EU probes Apple over App Store rules

It is official: the European Commission has opened an investigation into Apple over App Store rules (in parallel, the Commission also launched an investigation into Apple’s practices over Apple Pay). The investigation follows a complaint filed by Spotify in March 2019, whereby the music streaming service took issue with Apple’s 30% commission levied on in-app purchases. One year later, in March 2020, Rakuten’s e-reader subsidiary filed a fresh complaint with the Commission, arguing that it is anti-competitive for Apple to charge a 30% commission on e-books sold through the App Store while promoting its own Apple Books service.

In response, Apple stated that “It’s disappointing the European Commission is advancing baseless complaints from a handful of companies who simply want a free ride, and don’t want to play by the same rules as everyone else.”

According to the Commission’s press release, the investigation will focus on two restrictions Apple imposes on apps wishing to distribute their apps through the App Store:

• The mandatory use of Apple’s proprietary in-app payment processing system “IAP” for the distribution of paid digital content (which comes with a 30% commission fee on in-app payments); and
• Restrictions on app developers’ ability to inform users of alternative payment outside of the app (the “anti-circumvention” provisions).

According to the press release, the Commission is concerned that Apple’s restrictions may distort competition for music streaming services on Apple’s devices. Apple’s competitors have either decided to disable the in-app subscription possibility altogether or have raised their subscription prices in the app and passed on Apple’s fee to consumers. In both cases, they were not allowed to inform users about alternative subscription possibilities outside of the app. The IAP obligation also appears to give Apple full control over the relationship with customers of its competitors subscribing in the app, thus dis-intermediating its competitors from important customer data while Apple may obtain valuable data about the activities and offers of its competitors. If confirmed, Apple’s practices could breach Article 101 TFEU and / or Article 102 TFEU.

The focus of the investigation seems to be on apps that compete directly with Apple’s own apps, and in particular music streaming and audiobooks/e-books. However, the outcome of the investigation could be broader and affect all apps offering “digital goods or services” (and which have to use IAP to accept user payments inside the app), especially if the Commission adopts a decision against the mandatory use of IAP and / or the anti-circumvention provisions.

Damien and I have recently written about Apple’s practices with regard to the App Store – in particular the obligation imposed on app developers offering digital goods or services to use IAP and the related anti-circumvention provisions – and how they raise both exclusionary and exploitative concerns. We argued that IAP may be used both as a vehicle for exclusion (e.g., because Apple raises rivals’ costs while also usurping their data) and exploitation.

Apple releases study on the App Store ecosystem

Meanwhile, perhaps in an attempt to present the App Store in a more positive light Apple released on Monday (15 June) a study from the Analysis Group showing that in 2019 the App Store facilitated $ 519 billion sales and billings globally. According to the study, the great majority ($ 413 billion or 85%) of such sales and billings concerned physical goods and services – in which case Apple receives no commission – such as m-commerce (general retail, travel, ride hailing, food delivery, grocery). The remaining sales and billings concerned digital good and services ($ 61 billion), such as news, games, video and music streaming, dating apps and e-books/audiobooks and in-app advertising ($ 45 billion). While Apple did not break down sales and billings between the various categories of digital goods and services, it nevertheless observed that “[g]ames, the type of app most downloaded in 2019, was the largest generator of billings and sales within this category.”

Yet we remain skeptical as to whether this study provides any groundbreaking insight. As Damien and I noted in our paper, there is no doubt that the App Store provides considerable value to app users and app developers (indeed, it is the primary, if not the only way for app developers to reach users on iOS devices). That of course does not that mean that Apple should avoid antitrust scrutiny. One should also not forget that Apple itself derives massive value from app developers; as the Dutch Autoriteit and Consument Market noted in its 2019 market study on mobile app stores, it is the (indirect) network effects that helped propel the iOS ecosystem while others (e.g., Symbian) fell to oblivion.

In any event, the recent study published by Apple serves to illustrate the paradoxical situation Damien and I analyzed in our paper: for the great majority of apps (84% according to Kyle Andeer) which generate the vast majority of sales and billings (85% of total billings and sales supported by the App Store) Apple charges no commission. IAP and the related 30% commission (which falls to 15% after the first year in case of subscriptions) is imposed only on 16% of apps on the App Store. That runs contrary to Apple’s argument that the 30% commission is charged for distribution services: all apps are distributed on the App Store, both those offering physical goods or services and those offering digital goods or services.

It will be interesting to see whether the Commission will engage with this issue. More on this to come…