Apple’s ‘monopolist’ and ‘monopsonist’ power over the iOS app distribution market violates Federal and California antitrust law, alleges a class-action lawsuit filed by three French iOS developers at a California Federal Court on Monday.
The plaintiffs claim that Apple has ‘wilfully’ acquired near total control of the iOS app distribution market—resulting in ‘supracompetitive’ distribution and In-App Purchase fees levied on developers ‘forced’ to depend on the App Store. These fees, which have helped Apple earn billions in revenue, depress developer sales and profits. Apple has little incentive to change its ways due to the lack of competition it faces, stifling innovation and quality in the iOS app market, the petition claims.
‘Apple’s aggressive and improper monopolization of this [the App Store] market, or the improper acquisition and abuse of its monopsony powers in the retailing space, has stifled competition by preventing the emergence of any viable competitors whatsoever, which reinforces and strengthens its pernicious and overbearing power in a market already distinguished by high barriers to entry,’ the petition notes.
All three plaintiffs seek monetary and injunctive relief, both for themselves and the ‘French-resident iOS developers’ on whose behalf they seek to take legal action.
Why it matters: How this case in a U.S. court proceeds may produce fundamental shifts in the market economics of iOS app distribution, which appears to favour the tech giant. Other market regulators have recently surmised as much, while scrutinising the company’s App Store policies. Or, as one CEO quoted in the petition put it, ‘when someone signs up for your product in the App Store, they aren’t technically your customer anymore – they are essentially Apple’s customer. They pay Apple, and Apple then pays you. So that customer you’ve spent years of time, treasure, and reputation earning, is handed over to Apple. And you have to pay Apple 30% for the privilege of doing so!’
The plaintiffs are represented by lawyers from Hagens Berman Sobol Shapiro LLP—which secured a $100 million settlement last year for US-based iOS developers challenging the App Store’s pricing and purchasing policies.
Never miss out on important developments in tech policy, whether in India or across the world. Sign up for our morning newsletter, with a “Free Read of the Day”, to experience MediaNama in a whole new way.
Introducing the Petitioners
The three petitioners are:
- Société du Figaro: The Paris-based developer of the ‘Figaro’ iOS news app. It seeks relief for itself and ‘other similarly situated developers’.
- L’Équipe 24/24 SAS: The Boulogne-Billancourt-based developer of the ‘L’Équipe’ sports streaming and news app. It seeks relief for itself and ‘other similarly situated developers’.
- le GESTE: The Paris-based association of online content publishers. It seeks relief for itself and ‘alternatively, [also] as a proposed class representative for its iOS-developer members.’
In order to access American iOS markets, all three petitioners signed up to Apple’s ‘monopolistic’ App Store policies, despite their disadvantages. Even if they are French, these developers participated in the iOS app market ‘as purchasers of Apple’s services in the United States domestic marketplace.’ As a result, both Federal and State-level antitrust law forms the basis of their petition.
Apple Deliberately Acquiring Monopolist and Monopsonist Power through App Store
‘The iOS App Store is the sole way in which iOS apps can be sold to iOS device owners,’ says the petition, rendering developers dependent on it, even if its policies disadvantage them. The plaintiffs contend that this is the only way developers can sell their apps to the millions of users transacting on it.
For example, in order for a developer to sell their apps on the store, they enter into Apple’s Developer Program Licensing Agreement (DPLA). The DPLA specifies that ‘iOS apps be distributed exclusively in or via the iOS App Store, i.e., they may not be distributed in other stores for iOS apps (if there were any).’
This ‘closed system’ is claimed to be exclusive by design—which means that Apple consciously ‘determined that it would shut out competition in distribution of native apps’ through the App Store.
Given the above, the petition alleges that Apple’s market dominance is far from innocent—it deliberately attempts to monopolise the distribution of iOS apps through ‘improper means’. Additionally, it acts as a monopsonist given that it is the sole seller of iOS distribution networks to developers by design.
App Store Fees Are ‘Supracompetitive’, Harm Developer Profits
Given that the App Store is the only place iOS apps can be bought, ‘developers are direct purchasers of app-distribution (and IAP) services from Apple.’ That is, Apple holds a ‘deliberate’ monopsony over the distribution of iOS apps too.
This is reflected in the 30% commission fee it charges developers on the sale of an app or on an in-app purchase. This, the petitioners argue, is ‘supracompetitive’ and exorbitant. The rate has not been lowered as Apple simply has no competition forcing it to do so.
The commission cuts into developer profits. Similarly, as the lone seller of iOS app distribution, Apple is also paying developers ‘less for their digital products than what they would be paid in a competitive market.’ On the other hand, by ‘forcing’ developers to sign up for policies like these, Apple has reaped billions over the years—in 2020, the App Store reportedly collected over $64 billion in gross sales.
The petition argues that these outcomes are unjustifiable, especially given that other app stores charge lower commission fees: Bandcamp (10-15%), Chrome Web Store (5%), Microsoft Store (12-15%), Amazon AppStore (20% with revenue credits). Given the millions of apps on the App Store, large revenues could still be earned if a lower (and more competitive) commission fee is charged.
