Apple’s constructive refusal to comply with the law: A harbinger of things to come?

In August 2021, the Autoriteit Consument & Markt (“ACM”), the Dutch competition authority, adopted following a two-year investigation, a decision finding that Apple’s App Store payment policies as they applied to dating app providers amounted to an abuse of a dominant position in breach of Article 102 TFEU. As explained in an earlier blog post, Apple then sought an injunction before the Rotterdam District Court to block the publication of the decision, as well as suspend its effects until all appeals on substance have been exhausted. The ability of a party to seek such an injunction is quite unique to the Netherlands (and I don’t think it serves any valuable purpose). In other jurisdictions, once a decision has been adopted, it is automatically published and produces immediate effects as appeals are not suspensive.

On 24 December 2021, the District Court of Rotterdam refused to grant Apple an injunction to block the part of the decision that related to the obligation of dating app developers (per Apple’s App Store policies) to use IAP (In-App Purchase) to accept user payments, but granted an injunction to Apple to block some other parts of the ACM decision. As a result, Apple had until 15 January 2022 to comply with the following remedies ordered by the ACM:

• Dating app providers have to be allowed to choose which party will handle payments for digital content and services sold within the app for the dating apps they offer in the Dutch Store Front of the App Store; and

• For purchases within dating apps offered in the Dutch Store Front of the App Store, dating app providers must be allowed to refer to payment systems outside the app.

On 14 January 2022, Apple made a public statement in which it announced that it would comply with the abovementioned remedies. However, it was obvious from this statement that Apple had not taken the necessary measures to comply with such remedies. Instead, it engaged in what I would call a strategy of constructive refusal to comply. Apple does not strictly refuse to comply, but constructively refuses to do so by producing compliance proposals that are truly unacceptable in that they are designed to discourage dating app providers from taking advantage of the ACM order.

On 24 January 2022, the ACM announced that, following an investigation, Apple had failed to satisfy the requirements the ACM had set regarding payment systems for dating-app providers, and condemned Apple to pay a first penalty payment of 5 million euros.

On 4 February 2022, Apple published a new statement giving further specifics on the way it intended to implement the remedies imposed by the ACM.  But, once again, what Apple described in its statement was clearly insufficient to comply with the ACM remedies for several reasons. As noted above, Apple clearly wished to discourage dating app developers from taking advantage of the ACM remedies by, for instance, requiring developers that want to use an alternative in-app payment system or link to an off-app payment system to create a separate app for the Dutch Store Front, or requiring them to display an “in app modal sheet” containing language designed to scare users. In order to further discourage dating app developers from taking advantage of the ACM order, Apple also announced that it would still charge a “27% commission on the price paid by the user”, which is a “reduced rate that excludes value related to payment processing and related activities.”

Since then, Apple has been condemned each week to pay an additional fine of €5 million. A weekly €5 million fine is a very small amount of money for Apple and as per the District Court of Rotterdam judgment, the total amount of fines imposed by the ACM is capped at €50 million, a sum which – unless Apple decides to suddenly comply with the ACM order – will be reached by the end of March 2022.

This raises two questions.

The first question is where we go from here. My understanding is that, when the €50 million cap has been reached, the ACM can adopt a new decision, increasing the periodic penalty payment to a level that creates greater deterrence. As to what level of penalty will deter Apple, the answer is not clear, but increasing it from €5 million a week to, for instance, €5 million a day may produce an effect. Now, Apple would likely appeal such a decision, meaning the parties would be back in court.

The second question is why Apple is resisting the ACM order so much. After all, the ACM order’s scope is very limited: it only applies to dating apps on the Dutch Store Front. Apple and its lawyers will say that they do this because they disagree with the ACM order. But while most companies that are found in breach with competition rules disagree with the findings, they still apply the imposed remedy once they are bound to do so. Apple exercised its opportunity to be heard before the ACM and the Rotterdam District Court (in interim proceedings) and retains the ability to challenge the ACM decision through an appeal. But in the meantime, it has to comply with the ACM order. Period.

The fact that Apple constructively refuses to comply with the ACM order at the cost of €5 million a week (with penalties likely to increase in the near future) is tactical in my view. If Apple implemented the ACM order in a satisfactory manner (in that Apple no longer imposes requirements designed to discourage app developers from taking advantage of the order), the remedy might become a blueprint for other jurisdictions looking suspiciously at the obligation Apple imposes on app developers whose apps sell “digital” goods or services to use its IAP in-app payment service. In other words, this can create a domino effect. This is why Apple is likely to continue its dilatory tactics unless the ACM smacks them with proper penalties.

The broader lesson that Apple’s ACM saga teaches is that enforcement will be key to the success of the Digital Markets Act (the “DMA”). There is indeed a considerable risk that Apple’s constructive refusal to comply tactic may be replicated by Apple (and others) in the context of the DMA. In other words, the obligations contained in Articles 5 and 6 of the DMA could be rendered useless through some gaming (e.g., a combination of dilatory tactics and litigation). Don’t get me wrong, I don’t necessarily agree with 100% of the DMA (e.g., I think that the designation process has some flaws). Moreover, due process is critically important and designated gatekeepers need to be able to defend their rights. But once these rights have been exhausted, compliance should follow. Otherwise, the DMA will remain lettre morte.

The need for strong enforcement is well understood by key EU lawmakers, such as Andreas Schwab, who in a recent letter co-authored with Eva Kaili alerted Clément Beaune, the Minister representing the European Council Presidency, of the need to create at least 220 positions within the European Commission to address the enforcement challenges created by the DMA and other new pieces of legislation.

In the end, Apple’s strategy is misguided. While its lobbying tactics have been an abysmal failure in the context of the DMA, it now makes its case worse by taunting one of the most respected national competition authorities. Instead of fighting a battle that is largely lost, Apple should do the right thing and move on. However, its recent, strongly-worded response to the CMA’s interim report in its Mobile ecosystems market study does not make me hopeful that it will.  

Disclosure: I advise app developers on competition issues. I am also outside antitrust counsel to the Coalition for App Fairness. The views expressed in this post are mine only.

Picture credit: REUTERS/Mike Segar