As trade war deepens, iPhone maker loses defense of App Store commissions

(Originally published June 5 in “What in the World“) Apple lost its attempt to stall a court order limiting its 30% commissions on sales through its App Store.

The 9th U.S. Circuit Court of Appeals in San Francisco on Wednesday rejected Apple’s request to suspend parts of an April 30 federal court order requiring it to allow greater competition while the company appeals.

Apple’s appeal is just the latest in its long-running battle to protect its App Store commission business, one of many troubles facing the beleaguered company as it struggles with the impact of an escalating trade war between Trump and China, where Apple still makes most of its devices.

Wednesday’s defeat stems from Apple’s long-running dispute with Epic Games. The dispute began in 2020, when Epic began letting customers buy its products outside the App Store and thus avoid Apple’s 30% commission. Apple responded by booting Epic’s products from the App Store, including its popular Fortnite game. Epic sued Apple, saying its App Store policies constituted a monopoly.

In 2021, a U.S. federal judge in California, Yvonne Gonzalez Rogers, ruled in favor of Epic, saying Apple was violating a California competition law and ordered Apple to let app developers using its App Store offer customers more payment options. Apple and Epic both appealed, but the Supreme Court declined to hear the case. Epic in 2024 accused Apple of violating Gonzalez Rogers’ 2021 order by imposing a 27% commission on sales made by developers outside the App Store and taking other steps to discourage users of Apple devices from accessing links outside the App Store.

So in April, Gonzalez Rogers found Apple in contempt, ordered it to lift its 27% fee and stop restricting apps that provide customers external links to avoid its 30% commission. She even referred Apple and one of its finance executives to federal prosecutors.

It’s that decision that Apple is now appealing and sought to pause while that’s underway. No dice.

But the Epic case is just one of the challenges to Apple’s services business (28% of global sales). A federal judge in Washington is considering restricting Google’s ability to keep paying Apple $20 billion a year to be the default search engine on iPhones. A decision in that antitrust case, in which Google has already been found to have illegally pursued a monopoly in internet searches, is expected by August.

Apple also lost a battle last month to keep Texas from joining Utah in requiring that it verify the age of users downloading apps or making purchases through the App Store. Apple lobbied against the Texas bill, arguing it would require the company to store sensitive personal information about users of its devices.

Apple last month also appealed a March ruling by European regulators that Apple was violating the European Union’s Digital Markets Act, which went into force in 2022, and needed to open parts of the operating systems that run its smartphones, tablets, and computers to potential competitors. Apple argues that doing so would require it to share personal information about users of its devices.

While the legal threats mount, Apple is under attack from U.S. President Donald Trump. Trump last month threatened to impose a 25% tariff on its imported iPhones if Cook didn’t grant Trump’s wish for more (maybe even all) iPhones sold in the U.S. to be made domestically.

As detailed in this space last month:

Apple still makes an estimated 90% of its iPhones, 80% of its iPads, and 55% of its Macs in China. So, Trump’s 145% tariffs on China imports would be no good for Apple: analysts estimated the price of an iPhone would jump to $1,600 from $1,000. After CEO and Trump donor Tim Cook lobbied him, Trump exempted smartphones and other electronics made in China from his “reciprocal” tariffs. But they were still subject to other tariffs on China-made goods, which Cook estimated during his latest quarterly earnings call would cost the company $900 million in the current quarter alone.

Apple’s solution: make more of its U.S.-bound iPhones in India. Cook said in the call that it would be able to ensure that more than half of iPhones sold in the U.S. this quarter came from India rather than China. That’s part of a longer-term plan to shift 25% of its global iPhone production to India, and lower its manufacturing risk in China, that Apple has been working on since before Covid. As part of that, Apple’s big Taiwan-headquartered supplier, Foxconn, is busily building a $1.5 billion components factory near Chennai and a display module plant in Tamil Nadu.

But Trump still isn’t happy. Last week, he said he didn’t want Apple to make its iPhones in India, either. He said he wants Apple to make the iPhone in the U.S.A…

AI is another area where Apple faces challenges:

While OpenAI’s ChatGPT has become a clear leader, both Google and OpenAI investor Microsoft have launched their own AI chatbots—Microsoft with CoPilot (launched in early-2023 as Bing Chat), and Google with Gemini (originally launched in early-2023 as Bard). Apple, meanwhile, has delayed the roll out of its Apple Intelligence into devices’ software, despite launching it last year.

Then last month, Apple’s celebrated former designer, British-American Sir Jonathan “Jony” Ive joined OpenAI as creative director to help it make AI-enabled hardware as part of a $6.5 billion stock swap.

Trump is playing spoiler in this drama, too:

…Trump’s administration is also pushing back on Apple’s efforts to roll out AI on its devices in China, which accounts for a fifth of Apple’s global sales. Doing so requires making a deal with China’s Alibaba. But the White House fears doing so will help China hone its own AI capabilities, thus making it a more dangerous military adversary.

But as the May truce between Trump and China unravels, China is also pushing back on the Apple-Alibaba deal. The Cyberspace Administration of China is reportedly holding up the application for Apple to launch its Alibaba-powered Apple Intelligence on devices in China. Offering any AI service to the public in China requires CAC approval.

Conditions continue to darken, meanwhile, for Apple’s U.S. customers. The dollar is again flirting with its April lows. Trade across the Pacific appears to be drying up after a pre-tariff surge in the first three months of the year. Fewer containers are arriving from China into the Port of Los Angeles, and empty containers are piling up as exports to Asia drop.

Earlier this week, the Institute for Supply Management said its gauge of manufacturing activity, the manufacturing purchasing managers index, or PMI, fell in May for a fourth consecutive month to a weaker-than-expected 48.5. Yesterday, it said services are also contracting, with its non-manufacturing PMI falling below 50 for the first time since June last year, to 49.9.