Apple Exec Admits 27 Percent App Store Fee was Likely a Violation of Court Order

Long-time Apple executive Phil Schiller admitted in court that the 27 percent fee Apple imposed likely violated a court order in Epic v. Apple. In effect, he simply confirmed what everyone already knows about Apple’s bad faith compliance with antitrust rulings around the globe: It is doing as little as possible to meet the letter of the law to forestall actual compliance for as long as possible.

As you may recall, Epic Games took on both Apple and Google for their onerous App Store fees and policies. It won an overwhelming victory in Epic v. Google, with the judge in that case ordering the online giant to open up its Play Store to competitors for three years. And it received a split verdict against Apple, with Judge Yvonne Gonzalez-Rogers giving Epic a major win with regard to preventing developers from communicating with their customers and directing them to less expensive payment systems outside the App Store.

Or so we thought.

Apple has engaged in every form of shenanigan imaginable since that ruling, which it immediately appealed despite publicly declaring victory. Indeed, it appealed all the way to the U.S. Supreme Court, which declined to hear the case. Among other tactics, Apple canceled Epic’s developer account, again, and then quietly restored it when EU regulators investigated the action. Outside the U.S., Apple also twice rejected Epic’s game store on iOS despite being legally required to allow it. There, too, it quietly accepted the submission after being contacted by regulators.

But the biggest snub of the legal system came when Apple actually “complied” with the ruling. It created a convoluted interface by which developers like Epic could direct their own customers to web-based payment systems, where they would expect to pay lower fees. But then Apple imposed a 27 percent fee on those transactions, despite not being a party to them. Apple charges developers 30 or 15 percent fees for in-app purchases, so this additional fee was both unprecedented–Apple had never tried to collect app-based fees from developers outside its App Store before–and objectively unfair. (Developers that used this system would pay over 30 percent per transaction, since they would also need to pay 3 to 6 percent fees for web-based payments.) This system was clearly designed to skirt the point of the ruling against it by making the new system a non-starter for developers.

And so here we are in court again. After trying, twice, to prevent this from ever happening, Judge Gonzalez-Rogers has forced Apple to defend the indefensible during a three-day hearing.

“Was there a significant compliance risk because of the proximity to the 30 percent commission?” an Epic Games lawyer asked Mr. Schiller.

“Yes,” he admitted.

Schiller said he opposed the fee initially, and that multiple Apple executives, including CEO Tim Cook, were involved in the process of determining the fee structure for web-based fees. He also admitted that the fee structure it came up with was “antagonistic,” though he did sign off on it.

The Judge was already unimpressed by Apple’s behavior before this week. “All this does is maintain the non-competitive environment that exists,” she told Schiller last year. Since then, the only thing that’s changed is that Apple hasn’t complied with the court order for a longer period of time. What’s left is for Judge Gonzalez-Rogers to hold Apple in contempt of the court and order it to make more meaningful changes that address her original ruling. From four years ago.

Schiller has been a particularly bad witness for Apple, as he’s claimed to forget almost anything related to Epic Games each time he’s testified. But Epic’s lawyers are using evidence to “refresh” his memory during this week’s hearings. When confronted by one piece of evidence, Schiller further admitted that he had questioned “whether we would be allowed to charge a commission” (fee) of any kind on web-based transitions. “It was a question about what was allowed under the injunction.”

Apple also had worries that developers would simply refuse to pay these fees or under-pay them since Apple couldn’t easily track them.

“What happens if a developer doesn’t pay and what is the process for that?” Schiller suddenly recalled after being shown internal documentation about that discussion.

Schiller was worried about creating an antagonistic relationship with app developers. And he said that Mr. Cook pushed for a warning screen that would claim that alternative payment methods could be a security risk.

The hearings continue through Wednesday. It’s difficult to believe this will end well for Apple.