The App Store and Play Store are huge profit generators for Apple and Google. As explained by Judge Gonzalez Rogers in her Epic v Apple judgment of September 2021, gaming apps account for approximately 70% of all App Store revenues. According to some, this means that Apple makes more money from games than Microsoft, Sony, Nintendo and Activision combined, despite not making any games itself.
Therefore, any discussion about Apple and Google’s practices on their respective app stores concerns mobile gaming.
Last year, the European Union passed the “Digital Markets Act” (DMA), a Regulation that lays down rules to ensure contestability and fairness for digital markets in general, and for business users and end users of “core platform services” provided by “gatekeepers” in particular. The DMA will start to apply in May 2023 and it will have major consequences for how Apple and Google can run their app stores and operating systems. In this post, we explain what it will mean for mobile gaming.
Core platform services relevant to mobile gaming
The DMA focusses in particular on core platform services provided by gatekeepers to end users and business users. It implies some form of intermediation between end users and business users, provided by a powerful platform that acts as a gatekeeper. Examples of such services are online marketplaces which intermediate between sellers and consumers, and operating systems that intermediate between software developers and users.
In the context of mobile gaming, app stores qualify as online intermediation services, bringing together app developers and users. In addition, because games are software, operating systems like iOS and Android are also relevant to mobile game developers, since they dictate the technological boundaries within which a game is developed.
Operating systems and online intermediation services (which include app stores) are both included in the DMA’s list of “core platform services”. Other core platform services, such as online social networks, web browsers and cloud computing services, may also be relevant to game developers. We hope to discuss these in a future post.
The “business users” that together form the mobile gaming industry are a heterogenous group. They consist of developers who monetise their games in different ways, namely paid-for games, where the user pays to download the game, free-to-play games with in-game services that the user can buy, and free-to-play games with advertising. All can benefit from the DMA, as explained below.
Designation as “gatekeepers” and the implication of that designation
The DMA only applies to companies that are designated by the European Commission as “gatekeepers”. A provider of core platform services will be designated as a gatekeeper if it (i) has a significant impact on the EU’s internal market; (ii) provides a core platform service which is an important gateway for business users to reach end users; and (iii) enjoys an entrenched and durable position in its operations (or will do so in the near future).
These requirements are presumed to be satisfied if the following quantitative criteria are met.
- The company will be considered to have a significant impact on the internal market if:
- It has annual EU turnover of EUR 7.5 billion or more in each of the last three financial years; or average market capitalisation of EUR 75 billion in the last financial year; and
- provides the same core platform service in at least three Member States.
- The core platform service provided will be an important gateway if it had at least:
- 45 million monthly active end users in the EU; and
- 10,000 yearly active business users in the EU.
- The company holds an entrenched and durable position if it had at least 45 million monthly active end users and 10,000 yearly active business users in the EU in each of the last three financial years.
Apple and Google are likely to meet these criteria for their app stores and operating systems. Thus, subject to any challenges by Apple and/or Google, the Commission’s designation decision may designate each company as a gatekeeper for the “important gateways” of (i) their iOS and Android operating systems; and (ii) their App Store and Play Store. Of course, this is on the assumption that neither company successfully challenges these findings.
The DMA contains three sets of obligations that will apply to gatekeepers with respect to each of its core platform services listed in the designation decision:
- The obligations listed in Article 5, with which the gatekeeper must comply without the need for further specification by the Commission (“Article 5 obligations”);
- The obligations listed in Article 6, which can be further specified by the Commission (“Article 6 obligations”); and
- Obligations specific to gatekeepers whose core platform services include number-independent interpersonal communications services, listed in Article 7. We will not discuss this third category further in this post.
What does this mean for mobile gaming?
The language of the DMA is by necessity legalistic and intended to apply to a number of different core platform services, some of which are irrelevant to mobile gaming. Therefore, it is useful to zoom in specifically on some key changes that we expect to see for the core platform services offered to mobile gamers and mobile game developers.
Significant changes to in-app payment rules
For those developers who offer paid-for games and in-game purchases, major changes can be expected. Article 5(4), (5) and (7) of the DMA could effectively bring to an end the current In-App Purchase (IAP) and anti-steering rules on the App Store (and their equivalents on the Play Store). Let’s look at each:
- Under 5(4), the gatekeeper will be required to allow app developers to tell users within the app, about offers available outside the app, including where those offers are under different conditions than those available within the app. The developer will also be allowed to conclude contracts (like subscriptions) with users, regardless of whether they use the app to access the related content.
- Under 5(5), any services, content, subscriptions, features or other items acquired outside the app should be allowed to be used through the app. In other words, the gatekeeper cannot restrict the use within the native app of digital goods or services purchased from the app developer outside the app.
- Under 5(7), the app developer cannot be required to use the gatekeeper’s payment system for in-app purchases in order to be available on the gatekeeper’s app store. Separately, users and developer can also not be required to use, offer or interoperate with the gatekeeper’s web browser engine.
