App Store & Play Store Billing Policy Controversy Antitrust Violation: International Perspective
Updated: Jun 7, 2022
Author: Harsha Menon & Anurag Singh
4th year law students at National Law University, Jodhpur
Google along with Apple have been facing anti-trust challenges in India and various other jurisdictions for allegedly abusing their dominant positions in the apps market by forcing developers to use their own in-app purchase systems, thereby charging higher commissions than compared to other non-Google/Apple alternatives.
The controversy regarding billing policy initially arose in August 2020 when the game ‘Fortnite’ developed by Epic Games game was removed from both the App Store and the Play Store for by-passing their default respective payment systems. Afterwards, Epic Games sued both Apple and Google in the United States of America for violation of Sections 1 and 2 of the Sherman Act, 1890. Epic Games claimed that Apple and Google are abusing their dominant position through their Apple Developer Program License Agreement [“DPLA”] and Google Play Developer Distribution Agreement [“DDA”], respectively, which allows them to make their payment system mandatory, which in-turn allows them to charge the developers exorbitant commissions. While Google and Apple charge 30% of the price that the customer pays for both apps and in-app transactions, Apple charges 15% on subscription after a year. Thus, the developers have no other option but to pay this commission as both DPLA and DDA do not allow third-party payment methods, and in case the developer tries to bypass this, they are removed from their respective app stores. This has led to a controversy around the world in various jurisdictions, including India.
II. International Perspective
A. United States
In the case of Apple, the case did not succeed as the dominant position of Apple could not be proved, and thereby the monopolistic position of Apple could not be proved to begin with. However, the US District Court held that Apple had violated California’s unfair competition law by making it mandatory to use Apple’s payment system on the App Store. Further, the Court held that Apple could not stop developers from using alternative payment methods or directing the user to make a payment outside its App Store. Epic also argued that if Apple allowed a different App Store, it would have launched its very own competing App Store i.e., Epic will launch an App store which will provide apps for iOS.
In the case of Google, it was a completely different situation altogether as Android accounts for around 70% of the mobile operating system market share around the world as compared to around 28% for iOS. Thus, Google was in a dominant position. However, unlike iOS, where users can only download apps from the App Store, Google allows users to sideload apps from other app stores, and Google’s DDA was applicable only on the apps downloaded through the Play Store. Epic Games could very well evade their contractual obligation. Hence, there was no real restriction that existed in the current situation. Thereby Epic’s claim against Google failed in the US.
B. European Union
On March 11, 2019, Spotify Technology SA [“Spotify”] complained against Apple, which led to the European Commission sending a statement of objection to Apple against their App Store payment policy. The complaint accused Apple of imposing a commission on its in-app purchases on subscription fees. European Commission started their formal competition law violation investigation against Apple. Further, on March 5, 2020, e-book and audio distributors also approached European Commission regarding the same issue for violation of Articles 101 (Anti-competitive agreements) and 102 (Abuse of Dominant Position). This issue was resolved with Apple settling the matter with Japan Fair Trade Commission [“JFTC”].
JFTC had been investigating Apple for the past five years, which led to Apple settling the matter with JFTC. As a settlement, Apple allowed app developers of “reader applications” to divert their in-app payment to another link other than Apple’s payment method, thereby allowing by-passing of the 30% commission. Apple will make this change globally. The App Store’s standards encourage developers to offer digital services and subscriptions through Apple’s in-app payment mechanism to provide a secure and smooth user experience. Because reader app developers do not sell digital goods and services in-app, Apple and the JFTC agreed to allow them to post a single link to their website to enable customers to sign up and maintain their accounts. Reader applications include apps like Netflix, Spotify, other new apps etc.
Around the same time later, when Fortnite was fighting the case against Apple and Google, a group of developers approached Korea Communications Commission [“KCC”] about the same issue. Almost a year later, this led to South Korea passing a legislation that amended their Telecommunication Business Act in August 2021. The new legislation attempted to curb the abuse of dominance by big tech companies, which charge exorbitant app or in-app purchase commissions. Thus, South Korea became the first country which imposed a restriction on payment policy practices by big tech companies.
