Y Combinator says Apple’s App Store has hindered startup growth

Y Combinator has filed an amicus brief in the ongoing legal battle between Apple and Epic Games, arguing that the App Store has stifled startup innovation.

We’ve reached out to legal reps for YC and Apple for comment.

The brief comes during the years-long legal dispute. Epic Games first filed an antitrust lawsuit against the iPhone maker in 2020 in protest of Apple taking a 30% fee for every purchase made in the App Store, as well as in-game purchases. Epic claimed in its suit that Apple unlawfully banned developers from telling customers about payment alternatives to the App Store. 

A judge ordered Apple to end its anti-steering policy, but instead, the company implemented a link program that allowed developers to link to alternative payment methods, with the app store taking a 27% fee. 

In another complaint, Epic accused Apple of violating the court injunction against anti-steering, and in April, the judge agreed, resulting in an order for Apple to stop imposing restrictions on alternative payment solutions and collecting payment from such methods. 

Apple is appealing that ruling, and that’s why Y Combinator, a backer of Epic Games, has filed this amicus brief in support of Epic Games. Y Combinator is asking the court to deny Apple’s appeal. 

“Y Combinator — and the larger venture capital community — have long been hesitant to back app-based businesses that were poor investments due to the Apple Tax,” Y Combinator wrote in its filing. “A 30% revenue share can easily be the difference between a company that can afford to scale, hire new employees, and reinvest in its product, and one that is perpetually struggling to stay afloat.” 

With the current ruling–  that Apple must allow developers to transparently offer alternative payment options – the startup investor wrote: “For the first time in nearly two decades, Y Combinator can seriously consider investing in innovative businesses that would have been impossible in the past because of the ‘Apple Tax,” the filing continued. The Apple Tax refers to the fees Apple took from App Store purchases. 

It went on to say that the Apple Tax was a “profound and often insurmountable barrier to entry that stifles competition and innovation at its source” and that the court should deny Apple’s appeal and allow the anti-steering rule to stand. The next argument is set to take place on October 21.