Are app stores anti-competitive?

The smartphone will go down in history as one of the essential tools of this decade. The release of the iPhone in 2007 marked a generational shift in computing, although the shift occurred in two stages. While the multitouch interface is apparent, the change in the software model was just as important.

Apple and Google fundamentally altered the way software was developed, increasing the number of people who could comfortably and safely use a computer from a few hundred million to a few billion. Both, Apple and Google have been on policymakers’ and competition regulators’ radars in other nations.

More recently, an antitrust investigation into Apple Inc.’s alleged abuse of its dominant position has been initiated on the basis of information filed by a Rajasthan-based non-profit organisation Together We Fight Society (TWFS). It alleges that Apple has imposed on the app developers, the mandate of paying an in-app fee of up to 30 per cent for distribution of paid digital content and using its iOS-based payment mechanism. This allegedly unfair move led to higher operational costs, thereby creating a detrimental impact on market competition by discouraging new entrants.

Apple has denied the allegations and stated that it commands only 0-5 per cent market share in India, while Google commands 90-100 per cent. Apple further argued that it charges less from small developers to eliminate unfair or excessive levy. The earlier positions of the Competition Commission of India indicate that an entity could be held liable for abusive practices only if it is the single dominant entity in the said relevant market. This is further complemented by the observation in Sonam Sharma v. Apple (2013), wherein the CCI refused to delineate a distinct relevant market for Apple iPhones as single brand markets are rarely tenable.

It may be pertinent to mention that the CCI had launched an investigation into Google in November 2020 for similar anti-competitive behaviour in its Play Store. In the light of these investigations, it is important to acknowledge the ‘Epic’ American juxtaposition and the European stance. The allegations that Apple faces before the American and European authorities are similar to the case as aforementioned.

Epic Games case

The Californian Federal Court in Epic Games v Apple (2021) observed that Apple’s terms for payment of commission isn’t anti-competitive nor is it monopolist in the gaming market. However, it noted that Apple’s 30 per cent commission rate was inflated which could have been potentially anti-competitive if it were not for technical flaws in the arguments made by Epic Games. It may be pertinent to mention that the court found Apple’s anti-steering restrictions forbidding app-developers who direct consumers to third party payment systems as anti-competitive, while upholding App Store’s structure as legally tenable.

Apple faced similar charges before the European Commission (EC) at the behest of a complaint made by Spotify app in 2020 for the same issue as mentioned above. The EC found Apple to be a dominant entity in the music market, preliminarily. Inferring from the past decisions, the EC has been proactive in strict enforcement of competition rules against the big tech, making it unlikely for Apple Inc. to walk away scot-free.

Much has been stated about the enormous security and trust benefits that Apple and Google’s curating of their respective app stores (particularly their control over in-app payments) bring to users. In a nutshell, the closed model enables previously unknown developers to rapidly expand since consumers no longer have to fear their apps contain malware, and payment frictions, most notably security-related frictions, are considerably reduced.

TWFS’ antitrust claim against Apple is based on misconceived manner of operation of App Store and mis-characterises Apple as a monopolist in the market for iOS-marketed apps.

The comparison of Apple’s commission with the much lower fee charged by BillDesk, RazorPay, CCAvenue and other third-party payment processors is inapt because payment processors do not help app developers acquire paying customers — that is, they are not intermediaries. Payment processors provide a different, less valuable service to developers than the intermediation and distribution service that Apple provides, hence they charge less.

Apple’s App Store is a digital platform and distribution channel that provides immediate access to hundreds of millions of iOS customers for even the smallest start-up companies. Operating the App Store entails significant costs.

Nonetheless, for the great majority of App Store-enabled user interactions, third-party app developers — whether retailers, service providers, content distributors, or social networking platforms — pay no compensation to Apple when acquiring users and distributing material through the App Store.

Practical considerations

Apple earns a commission only when an iOS customer uses the App Store to purchase digital products or services from a developer. As with any operator of a multi-sided platform, Apple’s decision to charge developers for some App Store uses but not others reflects its business judgment about how to maximise the App Store and iOS ecosystem’s overall attractiveness for users and developers, as well as a variety of practical considerations.

Today, six billion people own smartphones, and those users purchase and install significantly more software than at any point in history. The app store model has been instrumental in offering secure, trustworthy software to billions of consumers since its inception. Breaking up this model should be considered as a last resort and only if it is certain that it will solve the problem and not create new ones in the future.

The writers are legal professionals

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