Requiem for an objection: the Commission drops half of its App Store case

On 28 February 2023, the European Commission (EC) sent Apple a new Statement of Objections (SO) ‘clarifying its concerns over App Store rules for music streaming providers’. Rather than a clarification, or an expansion of the previous SO, the new SO dropped one of the two objections—an unusual move, especially at this stage of the proceedings.

When a startup shuts down, as many of them do, founders are in the habit of writing up a post-mortem providing an analysis of what exactly went wrong so that other founders can avoid making the same mistakes. My idea is to provide a post-mortem for the objection dropped by the EC.

Let us start by tracing the life of the objection we’re mourning. When Apple launched Apple Music in 2015, and thus started competing with Spotify, antitrust concerns immediately arose. Spotify started accusing Apple of using the App Store as a weapon shortly after, and started lobbying for regulation. In March 2019, Spotify launched an antitrust complaint (or rather, campaign), which the EC followed up on with a formal investigation in June 2020.

The EC sent Apple an SO in April 2021, outlining its preliminary view that Apple abused its dominant position in app distribution, first, by imposing its own in-app payment mechanism on music streaming app developers (‘IAP obligation’), and second, by restricting app developers’ ability to inform users of alternative subscription methods (‘anti-steering obligation’). Now, the EC dropped the first objection.

In this piece, I speculate as to why the EC dropped its primary objection, in other words, I try to determine its cause of death (the post-mortem). Before doing so, I discuss what remains of the case (pay respect to ‘those left behind’), and after, I examine the relation with the Digital Markets Act (examine the deceased’s legacy).

1. What remains of the EC’s App Store case?

Remember that, according to App Store rules, music streaming apps qualify as ‘reader apps’ (as do other media apps, e.g., those providing video or e-books). Reader apps are allowed to let their users sign up on the web rather than via the App Store. This is great for developers (they avoid the IAP fee of 30%) and for users (developers pass on some of their savings). It’s not great for Apple (it loses its fee), which is why it prohibited developers from informing users about outside purchase options (the anti-steering obligation).

The Japan Fair Trade Commission investigated the anti-steering obligation for reader apps, but closed its investigation when Apple committed to allow reader app developers to link to their website for account management. In other words, Apple mostly dropped the anti-steering obligation, although restrictions remain. Developers have to request an ‘External Link Account Entitlement‘ and when linking to their website, they cannot include ‘language that includes the price of items available on the website’. This means developers still can’t promote cheaper offers outside of the App Store.

The change was a step forward. Consider Netflix. Like Spotify, it stopped supporting IAP to avoid the App Store fee years ago, which meant users could no longer subscribe via their iOS app. But Netflix also couldn’t direct users to their website. So when a non-subscriber opened the app, Netflix showed them this awkward phrase (doing little to hide its dissatisfaction): ‘You can’t sign up for Netflix in the app. We know it’s a hassle.’ After the JFTC’s intervention, however, the Netflix app is now redirecting potential subscribers to its website to sign up.

Developers of music streaming apps like Spotify can do the same. It’s still not ideal—developers would certainly like to include a message saying: ‘Go sign up on our website, where a subscription is X% cheaper’. But it means that, with its remaining case, the EC can at best hope to improve the already-allowed steering process, in particular by letting developers advertise prices.

In short, given previous developments around anti-steering, dropping the IAP objection means not all that much of the EC case is left.

2. Why did the EC drop the IAP objection?

The big question is why the EC dropped its primary objection. In the press release, the EC limits itself to saying it ‘no longer take[s] a position as to the legality of the IAP obligation’ and the final decision might not elaborate much further. Therefore, I must speculate.

A first option is that the EC simply found that the IAP obligation did not result in any anticompetitive effects. But that would be curious after a first SO that must have detailed such effects. And indeed, it is not too difficult to envisage anticompetitive effects. The EC chose the right case: music streaming apps have tight margins given that they owe most of their revenue (say, 70%) to record labels, so there may simply not be 30% margin left to pay the IAP fee. And when Apple does not subject its own music streaming app to such a fee, competition may be distorted. (For a more in-depth assessment, see the article I co-authored with Daniel Mândrescu).

A second option is that the EC did see a risk of anticompetitive effects but could not build a legal case. This doesn’t sound right either. In its new SO, the EC qualifies the anti-steering obligation as an unfair trading condition; it could have done the same for the IAP obligation—indeed, that’s what the Dutch Authority for Consumers and Markets (ACM) did. Given the aforementioned margin issue, the abuse of margin squeeze might’ve also fitted the conduct (as I’ve argued elsewhere). And those are only some of the options.

A third option is that, in response to the EC’s SO, Apple put forward a compelling justification for its IAP obligation. This option makes most procedural sense, but does Apple have such a justification? A look at the U.S. Epic v Apple judgment is instructive. Apple argued that IAP provides security, including fraud protection. In particular, centralizing payments allows for the detection of fraud patterns. But IAP is not the largest in-app payment service, as third-party payment processors can be used for certain transactions (of physical rather than digital goods). If scale is important, those third parties are actually better placed. Therefore, the judge was not convinced of Apple’s justification.

A fourth option is that remedies would be ineffective. Indeed, the ACM’s decision, which obliged Apple to do away with its IAP obligation for dating apps in the Netherlands, didn’t move the needle. IAP is, after all, just a convenient fee-levying mechanism. After a series of periodic penalty payments, Apple did away with IAP, but still charged a 27% commission (the original 30% minus 3% for payment processing). Competition authorities should consider remedies when starting a case, but some difficulty in implementing remedies shouldn’t deter them either (that would give dominant firms the wrong incentives).

At first sight, there does not seem to be a good (enough) reason to drop the objection. Of course, I do not have access to the EC’s detailed assessment, which likely provides such a reason. We can only hope the EC shares a significant enough part of that assessment.

