Judge rules Apple violates California's anti-competition law

Harsch Kumar, Piper Sandler, and Joanna Stern, WSJ columnist, join Power Lunch to discuss the court ruling today on Apple and Epic games, and the impact it's likely to have on each company. To see the full interview with Kumar sign up for a free trial to CNBC Pro:

Apple’s lucrative App Store business received a major blow Friday thanks to a federal judge’s decision in the company’s legal battle with Epic Games.

Judge Yvonne Gonzalez Rogers handed down the decision in the closely watched trial, and issued an injunction that said Apple will no longer be allowed to prohibit developers from providing links or other communications that direct users away from Apple in-app purchasing. Apple typically takes a 15% to 30% cut of gross sales.

The injunction addresses a longstanding developer complaint and raises the possibility that developers could direct their users to their website to subscribe to or purchase digital content, hurting Apple’s App Store sales, which grossed an estimated $64 billion in 2020.

Apple stock dropped more than 3% in trading Friday.

The decision concludes the first part of the battle between the two companies over Apple’s App Store policies and whether they stifle competition. Apple won on nine of 10 counts but was found to engage in anticompetitive conduct under California law, and will be forced to change its App Store policies and loosen its grip over in-app purchases. The injunction will come into effect in December.

“The Court concludes that Apple’s anti-steering provisions hide critical information from consumers and illegally stifle consumer choice,” Rogers wrote. “When coupled with Apple’s incipient antitrust violations, these anti-steering provisions are anticompetitive and a nationwide remedy to eliminate those provisions is warranted.”

However, Rogers said Apple was not a monopolist and “success is not illegal.”

“Given the trial record, the Court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws,” Rogers wrote.

The trial took place in Oakland, California, in May, and included both company CEOs testifying in open court. People familiar with the trial previously told CNBC that both sides expected the decision to be appealed regardless of what it was.

“We are very pleased with the court’s ruling and we consider this a huge win for Apple,” Apple general counsel Kate Adams said.

Apple did not say if it would appeal the injunction. Epic Games will appeal the decision, a spokeswoman told CNBC.

Epic Games CEO Tim Sweeney criticized the ruling in a statement on Twitter.

“Today’s ruling isn’t a win for developers or for consumers,” Sweeney tweeted. “Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers.”

Since the trial ended but before the decision was handed down, Apple has made several changes to mollify critics, some as part of settlements with other app developers, including relaxing some rules about emailing customers to encourage them to make off-app purchases and allowing some links in apps.

Rogers wrote in the decision that she disagreed with both Apple and Epic Games over the framing of the market Apple allegedly dominates. Rogers found that it was “digital mobile gaming transactions,” not all iPhone apps, as Epic Games had alleged, nor was it all video games, as Apple had claimed.

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By: CNBC Television
Title: Judge rules Apple violates California's anti-competition law
Sourced From: www.youtube.com/watch?v=1-pss_yQBE8

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