Top Apple exec concedes he had doubts about app store fees imposed on alternative payment options

OAKLAND, Calif. (AP) — Longtime Apple executive Phil Schiller on Monday conceded he initially opposed fees that the iPhone maker charges for in app-transactions processed outside its own payment system because he feared violating a court-ordered mandate designed to create more competition.

Schiller, who oversees Apple's lucrative App Store for iPhones, made the admission during three hours of testimony in the same Oakland federal courtroom where he last appeared on the witness stand nearly nine months ago as part of a long-running legal battle with Epic Games, the maker of the popular Fortnite video game.

Epic began the showdown four and half years ago when it first filed an antitrust lawsuit alleging that Apple had built an illegal monopoly around its popular App Store that makes billions of dollars annually from a then-exclusive payment system that collects commissions ranging from 15% to 30% on in-app commerce.

Although U.S. District Judge Yvonne Gonzalez Rogers rejected the monopoly claims, she ordered Apple to lower the barriers protecting its previously exclusive payment system for in-app digital transactions and allow developers to display links to alternative options.

After spending more than two years trying to overturn Rogers' order paving the way for alternative payment links to appear in iPhone app, Apple exhausted all its appeals 13 months ago and finally opened the door for other options.

But Apple's solution still demands a 12% to 27% commission from on in-app transactions executive through alternative systems and erected other hurdles that Epic contends were designed to discourage switching to different options.

Gonzalez Rogers is now considering whether to hold Apple in contempt of court and order the Cupertino, California, company to make more drastic changes.

Since the judge began that process last May, she has expressed frustration with Schiller and other Apple witnesses about their hazy recollection about how they came up with the rules for app store's alternative payment system. Gonzalez Rogers' exasperation prompted her to delay the proceeding while another judge oversaw the wrangling over Apple's production of internal documents to provide further evidence about its decision-making process

Those additional records helped Epic lawyer Gary Bornstein refresh Schiller's memory about his initial reluctance to impose fees on in-app transactions outside of Apple's own payment systems.

“I had a question of whether we would be allowed to charge a commission,” Schiller said when asked about the views he expressed during meetings held in April 2023. “It was a question about what was allowed under the injunction” issued by Gonzalez Rogers.

Besides being worried the “compliance risk” posed by the fees on alternative payment options, Schiller said he also worried about “collection risk” because Apple would need to depend on app developers to transfer the money that the company said it was owed. With its internal payment system, Apple can simply take its cut of the transaction before sending the rest of money to the app developers.

“What happens if a developer doesn't pay and what is the process for that?” Schiller recalled about his initial reservations about requiring fees on alternative payment options. He also said he was worried about Apple's collection demands creating an antagonistic relationship with app developers that have traditionally been the company's allies.

But Schiller ultimately signed off on the commissions in January 2024 as part of a pricing committee that included Apple CEO Tim Cook and the company's chief financial officer at that time, Luca Maestri. During his testimony, Schiller also confirmed that Cook pushed for a warning screen informing consumers the potential security threats posed by alternative payment options.

The latest round of hearings in the ongoing tussle are scheduled to continue Tuesday and Wednesday. The other witnesses scheduled to testify include one of Schiller's top subordinates, Carson Oliver, who also testified last year.