Apple App Store competition update

Anyone with an iPhone or iPad can only download apps compatible with those devices from Apple’s own App Store. Further, until recently, developers of such apps could only sell them via the App Store under that rule that Apple retains a fee of up to 30% of the sale price (discounted to 15% in certain cases). This practice has been the subject of legal proceedings brought against Apple by Epic Games alleging that the practice, which does not allow app developers to signpost alternative payment options outside Apple’s App Store such as those on the app publisher’s own website, is illegal.

EU Digital Markets Act

On 25 January 2024, Apple announced that it will make changes to the App Store in the EU to comply with the EU’s Digital Markets Act (“DMA”) following the European Commission’s designation of Apple as a “gatekeeper” under the DMA in respect of its iOS, Safari and App Store businesses (previously reported by Wiggin). The changes include new options for app developers to process payments for digital goods and services within their apps using payment service providers. App developers will also be able to allow users to complete a transaction for digital goods and services on the developer’s external website, and inform EU users of promotions, discounts, and other deals available outside their apps. New business terms, including payment of commission to Apple, will apply to developers using the new capabilities for alternative distribution or alternative payment processing. Otherwise, developers have the option to remain on Apple’s existing terms.

In anticipation of these changes, Epic has been preparing for the return of Fortnite to the App Store (removed at the start of the dispute with Apple in 2020) and the launch of an Epic games store for iOS devices under the new rules announced by Apple in January. This would allow Epic to sell directly on iOS devices. According to recent reports, the Epic developer account set up for these purposes was accepted by Apple, subsequently blocked, and then reinstated following an inquiry from the European Commission concerning the blocked account. Epic has criticised the new business terms that Apple intends to apply to the alternative distribution and alternative payment processing features it is now permitting (i.e. a commission of 10-17% on transactions for digital goods and services), which might explain why Apple was reluctant to approve Epic’s new developer account.

The DMA only became applicable on 7 March 2024 so it remains to be seen whether the European Commission considers that the changes to the EU App Store announced by Apple meet the DMA’s requirements.

European Commission investigation

In March 2019, music streaming provider Spotify filed a complaint about two rules in Apple’s licence agreements with developers and the associated App Store Review Guidelines, and their impact on competition for music streaming services. In June 2020, the Commission initiated a formal antitrust investigation to assess whether Apple’s rules for app developers on the distribution of apps via the App Store infringe EU competition rules. In April 2021 and February 2023, the Commission sent statements of objections to Apple, the second statement focusing on obligations that limit the ability of app developers to inform users of iPhones and iPads (“iOS users”) of alternative purchasing possibilities outside of the App Store (“anti-steering obligations”). While Apple allows users of its devices to use music subscriptions purchased elsewhere, its rules prevent developers from informing users about such purchasing possibilities, which are usually cheaper. The Commission has now decided that Apple’s use of anti-steering provisions constituted an abuse of Apple’s dominance on the market for the distribution of music streaming apps to iOS users through its App Store, constituting the imposition of unfair trading conditions in breach of Article 102 of the Treaty on the Functioning of the EU (abuse of a dominant position). It determined that these anti-steering provisions, which result in withholding key information on prices and features of services from consumers, are neither necessary nor proportionate for the protection of Apple’s commercial interests in relation to the App Store on Apple’s smart mobile devices. They also negatively affect the interests of iOS users, who cannot make informed and effective decisions on where and how to purchase music streaming subscriptions for use on their device.

Apple’s conduct, which has lasted for almost ten years, may have led many iOS users to pay significantly higher prices for music streaming subscriptions because of the high commission fee imposed by Apple on developers and passed on to consumers in the form of higher subscription prices for the service on the Apple App Store. These anti-steering provisions have also led to non-monetary harm in the form of a degraded user experience, as iOS users either had to engage in a cumbersome search before they found their way to relevant offers outside the app, or they never subscribed to any service because they did not find the right one on their own.

The Commission has imposed a fine of over €1.8billion on Apple for this breach of Article 102. This includes a basic fine calculated under the Commission’s fining guidelines together with an additional sum of €1.8billion to cover the non-monetary harm and to ensure the fine sufficiently deters Apple and other companies from similar practices in future. The Commission has also required Apple to cease use of the anti-steering provisions, ensuring that streaming app developers are now permitted to communicate freely with their users whether within their apps or by email. This decision came ahead of the date on which the DMA became applicable, 7 March 2024, the requirements of which prevent practices such as anti-steering provisions (and which will extend to any app not just music streaming apps).

UK competition investigation

Finally, on 29 February 2024, the UK Competition and Markets Authority announced a further extension to the timetable relating to its investigation into Apple’s conduct in relation to the distribution of apps on iOS and iPadOS devices in the UK, in particular the terms and conditions governing app developers’ access to Apple’s app store. The investigation, which commenced in March 2021, concerns suspected infringements of the Chapter II prohibition of the Competition Act 1998 (abuse of a dominant position). After its initial information gathering in March 2022, the CMA announced its decision to proceed with an investigation. The latest announcement extends the time for the CMA to analyse and review the information gathered to April 2024.

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