Apple submits off-App Store commission proposal

Apple has formally submitted its proposed fee structure for purchases made outside the App Store in the United States. The filing marks a significant step in the long-running Epic Games v. Apple case, which has forced the company to defend its commission practices in court. Apple's proposal comes after the U.S. Supreme Court denied the company's request to pause the lower-court proceedings while it reviews whether Apple can be held in contempt for charging a 27% commission on off-App Store purchases.

The case stems from an injunction issued by Judge Yvonne Gonzalez Rogers, which required Apple to let developers direct users to alternative purchasing methods outside of Apple's in-app purchase system. Apple had argued that the Supreme Court's review could affect the outcome of the fee-setting proceedings and that those proceedings should therefore be put on hold. However, the Supreme Court rejected Apple's request, allowing the lower-court proceedings to continue while its review is underway.

As a result, Apple has now submitted its proffer detailing the fees it wants to charge developers for purchases made through external links. The proposed structure is designed to replace the 27% commission that Apple had been charging, which the court had already called into question. Apple's new proposal is tiered, based on the type of app, the developer's program participation, and the nature of the transaction.

Apple's proposed fee structure

Apple's submission outlines three main commission rates for linked-out purchases. First, Apple proposes a 15% commission for standard apps, which are apps subject to the standard 30% in-app purchase commission. Second, Apple proposes a 10% commission for apps in the Video Partner Program, the News Partner Program, the Mini Apps Partner Program, and for subscription renewals. Third, Apple proposes a 5% commission for apps enrolled in the Small Business Program, which already benefits from reduced commission rates on in-app purchases.

The tiered structure appears to be an attempt to align Apple's linked-out fees with the existing commission framework for IAP. Standard apps would face a linked-out commission equal to half of the standard 30% IAP rate. Partner program apps and subscription renewals would see a 10% rate, while Small Business Program apps would receive the lowest rate of 5%. Apple has not yet explained in detail how each rate was calculated, but it says that fact and expert evidence supporting the proposed rates have been submitted concurrently.

According to Apple, the proposed rates are intended to balance two competing interests. On one hand, Apple wants to ensure that developers can profitably link out to external purchase methods, which the court has consistently said is an important goal. On the other hand, Apple wants to recover compensation for the intellectual property, tools, technologies, and services it provides to developers. Apple has repeatedly argued that these services are legitimate and procompetitive, and both the District Court and the Ninth Circuit have acknowledged that Apple is entitled to some form of compensation.

Apple's argument and market comparison

In its filing, Apple argued that the proposed rates would create substantial competitive pressure on its own in-app purchase system, while still allowing Apple to recover a reasonable fee for its platform investments. Apple said that, based on expert analysis, large numbers of U.S. developers accounting for the lion's share of App Store revenue would be able to link out profitably at the proffered rates. This, Apple argued, would satisfy the court's repeated emphasis on introducing competition into the App Store ecosystem.

Apple also compared its proposed linked-out commissions with those charged by competing app stores. The company specifically pointed to Google Play, Samsung Galaxy Store, and Amazon's Android App Marketplace as examples of app stores that have already adopted linked-out fee structures. Apple noted that Google Play charges a 20% standard linked-out rate, a 15% program rate, and a 10% subscription rate. Apple also highlighted that Epic Games had agreed to those Google Play rates, suggesting that Apple's proposed rates are not out of line with industry norms.

The comparison to Google Play is notable because Epic Games has been a vocal critic of both Apple's and Google's app store policies. In the Epic v. Google case, Epic secured a ruling that forced Google to offer alternative payment options, and Google subsequently introduced a linked-out fee structure. Apple's filing appears to use that very structure to justify its own proposed fees, arguing that what Epic accepted from Google should be acceptable from Apple as well.

Apple also noted that the Ninth Circuit had reversed the District Court's outright ban on commissions for linked-out purchases. The appeals court said that such commissions are problematic only if they are effectively prohibitive. Apple argues that its proposed rates are not prohibitive and that developers will still have meaningful opportunities to link out to alternative payment methods without being unfairly penalized. Apple says the rates are designed to be low enough to allow developers to retain most of the savings from avoiding IAP commissions, while still providing Apple with a modest return on its investments.

Epic Games responds

Epic Games quickly responded to Apple's submission. In a statement published on X, Epic said that Apple's filing admitted that, under the Ninth Circuit's definition of necessary costs, Apple would charge 0% for purchases made via linkouts to the web. Epic's statement pointed out that Apple proposed linkout fees of 15% for standard apps and 5% for Small Business Program apps, but Epic believes these rates are still too high and do not reflect the actual costs that Apple incurs.

Epic's argument has long been that Apple's commissions are not justified by the services Apple provides. Epic has consistently maintained that Apple's App Store policies are anticompetitive and that developers should be free to process payments without paying Apple a percentage of every transaction. The company has also argued that Apple's fee structure creates an unfair disadvantage for developers who want to offer cheaper prices to consumers by bypassing Apple's payment system.

The statement from Epic is likely just the opening salvo in the next phase of the legal battle. With Apple's proffer now submitted, Epic will have an opportunity to respond in detail. The court will then need to determine whether Apple's proposed fees are appropriate under the legal standard set by the Ninth Circuit. That standard focuses on whether the fees are effectively prohibitive, meaning they would prevent developers from realistically using alternative payment methods.

