“Apple has become a behemoth seeking to control the digital markets, block its competition and nip innovation in the bud,” the antitrust complaint filed with the Competition Commission of India (CCI) against Apple reads.
The complaint was filed in August 2021 by a non-profit called Together We Fight Society (TWFS) over Apple’s App Store practices. The filing accuses Apple of abusing its dominant position in the apps market by forcing developers to use its in-app purchase system.
There are three steps that CCI takes when adjudicating an antitrust case: 1) establishing the relevant market, 2) ascertaining market dominance, and 3) if it is able to establish market dominance, it then determines whether there has been an abuse of this dominance. TWFS presents supporting evidence for these three in its filing, a copy of which MediaNama has seen.
Establishing relevant markets
- The market for non-licensable smart mobile device operating systems in India: This market includes smartphone operating systems that cannot be licensed by third-party original equipment manufacturers (OEMs). Apple’s iOS falls under this. It is different from the licensable smart mobile devices operating system market under which Android falls. This key distinction makes it easier for the complainant to establish market dominance.
- The market for app stores for Apple iOS in India: This market comprises all the channels through which developers distribute their apps to iOS device users.
- The market for apps facilitating payment through UPI: This refers to the market for apps that enable UPI payments, but the complainant does not provide any rationale as to why this market is of interest in this particular antitrust case.
Establishing dominance in relevant markets
Dominance in the market for non-licensable smart mobile operating systems:
- Apple sole entity: “It will be not out of context to mention here that Apple is the sole entity operating in the market for Non-licensable Smart Mobile Operating System after the presence of Blackberry fades into oblivion after 2010. Moreover, Apple is the only entity having full control and influence on the development of smart mobile iOS,” the filing states.
- iOS has the most number of applications: Stating that the OS which can run the maximum number of apps would be most popular among users and developers, the complainant says that iOS holds the top position here among non-licensable smart mobile operating systems with over 2 million apps available as of first quarter of 2021.
Dominance in the market for app stores for Apple iOS in India:
- Apple App Store only option: “Without going into minute details, here it will be sufficient to note that considering that Apple’s App Store comes pre-installed in all iOS devices and other competing App Stores are not allowed to be either pre-installed or downloaded, Apple is dominant in the supra delineated relevant market,” the filing reads. “The natural conclusion then is that Apple has a monopoly in this market, as it holds a 100% market share.”
- Developers cannot constrain Apple’s dominant position: “If a developer does not develop apps for iOS, the developer must forgo all the iOS users. Hence, no developer alone has sufficient power to overcome the network effects and switching costs associated with iOS,” the complainant stated.
- Significant switching costs: The complainant argues that the threat of users switching to non-iOS devices does not constrain Apple’s anticompetitive conduct because Apple customers face significant switching costs and lock-in to the Apple ecosystem, and switching may cause a significant loss of personal and financial investment that consumers put into this ecosystem.
Dominance in the market for apps facilitating payment through UPI: The complainant does not provide any argument to establish Apple’s dominance in this market.
Establishing abuse of dominant position
Abuse of dominant position in the app stores market:
- App Store guidelines are arbitrarily applied: The complainant argues that all apps distributed through the App Store must undergo a strict review process and be approved by Apple but that Apple applies these guidelines in an “unpredictable, arbitrary and discriminatory fashion, which in turn disrupts the ability of app developers to run their business properly.”
- Guidelines unilaterally determined: The complainant states that App Store guidelines are unilaterally determined by Apple and “amended as per its own sweet will” without proper consultation with developers. These guidelines are “one-sided, dotted form of contract (‘take it or leave it’ contracts), whose applicability, adjudication etc., lies at the sole discretion of Apple.”
- Tantamount to the unfair or discriminatory condition in purchase or sale of goods or service: The complainant argues that the above practices “tantamount to the violation of the provisions of Section 4(2)(a)(i) [of the Competition Act, 2002] which prohibits the imposition, by a dominant enterprise, of an unfair or discriminatory condition in purchase or sale of goods or service.”
