Apple’s 27% response to the Supreme Court decision is baiting antitrust regulators

The US Supreme Court yesterday decided that the original ruling in the Epic Games case should stand – and Apple’s response to the antitrust ruling has been uncompromising, to put it politely.

The company’s announcement that it will allow external payments but still claim a 27% commission on sales made outside the App Store is effectively Apple giving the middle finger not just to Epic Games – which may be understandable – but also to the court which made the original ruling, and to antitrust regulators …

The Supreme Court decision

For anyone who needs a quick refresher on the background to this:

• Epic Games introduced its own in-app payment system on iPhone
• This bypassed the App Store, and denied Apple its 30% commission
• This was a blatant breach of App Store terms & conditions
• Apple responded by throwing the company off the App Store
• The two companies went to court

The court ruled that Apple did have to allow developers to use third-party platforms (a victory for Epic), but disagreed that the iPhone maker was operating a monopolistic service (a victory for Apple).

Both companies appealed the parts they didn’t like, but the Supreme Court declined to hear the case. Effectively it indicated that it was happy with the existing ruling.

This meant that Apple is required to allow developers to make app and in-app purchase (IAP) sales using their own choice of payment platform. In other words, developers could point iPhone owners to other places to buy the app, beyond the App Store.

Apple’s response

You might think that this allows developers to avoid Apple’s 30% cut. This was quite clearly the intention of the earlier court ruling.

But Apple’s interpretation of the ruling is, uh, rather different. Sure, said the company, you can let iPhone users buy your app elsewhere – but we still want 27% commission, even though the sale wasn’t made through the App Store. (Or 12%, for smaller developers who would normally pay 15% instead of 30%.)

The iPhone maker says developers must keep records of all the sales they make outside the App Store, disclose these sales to Apple, and hand over the 27% or 12% commission.

This would be like a department store insisting it has the exclusive rights to sell your widget, for a 30% commission. Then when a court ruled that exclusive contract illegal, the store says, ok, you can sell your widgets direct to customers from your own website – but we still want you to tell us about every sale, and still give us 27%, even though we were in no way involved with the sale.

Apple’s justification

Apple’s justification for this response is ‘We created the iPhone, you wouldn’t be able to sell iPhone apps if we hadn’t done that.’

I mean, that’s true, but this would be like the estate of Nicolas-Joseph Cugnot saying ‘He invented the car, you wouldn’t be able to sell car headlights if he hadn’t done that, therefore we want a 27% cut of every headlight you sell.’

Apple is making a ridiculous claim to have an intellectual property stake in every iPhone app ever created, in perpetuity.

This is Apple baiting antitrust regulators

A developer wanting to sell apps directly would now have to bear all the costs involved in setting up its own app store or ecommerce system, hand over around 3% to a payment processor, and then give 27% to Apple. In doing this, it would be worse off than just selling through the App Store.

That was very clearly not what the court intended. I’d argue that Apple’s response is giving the middle finger to the court – claiming to be technically complying with its ruling, but undeniably acting contrary to the intent of that ruling.

Apple did the exact same thing in the Netherlands, so I guess we shouldn’t be surprised it’s doing it again in the US, but it still doesn’t seem a smart response.

Epic accused Apple of acting like an all-powerful monopoly, and the iPhone maker’s response was essentially to say “Hey, we’re so powerful we can basically ignore the intention of the court, and do what we like. We’ll still take our cut. Your puny ruling changes nothing, even when it’s upheld by the US Supreme Court.”

It’s also baiting antitrust regulators. Demonstrating the ineffectiveness of the court system to effect change is essentially telling lawmakers that if they want anything to change, they’re going to have to change the law.

In the long run, this will hurt Apple

Now, maybe Apple feels it has nothing to lose here. If it lets developers make their own sales, with Apple getting nothing, then it loses a revenue stream; if regulators change the law so developers can make their own sales, with Apple getting nothing, then it loses the revenue stream at a later date. It might as well hang onto the money for as long as it can.

But this is short-term thinking – the thing Apple says it doesn’t do. At the launch of the iPhone way back in 2007, Steve Jobs quoted ice hockey player Wayne Gretzky.

I skate to where the puck is going to be, not where it has been.

As I’ve said on a number of occasions before, Apple seems to have forgotten this lesson where the law is concerned:

For a company whose business is “skating to where the puck will be,” it’s astonishing to me how badly the company does this when it comes to reputational issues.

For each of the big issues that have brought the company bad publicity, Apple has taken its usual “We know best” approach. When it has made changes, it has been dragged kicking and screaming to its revised position, rather than taking a lead.

If Apple gets a reputation among lawmakers for exploiting every possible loophole, they are going to respond by introducing laws so restrictive and uncompromising that there is no potential place for the company to hide. Apple is, through its actions, inviting the toughest laws it could possibly face.

So sure, what Epic Games did was dumb. It baited Apple, Apple responded, and Epic Games got hurt. FAFO. But Apple is making the exact same mistake here. It’s baiting lawmakers, lawmakers will respond, and Apple will get hurt.

That’s my view, how about yours? Please share your thoughts in the comments.

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