Background of the Epic Games v. Apple case

The dispute between Epic Games and Apple began in August 2020, when Epic deliberately violated Apple's App Store guidelines by introducing a direct payment system into Fortnite. Apple responded by removing Fortnite from the App Store, and Epic sued Apple on antitrust grounds. The case went to trial in May 2021, and in September 2021, Judge Yvonne Gonzalez Rogers issued a ruling that was largely favorable to Apple on the main antitrust claims, but also issued an injunction that required Apple to stop prohibiting developers from adding external links to alternative payment methods.

Both sides appealed portions of the ruling. The Ninth Circuit Court of Appeals largely upheld the District Court's decision, but it reversed the part of the injunction that outright banned commissions for linked-out purchases. Instead, the appeals court sent the case back to the District Court to determine what commission, if any, Apple could charge. That remand proceeding is what has now led to Apple's latest filing.

The case has also spawned a separate contempt dispute. Apple had begun charging a 27% commission on off-App Store purchases, which Epic argued violated the injunction. Judge Gonzalez Rogers appeared skeptical of Apple's 27% rate, and the issue eventually reached the Supreme Court. The Supreme Court is now reviewing whether Apple can be held in contempt for charging that rate, but it declined to pause the fee-setting proceedings in the meantime.

Apple's proposed fee structure is therefore being considered while the Supreme Court is still reviewing the contempt issue. If the Supreme Court sides with Epic, Apple could be forced to reduce its rates further or eliminate them entirely. If the Supreme Court sides with Apple, the company's proposed fees could take effect with minimal changes. The outcome of the fee-setting proceeding will also be influenced by the Supreme Court's decision, even though the two proceedings are technically separate.

Industry reactions and potential implications

Apple's proposal has drawn attention from developers and legal experts, many of whom are watching to see how the court will handle the fee-setting process. Some developers have argued that any commission on external purchases is unfair, because Apple does not process the payment and therefore does not incur the same costs as it does for IAP. Others have said that Apple is entitled to some compensation for the App Store platform, but that the proposed rates still appear too high.

The proposed 15% rate for standard apps is notable because it matches the reduced commission that Apple already offers to developers earning less than $1 million per year through the App Store Small Business Program. By contrast, the Small Business Program under Apple's proposal would receive a 5% linked-out commission. That creates a situation where a small developer could pay a 5% fee on external purchases, while a large developer would pay 15%.

The 10% rate for partner programs and subscription renewals is also significant. Subscription renewals already receive a reduced commission within the App Store, where Apple charges 15% rather than 30%, so the proposed 10% linked-out rate represents a further discount. The Video Partner Program, News Partner Program, and Mini Apps Partner Program are also designed to give participating developers a break on commissions in exchange for meeting certain content requirements.

Apple's proposal is likely to face intense scrutiny from Epic and from other critics who have called for app store commissions to be reduced or eliminated altogether. The legal standard established by the Ninth Circuit means that Apple must prove that its fees are not effectively prohibitive. Epic will likely present evidence showing that even a 15% fee, when combined with other costs, could still make it impractical for many developers to link out to external payment systems.

Apple, for its part, has said that it will continue to argue that the fee-setting proceedings should be paused while its case is pending before the Supreme Court. The company has indicated that it submitted the proposal only to comply with Judge Gonzalez Rogers's instructions, and it still believes the Supreme Court's review could change the legal framework. Apple is expected to file its brief in the Supreme Court by September 14.

For now, the ball is in Epic's court. The company will have the chance to respond to Apple's proposed rates, and the District Court will then decide whether those rates are lawful. The decision could have major implications for how app stores operate across the United States, not just for Apple but for all platforms that have adopted linked-out fee structures. A ruling against Apple could force the company to reduce its commissions further or even eliminate them entirely, while a ruling in favor of Apple would validate the idea that app store operators can charge fees for external purchases as long as they are not prohibitive.

The case is being closely watched by lawmakers, regulators, and developer advocacy groups around the world. App store commissions have become a major policy issue in recent years, with new laws in countries such as South Korea and Japan requiring app stores to allow alternative payment systems. The outcome of the Epic Games v. Apple case could influence similar legal battles in other countries and could shape the future of the global app economy.

Apple has also noted that its proposed rates are comparable to those of other app stores, including Google Play, Samsung Galaxy Store, and Amazon's Android App Marketplace. By framing its proposal as market-consistent, Apple hopes to persuade the court that the fees are reasonable and competitive. However, Epic has repeatedly rejected the comparison, arguing that Apple's dominant position in the iOS ecosystem gives it far more market power than any Android app store and that Apple's fees cannot be justified merely because others charge similar rates.

The next few weeks will bring further filings, and the court is expected to hold hearings on the matter. Apple's brief to the Supreme Court is due in September, and the lower-court proceedings will continue in parallel. The ultimate decision will likely be appealed regardless of which side prevails, meaning the legal battle between Apple and Epic is far from over. But for now, Apple's proposed commission structure is on the table, and the court will have to decide whether it meets the legal standard set by the Ninth Circuit.

Source: 9to5Mac News