- Leads to denial of market access: Since developers are left “with no choice but to concede to such unfair, arbitrary and unilateral enforcement of App Store Review Guidelines,” the complainant argues that it “leads to denial of market access in violation of the provisions of Section 4(2)(c) of the Act.”
Abuse of dominant position by imposing an excessive commission of 30 percent on in-app purchases:
- Exorbitant compared to other payment processors: The complainant argues that the 30 percent commission is a “payment processing fee” that is “patently exorbitant as payment processors such as Bill Desk, Razor Pay, CC Avenue etc. charge significantly lower fees for similar services (usually between 1-5% of the transaction value, plus a fixed fee).”
- The commission charged by Apple is unfair: The complaint alleges that the 30 percent commission charged by Apple is in violation of Section 4(2)(a)(i) which prohibits the imposition, by a dominant enterprise, of an unfair or discriminatory condition in purchase or sale of goods or service.
- Commissions fall when there is competition: “When marketplaces face competition, commissions tend to fall and are lower than 30%. Commissions are, for instance, lower in general retail (with Amazon charging between 8-17%, and Walmart between 6-15%), and in travel booking (where Booking.com charges a 15% commission on average and where commissions from Expedia have continued to decline over the years),” the filing states.
- Developers can offer lower prices to consumers if they rely on their own solutions: The complainant argues that if developers were able to use their own payment solutions, they could offer users lower prices for in-app purchases.
- Commission increases the cost of business for Apple’s competitors: The complainant submitted that the high commission increases the cost of business for Apple’s competitors because Apple’s fee is internalised. “The rationale being Apple may use its gatekeeper and regulator role to exclude downstream competitors. Besides operating the App Store, Apple also regularly launches new apps exclusively in the ‘digital goods or services’ space, including categories such as music streaming (Apple Music), news (News+), video content (Apple TV app), gaming (Apple Arcade), payments (Apple Pay), credit cards (Apple Card) and many more. This creates a potential conflict of interest as Apple might have the incentive to leverage its dominant position on the market for app distribution on iOS devices, to distort downstream competition in its favour,” the filing states.
- Amounts to a form of margin squeeze: “Apple’s imposition of the 30% commission may also amount to a form of ‘margin squeeze’ in breach of the provisions of Section 4 of the Act. A margin squeeze may occur where, as in the present case, a vertically-integrated company sells a product or service to competitors on an upstream market where it is dominant (i.e., the App Store) and competes with those companies on a downstream market for which the product or service is an input,” the filing states.
- Deters entry and deprives consumers of benefit: The commission raises cost for developers and “deters entry (and the resulting innovation) in violation of the provisions of Section 4(2)(c) of the Act. The rationale being that the existence of the 30% commission means that some app developers will never make it to the market, either because their margins are too slim to sustain such a cut. This could also result in consumer harm since consumers do not get the benefit of new entries and the resulting innovation,” the filing reads.
- In-app purchases are a source of switching costs: ” lAP’s centralized function may also be a source of switching costs for users. While IAP allows users to share purchases across iOS devices, users cannot purchase a subscription on iOS through IAP and then transfer it to an Android device. […] Considering that users may have multiple subscriptions for different apps with different billing cycles, this may dissuade them from switching to an alternative OS in the first place.”
- Apple usurps crucial aspects of the customer relationship: “When a purchase is made through IAP, Apple becomes the merchant of record and usurps crucial aspects of the customer relationship,” the filing states. “In other words, the developer is alienated from its own customer base. This results in a complex and poor user experience, as well as additional inefficiencies. For instance, app developers have no visibility into the reason why a customer stops paying a subscription, a crucial piece of information (e.g., if the customer has failed to make a payment because her credit card has expired, the developer might wish to make a new offer).”
