Why Apple Won Its Legal Settlement With Developers

Apple said Thursday that it had reached a legal settlement with app developers who accused it of abusing its control of the mobile-app market.

The settlement of the lawsuit was complex, and various people in the tech industry had widely different reactions to it. Apple and the people who sued it framed the deal as a major concession from Apple and a victory for developers. Some of Apple’s critics, including companies that pay it millions of dollars in app fees, called it a “sham” that did little to change Apple’s control over apps.

Here is an explanation of the settlement and what it means.

First of all, what is the controversy all about?

Courts, regulators, lawmakers and developers have been scrutinizing Apple’s practice of collecting a commission of up to 30 percent on the sales of other companies in its App Store, a business that generates, according to some estimates, nearly $20 billion a year for Apple.

Many companies that reach their customers through apps don’t want to pay Apple a hefty cut, and they are increasingly fighting to change the rules. Apple argues that its commission rewards it for creating the “economic miracle” of the App Store, and it is fighting to keep the status quo.

Billions of dollars are at stake in one of the most consequential fights over the power of Big Tech.

So what did Apple give up in the settlement?

Not much. It agreed to keep its commission rates flat for three years and to continue to base search results in its App Store on “objective characteristics” like downloads and user ratings, also for three years.

At a granular level, it said, it will let developers sell their apps at 500 different price points, up from 100. (For instance, now an app could 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 is receiving the most attention is a “clarification” in Apple’s rules: Companies can now send an email to customers telling them about ways to pay other than in their iPhone (or iPad) app.

Is that significant?

Apple says so. But it appears to be a minor change to a set of rules that are at the center of complaints about how Apple controls its App Store.

Apple forces companies to use its payment system inside their iPhone apps, which enables it to collect its commission on their sales. Most companies would prefer to direct customers elsewhere to complete transactions so they can avoid Apple’s fees. But Apple also generally bars companies from telling customers to pay elsewhere.

Apple has long banned such steering. It has also banned companies from even using emails to tell customers about other ways to pay if the companies got the customers’ email addresses from their iPhone app.

Now Apple is saying it is OK for companies to send such emails, if the companies get the customer’s permission to do so.

Some companies appear to have already been partly violating Apple’s rules. To avoid Apple’s commission, the music service Spotify, for instance, doesn’t allow people to sign up for a subscription in its iPhone app. Still, after someone creates a free account in app, Spotify emails a link to its website, where it advertises its paid accounts, though the email doesn’t explicitly tell users to circumvent Apple’s commission.

An Apple spokesman said companies, including Spotify, had complained for years about Apple’s restrictions on emailing certain customers.

What has the reaction been?

There was tentative praise from some lawmakers who have proposed legislation to change App Store rules. Senator Richard Blumenthal, a Connecticut Democrat, said on Twitter that the settlement “marks a significant step forward, but does not rectify the full & vivid range of market abuses & practices still widespread across app markets.”

The biggest praise came from the App Association, an organization that claims to give “a voice to small technology companies” but is funded by big technology companies, including Apple. “Our members need Apple to continue to lead on privacy, security and safety to preserve the trust consumers have in platforms,” the group said.

Many companies that pay Apple’s commission were not as kind. The Coalition for App Fairness, a group of firms fighting Apple’s rules, said the settlement “does nothing to address the structural, foundational problems facing all developers, large and small, undermining innovation and competition in the app ecosystem.” The group added that Apple’s restrictions on what companies could say in private communications with their customers illustrated Apple’s inappropriate control over the app marketplace.

David Heinemeier Hansson, an entrepreneur and app developer who is an outspoken critic of Apple’s rules, said in a post on Friday that opening a narrow route for companies to steer customers toward other payment options only gives Apple cover to defend its ban on such communication in the places that matter, like the transaction page in an app.

“If the developer community had any hopes riding on this class-action lawsuit, this outcome would have been a dagger in the heart. Far worse than if no suit has been undertaken at all,” he wrote. “If anything, this settlement cements the tremendous power that Apple has and wields. Even when a class-action lawsuit gets underway, it can be bought with bromides and bribes.”

Why has this been so confusing?

There was a lot of confusion after the settlement was announced in part because of how Apple announced it. The company told reporters about an evening press briefing two hours before it was set to start and then posted a muddied news release just as the briefing was beginning.

That meant that as an Apple executive described the settlement as a win for developers, reporters were already rushing to tweet and file first drafts of articles. The incentives of digital news today reward those who are first, not those who are more nuanced or accurate. (An Apple public-relations official required reporters to not name or quote the executive in order to hear the briefing.)

As a result, news headlines initially framed the change as a major avenue for companies to avoid Apple’s commission. This was good for Apple, as any perception that it was making substantive changes to its App Store rules could help appease developers, the courts, regulators and lawmakers.

In reality, it appears that Apple has paid a small price to get rid of a potentially big legal headache.

How does this affect Apple’s court fight with Epic Games?

Apple is still awaiting a decision from a federal judge in a separate lawsuit that was filed by Epic Games, the maker of the popular game Fortnite. Epic wants to force Apple to allow app developers to avoid App Store commissions altogether.

Thursday’s settlement requires approval from Judge Yvonne Gonzalez Rogers of U.S. District Court for the Northern District of California. She is also the arbiter in the Epic Games case.

Apple probably hopes that its rule change could help persuade Judge Rogers that it is meaningfully addressing developers’ concerns. She said in May that she hoped to issue a ruling this month.

Who will receive the $100 million?

Apple is paying $100 million in the settlement. The company said it was not a legal payoff but rather “a fund to assist small U.S. developers, particularly as the world continues to suffer from the effects of Covid-19.”

Developers are slated to get $70 million of the money. App makers that made less than $1 million a year in the App Store from June 2015 through April 2021 are eligible for payouts between $250 and $30,000 each.

The plaintiffs’ lawyers are requesting the other $30 million.

Steve Berman, one of the lawyers, said in an email that lawyers typically received 25 percent of such settlements, with more money possible if they secured other benefits for their clients. “Due to the host of business changes that will aid developers, we think an upward adjustment is merited,” he said.