In a landmark ruling with potentially significant implications for the mobile ecosystem, Apple Inc. has been ordered by a court to ease its terms of service regarding app monetization in the App Store.

U.S. District Judge Yvonne Gonzalez Rogers issued the ruling today as part of a lawsuit filed against Apple Inc. by Epic Games Inc. last year. 

At the center of the lawsuit are the App Store’s terms of service. Developers such as Epic Games must accept the terms of service to publish their apps in the marketplace. Under the agreement, a developer may only use Apple’s payment system to process users’ in-app transactions. 

In-app transactions aren’t the only way to buy in-app items. Developers can offer external methods of making purchases, such as an e-commerce website. But Apple restricts developers’ ability to inform users that external purchase methods are available.

Today’s ruling requires Apple to remove the limitations preventing developers from directing users to payment systems other than the iPhone maker’s own. Apple  is “hereby permanently restrained and enjoined from prohibiting developers from (i) including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and (ii) communicating with customers through points of contact obtained voluntarily from customers through account registration within the app,” Judge Gonzalez Rogers wrote in the ruling.

The order is seen as a significant, although only partial, victory for Epic Games, the company that filed the lawsuit. The dispute began last August when Epic Games rolled out its own in-app payment system to the iOS version of its popular “Fortnite” game.

Because the App Store terms of service mandate that in-app purchases may only be processed through Apple’s payment system, “Fortnite” was removed from the App Store. Epic Games launched its lawsuit against Apple after the app’s removal.

The lawsuit focused not only on the fact that Apple requires in-app purchases to go through its own payment system, but also the company’s practice of taking an up to 30% fee from transactions. Epic Games and other app publishers have argued that the fee is too high. 

“The ruling is a major black eye for Apple and changes the economics of the store for the company,” commented analyst Patrick Moorhead of Moor Insights & Strategy. “It’s a major win for companies that don’t want to be forced to use its payment mechanisms. Freedom prevailed today. Apple deserves a lot of credit for not inventing the App Store or smartphone but making it a whole lot better. But it really wasn’t improving or investing in the store, so why did it deserve 30% for the next 50 years.”

However, some of the arguments that Epic Games made as part of its lawsuit were not accepted. The company had sought to establish that the App Store is a monopoly, but the court wasn’t convinced. 

“The court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws,” Judge Gonzalez Rogers ruled. “Nonetheless, the trial did show that Apple is engaging in anti-competitive conduct under California’s competition laws.”

Apple welcomed the development in a statement. “The Court has affirmed what we’ve known all along: the App Store is not in violation of antitrust law,” a spokesperson for the iPhone maker said. “Apple faces rigorous competition in every segment in which we do business, and we believe customers and developers choose us because our products and services are the best in the world. We remain committed to ensuring the App Store is a safe and trusted marketplace.”

Epic Games Chief Executive Officer Tim Sweeney tweeted that “today’s ruling isn’t a win for developers or for consumers,” adding that “Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers.” The company reportedly plans to appeal the ruling.

Another positive aspect of the ruling for Apple is that the iPhone maker has not been ordered to ease its terms of service limiting the distribution of iOS apps via methods other than the App Store. “Apple can still ban consumers from sideloading applications,” he noted. “This is a win for Apple and, if you buy into the security story, a win for consumers.”

Apple has been ordered to comply with the ruling within 90 days, though it’s believed that the order is likely to be put on hold if an appeal is filed. 

Image: Unsplash