Abuse of dominant position by mandating in-app purchases:
- Apple imposes unreasonable restraints and unlawfully maintains a total monopoly in the iOS in-app payment processing market: “Generally, an app developer can select the payment processor (or combination of payment processors) that best enhances the user experience and helps facilitate a seamless, cost-effective, and efficient payment processing API to work within their apps. However, Apple eliminates any choice of in-app payment processors for in-app content and coerces developers into using Apple’s In-App Purchase. Apple effects this unlawful tie by requiring developers who want to enable in-app sales of in-app content to use Apple’s payment processor, exclusively, which forecloses any alternative payment processing solutions,” the filing states.
- Apple’s marketing restrictions gag developers from informing users of alternative payment systems: Referring to Apple’s prohibition on developers communicating with users about alternative payment solutions or including in their apps and their metadata “buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase,” the complainant states that these two marketing restrictions aim at reinforcing the app developer’s obligation to use the in-app payment system and pay the 30 percent commission. “These draconian policies serve to cement Apple’s monopoly position in the iOS In-App Payment Processing Market,” the filing states.
- Apple has unfettered discretion in applying these rules: “The use of qualitative language in Apple’s Guidelines ( ‘indirectly target’, ‘general communications’, ‘designed to discourage’) afforded Apple with considerable (if not unfettered) discretion to apply the marketing restrictions as it saw fit. Thus, the app developer could be in breach of the Guidelines for running an online ad campaign, if Apple deemed that the latter was ‘designed to discourage the use of in-app purchase’,” the complainant argued.
- Violation of Section 4(2)(d) and Section 4(2)(e) of the Act: “Because Apple has a monopoly over the distribution of iOS apps, app developers have no choice but to assent to this anti-competitive tie-in-arrangement and such conduct on part of OPs is in violation of the provisions of Section 4(2)(d) and Section 4(2)(e),” the filing states.
- Apple’s conduct forecloses competition and reduces innovation: The complainant argues that Apple’s anti-competitive practices foreclose competition and cause harm to (i) would-be-competing in-app payment processors, (ii) app developers, and (iii) consumers. App developers and consumers will be denied choices that spur innovation and offer better services and lower prices, the complainant stated.
- Contrasts with how markets on Apple’s own Mac computers work: The complainant argues that Apple’s practices contrast with how similar markets operate on Apple’s own Mac computers. Mac users can download from any source and developers are free to use their choice of payment systems. “The result is that consumers and developers alike have choices, competition is thriving, prices drop, and innovation is enhanced. The process should be no different for Apple’s mobile devices,” the filing stated.
Abuse in tying the App Store to the iOS in-app payment processing market:
- Apple is unlawfully tying App Store to the in-app payment processor: “Apple is able to unlawfully condition access to the App Store on the developer’s use of a second product, i.e., In-App Purchase,” the filing states. “The tying product, Apple’s App Store, is distinct from the tied product, Apple’s In-App Purchase as app developers can have alternative in-app payment processing options and would prefer to choose among them independently of how the developer’s iOS apps are distributed. In other words, app developers are coerced into using In-App Purchase by virtue of wanting to use the App Store.” Such tie-in-arrangements are in violation of the provisions of Section 4(2)(d) and Section 4(2)(e) of the Act, the complainant stated.
What relief does the complainant seek from CCI?
- Declare Apple’s app store practices as anti-competitive and in violation of the provisions of Section 4 of the Competition Act.
- Direct Apple to remove the obligation on developers to use the in-app payment system offered by Apple.
- Direct Apple to remove the marketing restriction imposed on developers that prevent them from promoting payment options available outside the app.
- Direct Apple to have a clear and fair implementation of the App Store Guidelines.
- Direct Apple to not exclude, suspend or remove competing Apps from the App Store.
- Pass a cease-and-desist order against Apple, directing it to discontinue its abusive practices.
- Impose a penalty on Apple under the Act, as Commission deems fit and proper.
- Pass such further order and issue such directions to Apple as the commission may deem fit in the facts and circumstances of the present case.
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