The Competition Commission of India (CCI) on 31 December 2021 ordered a detailed investigation into Apple after noting that there is prima facie evidence of the company abusing its dominance in the market for the distribution of apps for iOS devices.
The Commission has directed the Director General to complete the investigation and submit the report within a period of 60 days. The order follows a complaint lodged by a non-profit called Together We Fight Society (TWFS) in August.
With this order, India joins a long list of nations that are scrutinising Apple’s App Store practices including the US, the UK, the EU, China, and Russia. Also, Apple now joins Google, which has been under investigation by CCI since November 2020 for its Play Store practices.
What did the CCI say in its order?
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. In its order, the Commission noted:
- The market for app stores for iOS in India is a relevant market and Apple has a monopoly in it: Noting that app stores are a crucial component of any operating ecosystem because of how dependent developers are on these stores to reach users and how dependent users are on these stores to download apps they want, CCI prima facie accepted that the market for app stores for iOS in India is a relevant market. The Commission further noted that the distinction between iOS and Android markets is necessary because app developers cannot cross-distribute apps developed for one platform using app stores made for another. CCI added that “the essentiality of the iOS ecosystem from the app developers’ perspective cannot be overlooked” because “app developers, in order to maximise their reach to maximum set of consumers, would not like to confine their offerings exclusively to one of the ecosystems as it would imply losing a sizable portion of the potential consumers’ revenue who are available on the other platform.” After delineating the relevant market, CCI noted that there is prima facie evidence that Apple holds a monopoly in it because the App Store is the only means for developers to distribute their apps to consumers using Apple iOS devices.
- Assessment of alleged abusive conduct:
- Mandatory use of Apple’s in-app purchase (IAP) restricts choice: CCI noted that the mandatory use of Apple’s IAP for paid apps and in-app purchases restricts the choice available to the app developers to select a payment processing system of their choice especially given that Apple charges up to 30 percent in commission. “As per the Informant, other payment processing solutions charge a significantly lower fee for processing payments,” CCI noted. “The tying of two distinct products (i.e., distribution service and payment processing service for in-app purchases) does not allow the app developers to take the advantage of a competitive payment gateways market,” the Commission added.
- Apple controls a significant volume of payments and is hence able to charge high commission: Given that the App Store is the only source of downloading apps for iOS users and that Apple’s IAP is mandatory, “it appears that Apple controls the significant volume of payments processed in this market” and this resultant market power allows the company to charge a high commission, CCI observed.
- Apple prohibiting app developers from informing users about the ability to purchase on the web is an unfair restraint: Apple’s anti-steering provisions prohibit app developers from directing customers to purchasing mechanisms other than in-app purchase even if these alternative options are cheaper for customers. CCI observed that these provisions “prima facie imposed an unfair restraint on the ability of app developers to offer cost-effective subscription models to app users.” But based on Apple’s submission that the modified guidelines allow developers to inform users of alternative purchase options through external communication like email or text message, CCI noted that “this aspect requires detailed investigation.”
- Apple might have an unfair advantage due to access to user data: Apple might have access to data collected from the users of its downstream competitors which would enable it to improve its own services, CCI observed. “Such competitors may not have access to this data for improvisation/ innovation of their own app. This would result in a competitive advantage to Apple over its competitors” and is prima facie unfair in terms of Section 4(2)(a) of the [Competition] Act,” CCI added.
- Acting as an intermediary between the app developer and app user would allow Apple to enter or protect its downstream market: The “intermediation by Apple between the app developer and the app user for payment-processing purposes, would also result in leveraging on the part of Apple as it is using its dominant position in the app store market to enter/protect its downstream market of various verticals (e.g., music apps), in violation of Section 4(2)(e) of the Act,” CCI noted.