On March 8, 2022, South Korea finally implemented this law. According to the KCC, the law specifically prohibits the act of forcing a specific payment method on a provider of mobile content by unfairly utilising the app market operator’s status. App market operators are prohibited from unduly delaying mobile content review or denying, delaying, limiting, deleting, or banning the registration, renewal, or inspection of mobile content that involves third-party payment methods. Violation of this will lead to a fine of up to 2% of average annual revenue from related business practices.
Hence, this piece of legislation forced Apple and Google to allow other payment methods on their app stores in South Korea.
III. Final Resolve- International perspective
Epic Games did not limit itself to the US; it went on filing cases in the EU, UK and Australia. Further, it kept on pushing legislation to allow third-party payment systems in US states (Arizona and North Dakota). All these activities highlighted a much more important issue of whether this should be allowed or not. For app developers who have deep pockets like Epic Games, which has big investors like Tencent backing, this is not that a big issue; however, the issue becomes bigger for small app developers as a 30% commission from a small developer will definitely have a huge impact on innovation.
As of now App Store or Play Store may not be an essential facility in the age of metaverse. Essential Facilities Doctrine is a framework in competition policy whereby a dominant firm cannot refuse to grant access to an essential facility (that is difficult to replicate), which it controls, to other firms. Especially after COVID-19, the virtual world has been growing at an even faster pace. In the near future, it clearly has the potential of becoming an essential facility. Moreover, the fact that around 58% of the US mobile operating system is captured by Apple shows the level of impact and market capture that Apple has. The US Court, considering Apple’s global market did not consider Apple as a dominant entity. However, when we look into the US market itself, a much clearer picture is seen, i.e., 58 % of market capture. Apple is famous for its anti-competitive policies for establishing its dominance/monopoly. For instance, the use of its own lightning port instead of the standard USB-Type-C port, which is faster.
All these efforts by various developers have made Apple make a special program for small developers’ assistance, which instead of the standard 30% commission, charges the developer half the amount of commission, i.e. 15%. This was done so that Apple can maintain its single App Store monopoly in the market, as Apple’s App Store does not allow sideloading of apps in the name of security.
In the case of Google, even though it allows for sideloading of apps, its amount of commission still needs to be controlled. It is important to note that over the years, Google has developed dominance of its Play Store so much that, as a matter of fact, very few people prefer to sideload apps. Further, the Play Store comes pre-installed on almost every Android smartphone. Thus, it has arguably become the only source of an app on Android smartphones, and a lot of users do not prefer to download apps from other app stores as Google considers sideloading of apps as harmful.
Thus, in both the cases (Apple and Google), there is a need to regulate payment policy, and the commission will regulate itself eventually. In the current situation, the approach of US lawmakers of allowing sideloading of apps will not be an as effective approach as the Korean Legislation of allowing different payment methods. This is also supplemented by the fact that sideloading of apps might make the smartphone more prone to malware, ransomware, and viruses.
It is important to note that by allowing different payment methods, lawmakers across the world are not violating the principles of justice. Apple/Google are definitely working hard in order to maintain the security on their respective app stores. On the other hand app developers are the ones who make their respective app stores a more attractive choice in exchange by developing apps for their operating system which otherwise they will have to pay for otherwise. This situation arose mainly because of the dominant position of Apple and Google. Thus, the authors suggest that a balance should be maintained where on the one hand, the exorbitant commission should be regulated and, on the other hand, the contractual rights of both Apple and Google should not be violated. As remarked by the judge in Epic Games v. Apple, “Success is not illegal”. Therefore, the different payment methods should also pay a small amount of commission to both Apple and Google; otherwise, this will make their business unviable or a loss-making business which will ultimately lead to poor services.