It’s been a busy news day for the Epic Games vs. Apple case. Startup accelerator (and Epic Games’ biggest investor) Y Combinator filed an amicus brief today siding with Epic in the long-running antitrust case against Apple. Here are the details.
‘A punitive tax on innovation’
In a 24-page document, Y Combinator argues that while the district court’s original injunction against Apple in 2021 “created a groundbreaking opportunity for technology startups to enter and thrive,” Apple introduced new mechanics seeking to “inhibit competition,” which were partially reversed after the Enforcement Order issued last April:
“From the perspective of Y Combinator, Apple’s 27% fee on out-of-app transactions and other anti-link-out measures were functionally identical to Apple’s original restraints and violated the express terms of the Injunction. The fee was not justified to compensate Apple for value it provides but was instead a naked tax on developers’ revenues and a penalty for linking-out. The sheer magnitude of revenues Apple sought to extract with its new Program would have made the difference between viable and infeasible business models for countless developers. If the district court had allowed Apple’s fees and other tactics to stand, they would have continued to chill investment in app-development startups and would have resulted concretely in fewer American businesses being created. Thankfully, the district court saw Apple’s violation of the Injunction for what it was and put an end to it.
Y Combinator goes on to claim that Apple’s original Link Entitlement Program, with the new 27% fee on linked-out transactions, was a “Rube Goldberg-esque” stunt intended to deter developer adoption, and “a punitive tax on innovation.”
The startup accelerator also argues that without the court’s Enforcement Order, the 27% commission would have deterred investors from backing app-based startups, and that affirming by rejecting Apple’s appeal, will “pry open to competition a market that has been closed by defendants’ illegal restraints,” and even spur new app and business categories.
Y Combinator criticizes Apple’s Small Developer Program
Finally, the filing also disputes Apple’s reasoning behind the App Store Small Business Program, which reduces App Store fees to 15% for developers who earn less than $1 million per year, claiming that:
“Startups are not founded with the ambition to remain small businesses, rather, they seek exponential, uncapped growth, and a trajectory that quickly exceeds $1 million in revenues per year. Their savings resulting from a temporary exemption from the Apple Tax while their annual revenues briefly hover below $1 million are a rounding error at most. What will drive true value to these important small businesses is the ability to scale, free of the 30% Apple Tax, as a result of the steering that the district court’s Enforcement Order, if affirmed, will enable.”
In its conclusion, Y Combinator reaffirms its support for the court’s decisions and the ongoing prohibition of Apple’s anti-steering rules, hoping to convince the court to ultimately reject Apple’s appeal.
What’s your take on Y Combinator’s arguments? Let us know in the comments.
H/T David Barnard
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