- Tying of app distribution service and payment processing service appears to be in violation of the Competition Act: CCI observed that Apple ties its in-app purchase payment processing service with App Store (used for distributing apps) which “appears to be in violation of Section 4(2)(d) of the Act” because those are two separate services. This “prima facie results in leveraging by Apple of its dominant position in App Store market to enter/protect its market for in-app purchase payment processing market, in violation of Section 4(2)(e) of the Act,” CCI added.
- Some apps granted an exemption but the criteria are not clear: CCI noted that some apps that Apple including “reader apps” and multi-platform services are allowed to use alternative payment systems and that it needs to be “examined whether there are any objective criteria being followed by Apple for granting exemption from the mandatory use of IAP.”
- Apple’s application of its App Store guidelines needs to be investigated: TWFS has alleged that “Apple often applies its guidelines in an unpredictable, capricious and discriminatory manner,” which “affects app developers’ ability to run their business properly.” This will be a violation of various provisions of the Completion Act including denial of market access, CCI noted.
- Apple’s policy to restrict third-party app stores forecloses the market for potential app distributors and reduces innovation: Since Apple does not allow third-party app stores, it forecloses the market for app stores for iOS for potential app distributors, which “prima facie results in denial of market access for the potential app distributors/app store developers in violation of Section 4(2)(c) of the Act,” CCI noted. Furthermore, it results in “restricting the technical or scientific development of the services related to app store for iOS, due to reduced pressure on Apple to continuously innovate and improve its own app store, in violation of Section 4(2)(b) of the Act,” CCI added.
What are the allegations against Apple?
In its complaint filed in August, TWFS lays out the following:
- Establishing relevant markets and dominance:
- The market for non-licensable smart mobile device operating systems in India: Apple’s iOS, which is a non-licensable smart mobile device operating system, is the sole entity operating in the market after Blackberry faded into oblivion, TWFS argues. The distinction of licensable and non-licensable allows TWFS to exclude Google from this market, which overwhelmingly dominates the entire smartphone market in India.
- The market for app stores for Apple iOS in India: The refers to the distribution channel available to app developers to cater to iOS users. Since Apple does not allow third-party app stores in iOS, it has a 100 percent market share in the market for app stores for Apple iOS, TWFS notes.
- 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 dominance:
- Abuse of dominant position in the app stores market
- App Store guidelines are arbitrarily applied
- Guidelines unilaterally determined
- Abuse of dominant position by imposing an excessive commission of 30 percent on in-app purchases
- Exorbitant compared to other payment processors
- Commissions fall when there is competition
- Developers can offer lower prices to consumers if they rely on their own solutions
- Commission increases the cost of business for Apple’s competitors
- Deters entry and deprives consumers of benefit
- In-app purchases are a source of switching costs
- Apple usurps crucial aspects of the customer relationship
- Abuse of dominant position by mandating in-app purchases
- Apple coerces developers to use its payment system
- Apple’s marketing restrictions gag developers from informing users of alternative payment systems
- Apple has unfettered discretion in applying these rules
- Apple’s conduct forecloses competition and reduces innovation
- Contrasts with how markets on Apple’s own Mac computers work
- 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:
- Abuse of dominant position in the app stores market
For a more detailed summary of the arguments made by Together We Fight Society in its complaint, read here.
Arguments by Apple, counter-arguments by TWFS, and comments by CCI
Following the complaint by TWFS, the Commission sought a response from Apple as well as a rejoinder from TWFS. Apple argued that the complaint is “unfounded” and should be disposed because:
- Relevant market definitions are overly narrow: Apple argued that the relevant market definitions put forth by TWFS are “overly narrow, fail to capture the market and economic reality, and appear to be tailormade to falsely portray Apple as a dominant enterprise.”
- CCI: The CCI retorted that “the criticality of app stores in smart device digital ecosystems requires a nuanced approach to market definition” and that “the Commission is prima facie satisfied that Apple is dominant in the relevant market proposed in this order.”
