Recently, technology giant Apple has been hit by an order by the Competition Commission of India (“CCI”) pursuant to a complaint from “Together We Fight Society” (“Informant”). The Informant alleged that Apple employs anti-competitive strategies and is abusing its dominant position in the distribution of Apps and the processing of payments for any exclusive content on the App Store used on iOS.
The CCI is of the view that the mandatory use of the Apple payment system for in-app purchases- restricts the right to choice of developers in the relevant market due to absence of other apps on iOS in India.
Abuse of Dominant position which is governed under Section 4 of the Competition Act 2002 states that there shall be an abuse of a dominant position if an enterprise or a group:
A) directly or indirectly imposes unfair or discriminatory conditions or prices in the purchase or sale of goods or services.
B) restricts or limits production of goods or services in the market; etc.
C) indulges in a practice resulting in a denial of market access in any manner.
Market share, economic power, source of dominant power, dependence of consumers, size of competitors and exit barriers in the market are the factors that determine if any entity enjoys a dominant position.
If there is any case where there is possible abuse of dominance the commission shall start with an inquiry, an interim order which is followed by appeals and finally ends with sanctions.
THE INFORMANT COMPLAINED
- Arbitrary charging of Commission – Charging 30% commission by Apple for payments that go through the App Store is extremely high compared to the third-party alternatives which is viewed as abuse of Apple’s dominant position.
- Mandate on app-developers – By App Store policies mandate developers to only use App Store for payment of in-app purchases (IAP), it is monopolistic in nature.
“If you want to unlock features or functionality within your app, (by way of example: subscriptions, in-game currencies, game levels, access to premium content, or unlocking a full version), you must use in-app purchase. Apps may not use their own mechanisms to unlock content or functionality, such as license keys, augmented reality markers, QR codes, etc. Apps and their metadata may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase.”
To reach iOS users, developers have to go through App Store, which comes at a 30% commission for IAP transactions.
- Commission charged is arbitrary and relatively high as compared to its competitors – The payment processing fee of 30% is extremely high as compared to its competitors (such as Razor Pay and Bill Desk) which charge around 1-5% as fees.
- Marketing restrictions on app developers –The restriction which allows using of user data through the App Store for marketing, is a hurdle for multi-platform apps to get in touch with their users regarding out-of-app purchases also adds to the anti-competitive strategy considering Apple controls the distribution of iOS apps.
- The 30% commission increases the cost burden on developers – The arbitrary 30% commission that Apple charges and app developers must pay raises the costs for developers.
- Standard contracts without any negotiations with developers – Apple’s guidelines, are not mutual. It is alleged that this conduct would equal violation of section 4(2)(a)(1) of the Act- imposition of unfair or discriminatory conditions in purchase or sale of goods and services.
APPLE’S DEFENSE
Apple has completely denied allegations of abusing its’ dominant power on the grounds:
- Not a dominant player – It has only 0-5% market share thus, it does not fall within the definition of dominant entity and it is not in a position to abuse of dominant power.
- Business model targets an ecosystem for attractive devices -The entire business model is targeted at making its devices attractive to its users by creating an eco-system where they can access everything easily and in a streamlined manner. The App Store plays a key role in setting up this ecosystem which distributes apps on various Apple devices.
- Presence of competitors – Allegation of dominant position does not hold, since there is an easy, viable alternative, and switching to another OS is seamless.
- Dominant position is not punishable by the Act – Apple argued that even if it was assumed that there was a dominant position that it holds, without evidence of abuse of such dominant position, it is not an abuse.
- Charging 30% commission is legitimate – The 30% commission that Apple charges through its IAP is not arbitrary in view of the considerable money provided to developers with an in-built user base and streamlined technical and marketing know-how, which Apple considers as value it offers the developers.
APPLE INTERNATIONALLY
- The Dutch Authority for Consumers and Markets (“ACM”) had launched an investigation against Apple for abusing its dominant position by imposing restrictions for the payment of IAP in dating apps. ACM finally found that Apple was indeed abusing its dominant position and it ordered Apple to allow alternative payment options in dating apps for IAP.
- In July 2021, the German anti-trust office investigated Apple for, anti-competition practices over the App Store operations and its’ influences on third party businesses.
- Epic Games case in the US, where Fortnite allowed its users to pay money for in-app purchases directly to Epic Games were opposed by Apple for running of two payment systems within the iOS system. Epic Games maintained that the 30% charge that Apple levied on all transactions was a proof of having market power and thus alleged that Apple was an anti-trust monopolist.
The courts did not find Apple abusing its dominant position or monopolizing. But they agreed that putting restrictions on alternative payment systems was anti-steering and directed to allow developers to get paid for in-app purchases directly without using App Store as an intermediary. Epic Games did not seem satisfied with this and has appealed to a higher court.
Apple allows different categories of apps to use alternative modes of payment other than IAP.
The Commission has observed, the data secured by Apple would enable improvement of its own services while giving it a competitive advantage over its downstream competitors. Thereby, abuse through Section 4(2)(e) (use of dominant position in one relevant market to enter or protect other relevant markets) could also be the case with Apple’s App Store policies. Like in Digital gatekeepers’ significant cross-market control
CONCLUSION
“Success is not illegal.”- Judge Yvonne Gonzales Rogers in the Epic Games indicating that a company aiming to grow bigger should not be unnecessarily restricted and confined.
Although, in free-market nations and economies, it is only fair and just that there should not be a complete monopoly nor should competition be stifled or restricted. Anti-trust law enforcers do this.
The Commission believes that a prima facie case of abuse of dominant position has been observed in this case and hence directed the Director General (“DG”) to investigate it under Section 26(1) (investigation by DG if the Commission is of the opinion that there exists a prima facie case) of the Act. According to the Commission, the viewpoint of app developers and the essentiality of the Apple ecosystem cannot be disregarded as they cannot afford to lose consumers on iOS. Different cases with anti-trust issues have been diverse in ways and the jurisprudence is still raw.
Apple, in this case, is relying on the persuasive value the US Epic Games case brings. The outcome of this investigation may have a bearing on Apple’s App Store policies.
This is only for informational purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Endeavoured to accurately reflect the subject matter of this alert, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This is not an attempt to solicit business in any manner. Sources: CCI Order, LiveLaw and Reuters.