Pricing Scheme Depresses Developer Sales, Discoverability, Advertising Income
Apple also prescribes that apps be ‘priced no less than USD $.99 (or equivalent) at minimum and in sums ending in USD 99 cents (or analogous/equivalent) for higher-priced apps and in-app products.’ This price floor allows the company to maximise the commission earned on each sale. However, it disadvantages developers who would benefit from higher customer sales by pricing their apps lower than these amounts. The $99 annual fee that developers are forced to pay Apple further cuts into their earnings from the store.
The fact that 1.8 million iOS apps are jostling for attention on a single platform also reduces discoverability, eating into an app’s visibility in the App Store, and pushing potential sales down again. A differentiated, competitive marketplace for iOS apps may produce more profitable outcomes.
Apple’s App Tracking Transparency (ATT) initiative may impact developers’ income from advertising. The program reportedly aims to give users more control over how third parties track their data. However, some developers claim that they ‘are unfairly robbed of their ability to monetize their work by fair use of consumer data for targeted advertising.’ This means that developers will create fewer free apps, or will begin charging for them, as ‘they will be unable to make a living by means of advertising.’ The petition further claims that Apple’s own advertising services benefit from ATT, as compared to other digital marketing entities.
Alternatives to App Stores ‘Useless’ to iOS Developers
The petition argues that ‘there is no substitute worldwide for the iOS app-distribution and IAP services that Apple willfully keeps to itself.’ Apple’s market share in this case may be near 100%. Further, app stores developed by Google, Amazon, and many other tech giants offer little competition to Apple’s monopoly over iOS app distribution.
This is because ‘there is no simple or cost-effective way to abandon the Apple iOS environment and migrate to another environment with the hope that distribution fees will be cheaper, or that if enough other developers move Apple would be forced to lower its distribution-service prices, which are super-high as alleged herein.’ Alternative app stores—like the Play Store or Amazon Store, for example—are ‘useless’ for developers looking for other places to sell their wares. After all, iOS apps are specifically programmed to work on iOS-powered devices, not on other operating systems.
Additionally, developers incur high technical and financial costs by switching over from iOS to Android. If they were to switch despite this, the Play Store offers little respite—it charges the ‘same default 30% commission on paid apps and paid in-app products, and non-auto-renewing subscriptions (initially).’
The overall market, therefore, advantages the distributors of apps, while diminishing the profits of those who develop them, argues the petition.
Hypothetically, companies looking to build alternatives to the App Store would face high barriers to entry. They require large resources to build, advertise, scale, and run the store. While these costs may decrease in the future, they are high enough, for now, to dissuade competitors from entering the market.
Lack of Competition Worsens App Store Services
Competitive markets often spur improvement in the quality of products. Apple’s ‘monopolistic’ App Store has, on the other hand, dampened the quality of services enjoyed by both users and developers, claims the petition.
Apple demands that developers use its In-app Purchasing services and payment processing systems. However, ‘this means that developers must endure the six-plus-weeks’ delays in funds distribution that are built into Apple’s system.’ Permitting third-party payment gateways to process these funds could speed up payouts.
Additionally, as per the DPLA, Apple takes responsibility for customer refunds—this renders the developer’s own refund policies redundant, and prevents a refund from being customised based on the customer’s request. Reportedly, Apple overall does a poor job of handling refunds through its App Store, a skill it is hard-pressed to change given the lack of competition.
Apple’s Defence of its Anti-Competitive Practices Inadequate
Apple has claimed that it has intentionally prevented competitors from distributing iOS apps to ‘protect device customers from bad apps and malware’.
The petitioners disagree, arguing that ‘reputable’ vendors would be likely to offer a trustworthy distribution network, if given the chance. Furthermore, they argue that Apple is simply not ‘qualified’ to be monitoring and shaping security—especially when its own engineers have reportedly stated that the App Store’s security protocols are lacking. ‘Fleeceware’ apps surreptitiously operating from the store have made at least $365 million in revenue. Even in similar cases of fraud, Apple may inadvertently pocket the 30% commission.
Questions of law raised in this case
Aside from deciding whether the plaintiffs’ complaints merit monetary and injunctive relief, a potential Judge and Jury would be tasked with determining the following legal questions:
- ‘Whether there is a global, or, alternatively, a U.S. market, for iOS app-distribution and IAP services, or for iOS app and in-app-product retail services;
- Alternatively, whether there is a U.S. submarket or single-brand market for iOS app-distribution and IAP services, or for iOS app and in-app-product retail services;
- Whether Apple has unlawfully monopolized, or attempted to monopolize, the global market, or, alternatively, the U.S. market for iOS app-distribution and IAP services, including by way of the contractual terms, policies, practices, mandates, and restraints described herein;
- Whether competition in the global market, or, alternatively, the U.S. market for iOS app-distribution and IAP services has been restrained and harmed by Apple’s monopolization, or attempted monopolization, of that market;
- Alternatively, whether Apple has behaved as a monopsonist, or attempted monopsonist, retailer of iOS app-distribution and IAP services as alleged herein.’
This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.