On Thursday, Apple said it had reached a legal settlement with app developers who accused them of abusing control of the mobile app market.
The settlement of the lawsuit is complex, and many in the tech industry have had mixed reactions to it. Apple and those suing it saw the deal as a major concession from Apple and a win for developers. Some critics of Apple, including companies that pay it millions of dollars in app fees, have called it a “sham” that doesn’t change Apple’s control over apps. .
Here is an explanation of the settlement and what it means.
First of all, all the controversy about what?
By some estimates, courts, regulators, lawmakers, and developers have been scrutinizing how Apple collects commissions of up to 30% on sales of other companies in its App Store. , a business that generates, by some estimates, nearly $20 billion a year for Apple.
Many companies that reach their customers through the app don’t want to pay Apple a hefty cut, and they’re increasingly fighting to change the rules. Apple argues that its commission rewards them for creating the “economic miracle” of the App Store, and that it is fighting to keep the status quo.
Billions of dollars are at stake in one of the most consequential battles for Big Tech’s power.
So what did Apple give up in the settlement?
Not much. They agree to keep the commission rate fixed for three years and continue to base search results in the App Store on “objective characteristics” such as downloads and user ratings, also for three years. .
On a granular level, it says, it will allow developers to sell their apps for 500 different prices, up from 100. (For example, now an app can charge $32, 99 instead of $29.99 for a subscription.)
And it agreed to create a $100 million fund for small app developers. (More on this later.)
But what’s getting the most attention is a “clarification” in Apple’s rules: Companies can now email customers to tell them about ways to pay other than the iPhone app ( or their iPad).
Is that significant?
Apple says so. But it seems like a small change to a set of rules that have been at the heart of complaints about the way Apple controls its App Store.
Apple forces companies to use a payment system inside their iPhone apps, which allows them to collect a commission on their sales. Most companies want to direct customers elsewhere to complete the transaction so they can avoid Apple’s fees. But Apple also often prohibits companies from asking customers to pay elsewhere.
Apple has long banned such directives. It has also banned companies from even using email to tell customers about other ways to pay if companies get customers’ email addresses from their iPhone apps.
Now, Apple is saying that companies can send such emails, if the companies get permission from customers.
Some companies appear to have partially violated Apple’s rules. To avoid Apple’s commissions, for example, music service Spotify doesn’t allow people to subscribe in its iPhone app. However, after someone creates a free account in the app, Spotify will email a link to its website, where it advertises its paid accounts, even though the email doesn’t explicitly say it. to users about circumventing Apple’s commission.
An Apple spokesman said companies, including Spotify, have complained for years about Apple’s restrictions on sending emails to certain customers.
What reaction happened?
Several lawmakers have proposed legislation to change the App Store’s rules. Sen. Richard Blumenthal, a Connecticut Democrat, said on Twitter that the agreement “marks an important step forward, but does not fully and vividly redress market abuses and practices and practices. schools are still popular on app marketplaces.”
The biggest praise comes from the App Association, an organization that claims to give “small tech companies a voice” but is funded by big tech companies, including Apple. “Our members need Apple to continue to lead in privacy, security, and safety to maintain consumer trust in platforms,” the group said.
Many companies that pay Apple commissions are not so kind. The Alliance for App Equity, a group of companies that opposes Apple’s rules, said the deal “doesn’t address the structural, foundational issues that all developers large and small must face.” face, undermining innovation and competition in the app ecosystem”. The group added that Apple’s restrictions on what companies can say in private communication with their customers show Apple’s inappropriate control over the app market.
David Heinemeier Hansson, an entrepreneur and app developer who is an outspoken critic of Apple’s rules, said in a Friday post that opening a narrow path for companies to direct customers to Other payment options just give Apple a cover to protect their ban on such communication in important places, such as the transaction page in an app.
“If the developer community had any hope of this class action, this outcome would be a dagger in the heart. Much worse if no lawsuits are brought,” he wrote. “If anything, this deal reinforces the enormous power that Apple has and is using. Even if a class action is underway, it can be bought with bromide and bribes.”
Why is this so confusing?
There was a lot of confusion after the settlement was announced in part because of the way Apple announced it. The company told reporters about an evening press conference two hours before it started and then posted a chaotic news release just as the press conference was starting.
That means when an Apple executive described the deal as a win for developers, reporters rushed to tweet and submit first drafts of articles. Today’s digital news deals reward the first, not the more nuanced or precise. (An Apple public relations official asked reporters not to name or cite executives to hear the press conference.)
As a result, early news headlines suggested this change as a major avenue for companies to avoid Apple’s commission. This is good for Apple, as any perception that it is making significant changes to its App Store rules could help appease developers, courts, regulators, and regulators. legislator.
In fact, it looks like Apple paid a small price to get rid of a possible major legal problem.
How does this affect Apple’s court battle with Epic Games?
Apple is still awaiting a ruling from a federal judge in a separate lawsuit filed by Epic Games, the maker of the popular game Fortnite. Epic wants to force Apple to let app developers avoid commissions on the App Store entirely.
Thursday’s settlement requires the approval of U.S. District Court Judge Yvonne Gonzalez Rogers for the Northern District of California. She is also the referee in the Epic Games case.
Apple probably hopes that its rule change can help convince Judge Rogers that it is meaningfully addressing developers’ concerns. In May, she said she hoped to issue a ruling this month.
Who will get 100 million dollars?
Apple is paying $100 million in the settlement. The company said it was not a legal refund but “a fund to support small US developers, especially as the world continues to be impacted by Covid-19.”
Developers are expected to receive $70 million in funds. App makers earning less than $1 million per year in the App Store between June 2015 and April 2021 are eligible for payments of $250 to $30,000 per year.
Plaintiffs’ attorneys are asking for the other $30 million.
Steve Berman, one of the attorneys, said in an email that attorneys typically get 25% of such settlements, with more money than would be possible if they secured other benefits for their clients. . “Given the many business changes that will support developers, we think the upward adjustment is worth it,” he said.