Saturday, September 24, 2022

Apple's imposition of its app tax on NFT sales is abusive but consistent: NFT startups must trade outside App Store or pay Apple's commission

Early on Friday, The Information published an article by Aidan Ryan on How Apple's App Store Politicies Squeeze NFT Startups. On Twitter, he summed it up as follows:

It's actually an understatement to say that Apple collects "up to 30% of the transaction": the app tax even exceeds 30% under certain circumstances, plus developers are increasingly forced to pay for Search Ads as Apple places ads even on individual app pages.

Jessica Lessin, The Information's founder, asks a spot-on question: "Are there whole segments of the new economy that aren[']t going through the App Store?"

The founder and CEO of Epic Games, Tim Sweeney, describes this as Apple "killing all NFT app businesses it can't tax, crushing another nascent technology that could rival its grotesquely overpriced in-app payment service."

I'm not going to take a position right here and now on web3 and blockchain business models. Let's leave that for another day. All that matters here is that as long as NFT businesses are legal, the companies pursuing those business models have the same rights as other app makers (such as yours truly) under the world's competition laws.

Apple's impact on wide swaths of the economy becomes clearer every day. In the summer, venture investor Alex Gurevich said Apple's App Tracking Transparency might deserve as much blame for a recession as inflation as all sorts of businesses now face much higher customer acquisition costs. On Tuesday, I criticized Apple's dictate of currency conversion rates because it contributes to eurozone inflation. Compared to those macroeconomic issues, the impact of Apple's App Store tax on NFT startups is of limited--but definitely non-negligible--relevance.

Also, Apple has done other really outrageous things, such as astroturfing (ACT | The App Association is mostly funded by Apple, but claims to represent small app developers). If the world's richest corporation managed to benefit from the U.S. government's Paycheck Protection Program at the start of the COVID-19 pandemic, it comes as no surprise that it also figured out a way to tax NFT startups.

Far be it from me to defend the app tax. Hopefully, the Biden Administration's appearance at next month's Epic Games v. Apple appellate hearing in San Francisco will make an impact and help to bring about change. Also, the European Commission will hopefully be able to defend all reasonable gatekeeper designations in court. But let's look at it rationally and accept as a fact (which will hopefully be history soon) that Apple levies its tax on digital goods. It's an arbitrary, discriminatory distinction: while Judge Yvonne Gonzalez Rogers had some serious misconceptions that will hopefully give rise to a reversal and remand, there are issues she figured out pretty well, one of which is that she told Tim Cook Apple was charging the gamers to subsidize Wells Fargo. You could even substitute Amazon for Wells Fargo.

If Apple didn't tax NFT sales, even if platforms are merely intermediaries, developers could circumvent the app tax. And while I totally agree with Mr. Sweeney that Apple must be stopped, it's simply true that plaintiffs like his company would otherwise be likely to hold this against Apple by pointing courts to an inconsistency that they could characterize as discrimination.

In a nutshell, Apple taxing NFT startups is a bad thing, but they're being consistently bad in this regard. There are enough inconsistencies in the App Store context already, such as what I heard Apple's counsel in a patent infringement case say last week about App Store security...