue stream previously found to be anticompetitive,” she wrote in her detailed 80-page ruling.
That it thought this court would tolerate such insubordination was a gross miscalculation.
Criminal referral and allegations of deception
Perhaps the most striking element of the ruling is the referral to the US attorney’s office in San Francisco to investigate potential criminal contempt charges against Apple for flouting the 2021 order.
The US attorney’s office declined immediate comment.
The judge’s decision was underpinned by findings that Apple attempted to obscure its noncompliance.
“After two sets of evidentiary hearings, the truth emerged,” Gonzalez Rogers wrote.
Apple, despite knowing its obligations thereunder, thwarted the injunction’s goals, and continued its anticompetitive conduct solely to maintain its revenue stream.
Furthermore, the judge singled out testimony from Alex Roman, Apple’s vice president of finance, labeling it untruthful.
She stated Roman “even went so far as to testify that Apple did not look at comparables to estimate the costs of alternative payment solutions,” when evidence suggested the company did precisely that.
Because neither Roman nor Apple’s legal team corrected this testimony, “Apple will be held to have adopted the lies and misrepresentations to this court,” the judge concluded.
Judge Gonzalez Rogers also found Apple had abused attorney-client confidentiality to shield information from Epic, ordering Apple to cover Epic’s legal fees associated with fighting for those documents.
Apple disagrees, Epic claims victory
Apple expressed strong disagreement with the judge’s findings. “We will comply with the court’s order and we will appeal,” a company representative stated.
Conversely, Epic Games CEO Tim Sweeney hailed the decision as a landmark win for software developers.
He told journalists the ruling “forces apple to compete with other payment services rather than blocking them,” calling it a “huge victory.”
Significant financial implications
The order forcing Apple to eliminate commissions on external App Store purchases could significantly impact the company’s bottom line.
The App Store generates billions of dollars in high-margin revenue annually.
This ruling comes as Apple potentially faces another major financial hit related to payments Google makes to be the default search engine on Apple devices, a central issue in the ongoing Department of Justice antitrust case against Google’s parent company, Alphabet Inc.
Legal context
It’s important to recall the initial 2021 trial outcome. While Judge Gonzalez Rogers found Apple’s conduct violated California’s Unfair Competition Law, she largely sided with Apple on federal antitrust claims.
Her order mandating the allowance of external payment links was upheld last year when the US Supreme Court declined to hear appeals from either side, making Wednesday’s contempt finding particularly significant.
The case reference is Epic Games Inc. v. Apple Inc., 20-cv-05640, US District Court, Northern District of California (Oakland).
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