This marks a significant shift from mobile game developers’ position pre-DMA. First, pre-DMA these developers would not have been allowed to tell their users that they could pay for in-game services outside the app (and therefore avoid the app store’s commission). These so-called “anti-steering provisions”, which are also the subject of the Commission’s recently issued statement of objections against Apple under Article 102 of the Treaty on the Functioning of the European Union (TFEU), would now be in breach of the DMA.
Subsection (5) also leaves little doubt that where such services (or, for that matter, subscriptions) are acquired outside the app, the developer should be able to make them available to the user within the app. This will also make it easier for developers to offer cross-platform services and ensure they are available to the user on whichever platform they choose to play their game.
Further, the IAP rules and Google Play Billing rules will become a thing of the past (assuming each company is designated as a gatekeeper for their app stores). It will no longer be possible for a gatekeeper to require that the gatekeeper’s payment services are used for all in-app purchases completed within apps downloaded from the gatekeeper’s app store.
Finally, alternative web browser engines will be enabled, which may open up functionalities to web-based apps (rather than native apps) that were previously not available to them. Indeed, as the UK Competition and Markets Authority noted in its Mobile Ecosystems Final Report, web apps are currently disadvantaged on iOS, because they can only be served on web browsers that use Apple’s browser engine. This restriction should be removed under the DMA and may also be addressed by the ongoing UK market investigation that followed the Final Report.
Alternative app stores and sideloading
Another major change can be expected with respect to the availability of alternative app stores and sideloading (i.e., downloading an app from the developer’s website rather than an app store). This could be particularly helpful for game developers with paid-for apps, who may be able to switch to app stores with lower commission rates or to avoid commission rates altogether by making the game available to download from their website. It may also allow for the download of cloud gaming apps, i.e., apps that give access to a catalogue of games that are streamed onto the device, rather than downloaded. The download of such apps was previously prevented by Apple on App Store (see our article on the issue on SSRN), although they were available on Google Play Store for Android devices.
Article 6(4) will require the gatekeeper to allow and technically enable the installation of third-party apps or app stores on the gatekeeper’s operating system and allow those apps or app stores to interoperate with the gatekeeper’s operating system and to be accessed by means other than the gatekeeper’s app store. Where applicable, the gatekeeper must also allow the downloaded third-party app or app store to prompt users to set the app or app store as their default. Gatekeepers can, however, apply certain measures enabling users to protect security in relation to these third-party apps or app stores. We discuss this potential escape clause towards the end of this post.
Leaving such measures aside, Article 6(4) essentially requires the gatekeeper to allow the installation of alternative app stores or the sideloading of apps, which marks a major shift from the position pre-DMA. Indeed, pre-DMA, Apple did not allow the installation of alternative app stores, and prohibited users from sideloading apps. Google effectively discouraged sideloading, requiring users to turn off Android’s security settings and to go through several steps, while receiving several security warnings. With the DMA, such restrictions should be addressed.
However, the use of the word “or” in this provision raises the question whether the gatekeeper will have a choice between either allowing alternative app stores or allowing sideloading (and may have an incentive to choose the less user-friendly of the two). It will be interesting to see whether the Commission will “further specify” any obligations applicable to Apple and Google, as it is able to do since these are “Article 6 obligations”. Indeed, if the purpose of the DMA is to ensure contestability and fairness for users of core platform services provided by gatekeepers, it could be argued that both sideloading and alternative app stores are required to pose different but meaningful constraints on the gatekeeper’s market power. It remains to be seen how the Commission will approach this.
Use of, access to, and portability of data
The DMA will also restrict what the gatekeepers can do with data generated by developers who use their core platform services and, by contrast, expand the access to data for end users and developers.
First, the DMA aims at eliminating the practice known as “Sherlocking”, in which a dominant platform monitors data relevant to developers or sellers to see which products or apps are popular, only to then launch their own version, often using the advantages it has from being vertically integrated to foreclose the original provider. Under Article 6(2) of the DMA, the gatekeeper will be prevented from using non-public data generated or provided by business users of the core platform service in competition with those business users. This will include click, search, view and voice data.
Next, the DMA deals with the issue that users often lose their data when they switch away from a dominant platform. For example, it can be a hassle to move from iOS to Android and port all saved data in games, when compared to the ease of moving from an old to a newer iOS device. Under Article 6(9) of the DMA, the gatekeeper will provide end users, at their request and free of charge, with effective portability of data. This will include providing, free of charge, tools to facilitate the effective exercise of data portability, and continuous and real-time access to the data.
Finally, the DMA addresses the often-heard criticism by app developers that they do not have access to data relating to users of their apps. Under Article 6(10), gatekeepers must provide business users with effective, high-quality, continuous and real-time access to aggregated and non-aggregated data, including personal data, that is provided or generated in the context of the use of the relevant core platform services, free of charge.
Interoperability with iOS and Android hardware and software features
A further provision that will be relevant to mobile game developers is Article 6(7) of the DMA, under which “providers of services” (as well as hardware providers) must be given “effective interoperability with” the same hardware and software features as are available to the gatekeeper, free of charge.