“Unlike traditional ‘single-brand’ markets or aftermarkets, the present digital ecosystems including app stores operate as a platform connecting two or multiple different sets of market participants, as the case may be (in the present matter, app developers and users). Whereas the traditional ‘single-brand’ aftermarkets generally do not operate as a platform. Therefore, the traditional approach to aftermarkets cannot be simply juxtaposed on the digital markets and the multisided nature of this market needs to be recognised to address the intricacies, complexities and interdependencies of such markets.” – CCI
- The appropriate relevant market is the overall market for smartphones in India: Apple further argued that the appropriate relevant market is the overall market for smartphones in India, where the company’s market share is 0-5 %. “This categorically bars any allegation of dominant position and potential abuse of dominant position against Apple,” the company noted.
- CCI: “The Commission is of the view that the approach of Apple is completely misdirected as the alleged anti-competitive restrictions, in the present matter, have been imposed on the app developers in the form of App Store policies, by Apple. In other words, the allegation in the present matter pertains to abuse of dominance by Apple in relation to the app developers. Therefore, at this stage, it appears that the relevant market has to be defined from the perspective of the app developers and not from the perspective of end-users,” CCI noted.
- TWFS is acting as a proxy party: “The Informant is likely acting in concert with parties with whom Apple has ongoing commercial and contractual disputes globally and/or that have complained to other regulators. It has been further averred that while the Informant presents itself as an information provider and has the benefit of not requiring specific locus standi, the Commission should nevertheless be wary of attempts by persons who use proxy parties as a front rather than coming forward in their own name,” Apple submitted.
- CCI: “The Informant has a limited role and the proceedings before the Commission are purely guided by the merits of the matter in terms of the provisions of the Act,” CCI countered.
- Switching between OS is seamless: Apple argued that “any purported dominant position even in an incorrectly delineated market is defeated by the well-recognized ability to switch between OS’ which is inherently seamless.”
- CCI: “Apple has not submitted any concrete data to evidence multi-homing by consumers or that switching costs between operating systems are negligible.”
- App Store Review Guidelines are not unfair or arbitrary: Apple defended its policies noting that “the App Store Review Guidelines are not unfair or arbitrary and they have been put in place to ensure that the App Store is a safe and secure place for consumers to discover and download apps and purchase digital content.”
- TWFS: “Removal or refusal of apps from Apple’s App Store without an objective justification, may constitute an abuse of dominant position by Apple. When such actions concern apps that compete with the App Store on an adjacent market, additional scrutiny is warranted.”
- Commission charged to support the services provided by Apple: Apple defended the commissions it charges stating that it is “Apple’s compensation for providing developers with a built-in user base and significant technical and marketing know-how.” The company further pointed out that it has spent billions of dollars on developing and running the App Store. “The commission derives from, and is consistent with, the value developers can and do receive from Apple,” it said. “Most developers that use the App Store pay no commission, and for those that do, most pay only a commission of 15%. Apple’s commission is not unfair by reference to competing commissions and it has never exceeded the standard industry rate,” Apple added.
- TWFS: “Apple has failed to present a complete picture in the form of the cost incurred in the form of operating and maintenance (‘O&M’) expenditure of App Store vis- à-vis income generated from App Store. Only, such data could throw a light on the ground realties of the assertion raised by Apple.”
- Epic vs Apple ruling undermine many of the allegations made by TWFS: Apple submitted that the recent Davison by the United States District Court in Epic Games vs Apple case “largely embraces the App Store’s business model, making findings that undermine many of the allegations” made in the complaint by TWFS.
- TWFS: “The decision of United States District Court in US Epic Games case has not yet attained finality and is currently pending appeal in the higher court of necessary and proper jurisdiction.”
- CCI: “The Commission is of the view that the foreign case laws only have persuasive value in India and are not determinative.”
- No abuse of dominance: “Dominance per se is not an offence under the Act; a showing of abuse is required as well. There is no evidence that Apple’s practices are abusive,” Apple submitted.
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