A U.S. federal judge on Friday ruled against Apple (AAPL) in a major court decision that determined that the company's App Store policies are anti-competitive. Apple stock fell on the news.
XThe decision is a victory for "Fortnite" video game publisher Epic Games, which sued Apple over its restrictive App Store policies. Those policies prohibit developers from communicating with app users about alternate payment methods outside of the Apple App Store.
U.S. District Court Judge Yvonne Gonzalez Rogers on Friday issued a permanent injunction barring Apple from prohibiting developers from including in their apps external links or other means of directing customers to outside purchasing mechanisms.
The judge said Epic Games proved at trial that "Apple is engaging in anti-competitive conduct under California's competition laws." Her ruling comes more than three months after the trial concluded.
Apple Stock Down, Game Stocks Up
On the stock market today, Apple stock fell 3.3% to close at 148.97.
Meanwhile, mobile video game companies saw their shares jump on the news. Zynga (ZNGA) stock popped 6.3% to 8.80. Playtika (PLTK) surged 6.1% to 28.26.
Epic Games has called Apple's 30% commission on digital sales in its App Store a monopolistic tax. Apple banned Epic Games from offering an alternative payment system.
An Appeal Is Likely
The injunction will take effect in 90 days unless Apple appeals to a higher court. An appeal is likely, Evercore ISI analyst Amit Daryanani said in a note to clients.
He called Apple's loss in the court case "the first round in a long fight." Daryanani rates Apple stock as outperform with a price target of 180.
Apple declined to comment on whether it will appeal the ruling. In a statement, the company focused on the fact that the court concluded that the App Store is not in violation of federal antitrust law. Judge Rogers ruled that Apple violated California state law barring "unfair or deceptive acts or practices."
"Today the Court has affirmed what we've known all along: the App Store is not in violation of antitrust law," Apple said.
Congress Is Next Possible Challenge
However, the court ruling makes it more likely that Congress will pass legislation focused on app stores, Cowen analyst Paul Gallant said in a note to clients.
Congress could target the market-leading app stores from Apple and Alphabet's (GOOGL) Google. Congress will seek to force app stores to open to competing payment mechanisms, he said. It also could require them to carry competing app stores, Gallant said.
Competing app payment systems likely would take commissions of 10% to 15%, Cowen analyst Doug Creutz said in a report. That probably would force Apple to cut its fees, he said. Cowen rates Apple stock as outperform with a price target of 180.
However, even if Apple does permit the use of outside payment systems, that doesn't mean consumers will use them.
"Users will ultimately balance between ease of use and price regarding in-app purchases, and we feel the Apple ecosystem still has a major role to play in that process," Piper Sandler analyst Harsh Kumar said in a note to clients.
Kumar rates Apple stock as overweight, or buy, with a price target of 175.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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