Because the DMA uses the broader term “providers of services”, rather than “business users” in this provision, it can be expected that this provision applies not only to app developers that are business users of Apple and Google’s app stores, but also to game developers whose games are available on the web rather than on a native app (and who, as mentioned above, will benefit from alternative browser engines becoming available under Article 5(7) of the DMA). These game developers, who previously suffered from certain operating system features being unavailable to them, must now be given effective interoperability with the same hardware and software features available to the gatekeeper.
As is the case for Article 6(4), however, there is an “escape clause”, allowing gatekeepers to take measures “to ensure that interoperability does not compromise the integrity of the operating system”. The uncertainty around these escape clauses is discussed below.
App store access on FRAND terms
A final crucial provision that may have a direct positive impact on mobile game developers’ bottom lines is Article 6(12), which requires that gatekeepers that operate app stores must apply fair, reasonable, and non-discriminatory (FRAND) general conditions of access for app developers. For this purpose, the gatekeeper will publish general conditions of access, which will include a dispute resolution clause. The Commission will assess whether these conditions comply with the DMA.
Recital (62) of the DMA sets out some factors that can be considered in determining what “pricing or other general conditions” … “would be unfair or lead to unjustified differentiation”. This would essentially be the case where prices or other conditions lead to an “imbalance of rights and obligations imposed on business users or confer an advantage on the gatekeeper which is disproportionate to the service provided by the gatekeeper”. The Commission envisages using benchmarks as a yardstick to determine fairness, including prices charged or conditions imposed on other app stores, prices charged or conditions imposed on the gatekeeper’s app store for different but related services etc.
This Article of the DMA will directly apply to the commission rates charged by app stores run by gatekeepers. As is well known, many app developers have complained about the 30% commission rate charged by Apple and Google on paid-for app downloads, in-app purchases and 1st year subscriptions concluded in the app. If Apple and Google are designated as gatekeepers for the core platform service offered by the App Store and Play Store, the Commission will almost immediately be under pressure to do something about this commission rate.
Other conditions of access may also come under scrutiny. For example, it could be argued that Apple’s rules imposed on cloud gaming apps would be captured. Apple requires that each game must be individually submitted to the App Store, which means each game must be individually downloaded to the user’s device before it can be played. Cloud gaming apps, however, give users access to a catalogue of games, each of which can be streamed onto the user’s device, rather than requiring individual downloads.
Apple’s approach differs from the approach taken by other app stores: for example, cloud gaming apps can be offered as a fully functioning native app on the Samsung Galaxy Store and as a consumption-only native app on the Google Play Store. If the conditions applied on these alternative app stores are used as a benchmark, this would call into question whether Apple’s conditions are fair and reasonable.
Will the DMA be effectively enforced?
Donald Rumsfeld famously said, “there are known unknowns; that is to say we know there are some things we do not know”. We know there are things we do not know when it comes to the DMA, namely whether the rules we just described will be enforced effectively.
The Commission faces a mammoth task in regulating an estimated dozen gatekeepers with a team of 80-150 Commission officials. The financial firepower of these gatekeepers in defending themselves against enforcement will be phenomenal, and there will be plenty of scope for them to challenge decisions and rules imposed by the Commission, including in often lengthy proceedings before the Court of Justice.
While it can be expected that key and well-known issues like IAP, anti-steering and the commission rate will be at the top of the Commission’s in-tray, it may be more difficult for business users to raise new concerns with the Commission or concerns that apply only to a small sub-set of users.
The role of national authorities
The Commission will, however, also have the possibility to rely on the national competition authorities of the 27 EU Member States when carrying out market investigations, interviews and inspections, as well as to assist in the monitoring of the Article 5, 6 and 7 obligations.
Complainants can also file complaints with both the Commission and the national competent authorities, and the latter can inform the Commission of any suspected non-compliance with the DMA. National authorities can also initiate their own investigation into a case of non-compliance with Articles 5, 6 and 7 of the DMA. The Dutch Government has just launched a consultation on the powers it is granting to the Dutch competition authority to investigate compliance with the DMA, and they are pretty punchy. We will see if the other Member States follow this approach.
The role of national courts
Complainants may also have direct recourse to national courts to ensure compliance with the DMA. The DMA does not explicitly prevent this, and indeed, there are several provisions that indicate that the Commission expects that litigation will be brought in national courts alleging that the DMA has been infringed. The more resource-constrained the Commission, the more that stakeholders will have to resort to court proceedings.
Escape clauses and FRAND – Much remains uncertain
Finally, as we have mentioned, a number of Article 6 obligations have “escape clauses” which allow the gatekeeper to apply certain measures to protect security or the integrity of their operating systems.
The key question at this point in time is how the Commission will balance expediency with the rights of the gatekeepers to whom these provisions will apply. For example, when the gatekeeper is allowed to take measures to ensure that side-loaded apps or alternative app stores “do not endanger the integrity of the hardware or operating system provided by the gatekeeper”, how much latitude will the Commission give them in taking such measures?
Similarly, when it comes to FRAND terms, will the Commission have the resources to assess this not only for commission rates, but for other conditions of access too?
Much remains uncertain. However, mobile gaming is about to see restrictions lifted, and potentially face lower commission rates on App Store and Play Store. That alone is an exciting prospect.