by The U.S. Supreme Court has declined to accept dueling appeals from Apple (AAPL) and “Fortnite” developer Epic Games.
In an order issued Tuesday, the court announced it would not allow either appeal that asked the justices to reconsider a ruling that affects Apple’s control of its lucrative App Store. As a result, an appeals court ruling that largely favors Apple will stand, although it requires it to make some changes.
On appeal, the Ninth Circuit upheld a California trial court’s ruling, saying that while the trial court erred in its analysis, Epic nonetheless failed to show that Apple had an unlawful monopoly in a relevant market.
As a result, the court said, the tech giant did not violate federal antitrust law — a finding that prevented Apple from breaking up or divesting its closely guarded App Store.
Although the decision is not all upside for Apple. The Ninth Circuit ruling revived an injunction that requires the smartphone behemoth to allow app developers to include in their respective apps, links, and buttons that direct app users to pay for app purchases outside of the App Store.
The injunction puts billions in revenue for Apple at risk. The company, which has about 15% of the global smartphone market earns fees for in-app purchases created by more than 30 million iOS app developers. The Ninth Circuit said at the time of the Epic v. Apple trial, the number of video games on Apple’s mobile operating system had grown from 131 in the early days of the iPhone to over 300,000. These gaming apps, the court said, generated an estimated $100 billion in annual revenue.
The appeals court said that Epic failed in its case because it did not sufficiently show that Apple’s App Store qualified as a relevant app market. The court also said that Epic failed to introduce much less restrictive means by which Apple could maintain its iOS ecosystem.
In a minor win for Epic, the Ninth Circuit also allowed US District Court Judge Gonzalez Rogers’ decision that Apple violated California’s Unfair Competition law to stand. To remedy the breach, the court ordered Apple to allow Epic and other app developers to offer alternative in-app payment methods.
Epic hoped that the Supreme Court would accept its broader claim that app developers should be able to put their apps on iPhones, not only by using the App Store, but also by using third-party app stores party.
While the Supreme Court’s decision not to hear Epic’s appeal helps Apple by ensuring that it keeps its App Store intact, the court’s decision not to hear Apple’s appeal could seriously push the tech giant. Apple profits handsomely from the 15% and 30% fees it charges app developers on the sale of products through its App Store when using Apple’s payment service.
If app developers can offer their own payment options in apps, they can bypass Apple’s fees, cutting into the company’s App Store revenue. Developers could sweeten the deal for consumers by selling apps and in-app products at a discount, as they no longer have to make up Apple’s fees.
Apple doesn’t break out its App Store revenue numbers, but includes it as part of the company’s overall services business. That segment, which includes subscriptions for products like 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,” with about 350 million registered players, was removed from Apple and Google’s (GOOG, GOOGL) app stores, and banned from their operating systems.
The bans were in response to Epic’s gaming program, which circumvented the platforms by offering direct in-game purchases at a 20% discount. Both Apple and Google said the move violated their terms of service, justifying removal from stores.
Epic then filed separate lawsuits against Google and Apple with nearly identical allegations that the transfers violated federal and California antitrust laws.
While both cases focused on the level of control tech giants should have over third-party developers, a jury reached a different conclusion in the case that went against Google.
In a jury trial, jurors sided with Epic, finding that Google abused the dominance of its Android operating system app distribution and in-app billing markets by extracting exorbitant fees from Epic and other third-party app makers. A separate portion of the trial to determine a remedy for the violation is scheduled to take place later in January. Although a final outcome is likely to be years away, as Google is expected to appeal the case.
While Apple prevents users from installing apps on their iPhones outside of the App Store, Google’s Android allows users to install apps from third-party app stores, although they force them to make menu changes their device settings and read a warning about doing so.
Apple’s App Store is facing pressure from governments around the globe. Regulators from South Korea and Japan to the United Kingdom and the EU are looking at ways for the iPhone maker to open up its devices to allow third-party app stores on its devices or provide other payment options in apps.
The Supreme Court’s decision not to accept the Epic and Apple appeals could also affect the US Department of Justice’s ongoing investigation into Apple’s App Store and other lines of business.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Daniel Hawley He is the technology editor at Yahoo Finance. He has been covering the tech industry since 2011. You can follow him on Twitter @Daniel Howley.
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