Apple's Expanding App Reach

On February 15, 2011, Apple unveiled its new application store subscription and content sale policy, which purports to apply to “publishers of content-based apps.” The new policy becomes effective on June 30, 2011, and, for the first time, enables iOS application (“app”) publishers to sell subscriptions through their apps (iOS is the operating system for Apple mobile devices). The new policy will apply to new and existing apps. Existing app publishers are being required to comply with the new policy by the effective date or risk having their apps removed from Apple’s application store. This new policy, consequently, presents a number of issues or problems for new and existing app publishers.

Among the many problems, the policy mandates that apps for publishers that sell content must include an in-app purchase option and may no longer contain links to external sites where content is sold. In other words, such apps must enable app purchasers to directly purchase or subscribe to the content through the app and may not direct purchasers to an external site for purchase. Moreover, publishers of such content-based apps are required to pay Apple 30% of all revenues, including subscription revenues, generated through the app. Previously, many publishers had paid this 30% only on the app download cost charged to customers (download costs were typically <$10). Now, if a purchaser signs up for a new subscription through an app, Apple will receive 30% of the revenue whether the subscription purchase is processed via a website or otherwise outside of the app. Moreover, any subscription offers made outside of the app must be no better than the subscription offers available through the in app purchase option.

Many app publishers may think that this policy does not apply to them because they do not offer “content” or subscriptions to “content” through their apps. However, the key determination to be made when evaluating whether an app is subject to the new policy is what is meant by “content” or the phrase “publisher of content-based apps.” While examples provided by Apple in connection with the release of their new policy revolved around publishers of content in a traditional sense, such as publishers of “magazines, newspapers, videos, music, etc.,” Apple has not provided a specific definition of content that is so limited. Moreover, an examination of Apple’s iOS developer agreement, which states that “apps utilizing a system other than the In-App Purchase API to purchase content, functionality or services in an app will be rejected,” indicates that the policy will not be limited to content apps in the traditional sense. Illustratively, a new app which would not have provided content per se (i.e., the Readability app, which would have provided a service enabling purchasers to remove advertisements and other elements from webpages, providing only pure-text) was rejected from the App store within days of the new policy announcement, providing a further indication that the policy may not be limited solely to content publishers.

The new policy has been met with resistance by various apps developers and publishers. A number of companies have publicly rejected the new policy and are exploring legal options in connection with fighting it. In addition, the FTC and the Justice Department are currently taking preliminary steps to investigate the new policy for possible anti-trust violations. Although, the true impact of this new policy will not be known until it actually goes into effect and Apple begins to enforce it, it is likely to affect all companies who publish or are considering publishing an app.