3. How does the Digital Markets Act (DMA) factor into this?

You could say: ‘All of this doesn’t matter, the DMA prohibits Apple’s IAP obligation anyway.’ While that is true (see Article 5(7)), that approach seems counterproductive. This is a difficult case, but that is why it is all the more important to have a precedent (or, if the conduct is not anticompetitive/justified, a full explanation). The DMA is, after all, a fairly static instrument. Competition law precedent better withstands the test of time, and is thus more useful for future cases.

Is the EC getting lazy then, pausing enforcement until it can apply the DMA? That doesn’t seem to be the case either. After all, the anti-steering obligation is also prohibited by the DMA (see Article 5(4)–(5)) and the EC is still pursuing that objection. When it comes to the IAP obligation, however, the DMA has an added benefit compared to competition law enforcement: it not only prohibits IAP obligations but also mandates FRAND app store fees (Article 6(12)), which can avoid a situation like in the Netherlands.

Finally, what about the idea—promoted also by the EC—that the DMA is inspired by its experience enforcing competition law? There are two readings here. On the one hand, IAP obligations are apparently not a problem under competition law, so why is the DMA prohibiting them? On the other hand, the DMA makes much of the fact that it does not pursue undistorted competition but fairness and contestability. It has been criticized for not clearly distinguishing those goals, but this case might demonstrate the difference: while the IAP obligation apparently does not distort competition, it is considered unfair.

.

This blog post also appeared as an op-ed on EU Law Live.

Tags

Über

Friso Bostoen

Blog Editor

Postdoctoral Researcher, KU Leuven

>> Friso’s CoRe Blog posts >>

Hinterlasse eine Antwort

Zusammenhängende Posts

18. Jan 2023
Features von Daniel Mandrescu
competition law, abuse of dominance, refusal to supply, Lithuanian railways, bronner, essential facility, art. 102 TFEU

Case C-42/21P Lithuanian Railways – another clarification on the Bronner case law and the non-exhaustive character of art. 102 TFEU

The recent case of Lithuanian Railways provides yet another clarification on the scope of application of the Bronner case law. The Judgement of the CJEU reconfirms exceptional character of the Bronner case law and the type of situations it is intended to apply to. By doing so the CJEU potentially helps prevent future disputes of a similar  nature in the […]
03. Jan 2023
Features von Daniel Mandrescu
facebook, competition law, abuse of dominance, art. 102 TFEU, multisided platforms, dominant position, tying and bundling, unfair trading conditions, competition economics, european commission,

On-platform Tying or Another Case of Leveraging- A Discussion on Facebook Marketplace

Just before 2022 ended the Commission sent a statement of objections to Meta regarding the potential abusive behaviour of Facebook. According to the statement of objections, Facebook may be engaging in (i) abusive tying practices with regard to Facebook Marketplace as users (i.e. consumers) that log into Facebook and are automatically also offered access to the Facebook Marketplace, without the […]
01. Apr 2022
Features von Friso Bostoen

The French judgment on Google’s Play Store: a shift towards platform exploitation?

On 28 March 2022, the Commercial Court of Paris fined Google €2 million for the imbalanced terms and conditions of its Play Store. While the fine is minimal, Google is also obliged to adapt those T&Cs, including the 30% fee—a much more far-reaching implication. Except for some news articles, the French judgment did not receive a lot of attention (which […]
08. Mrz 2022
Features von Daniel Mandrescu

The DMA and EU competition law: complementing or cannibalizing enforcement?

The proposal of the DMA signals a significant change with respect to the application and enforcement of EU competition policy to online platforms. Despite the clear synergy between the two frameworks, the European Commission insists that the DMA is introduced with the idea of complementing, rather than replacing, the enforcement of EU competition law in the case of online platforms. […]
18. Jan 2022
Features von Daniel Mandrescu

The Apple App Store case in the Netherlands – a potential game changer

Just before 2021 ended, Apple suffered a loss in the Netherlands where a national court in preliminary relief proceedings struck down its attempt to block the remedies imposed by the Dutch competition authority following a finding of abuse of dominance. As a result, as of last weekend, Apple is forced to accept third-party payment solutions implemented in (paid) dating apps […]
21. Sep 2021
Features von Alice Rinaldi

Spielberg’s antitrust: Netflix, Amazon and the Draft Digital Markets Act

The recent legislative reform proposals presented by the European Commission (“EC”) have revived the debate on how Competition Law should deal with potentially abusive conduct in digital markets. Drawing upon the case law concerning violations of Art. 102 TFEU, the draft Digital Markets Act (“Draft DMA”) tries to re-design the structure of digital markets by codifying a series of dos […]
19. Apr 2021
Features von Friso Bostoen
Article 22, Merger Regulation, European Commission, Guidance, killer acquisitions, GAFAM

The Commission’s Article 22 EUMR Guidance: catching killer acquisitions through the merger referral procedure?

Over the past five years, the EU’s merger control regime has been hotly debated. The main concern driving the debate has been the intensive acquisition activity in the tech and pharmaceutical sectors. However, many of those acquisitions escape the jurisdictional thresholds of the EU Merger Regulation (EUMR) and therefore cannot be reviewed by the European Commission (EC). On 26 March […]
18. Feb 2021
Features von Alexandr Svetlicinii

“Three Great Mountains” for the Chinese State-Owned Investments in the European Union

In April of 1948, Chairman Mao Zedong in his speech to a conference of political cadres mentioned the “three great mountains” that need to be overcome by the revolutionary forces: imperialism, feudalism and crony capitalism. The commentators of the current affairs argued that the current Chinese leadership is facing the “three great mountains” of pandemic containment, post-pandemic economic recovery and […]
03. Dez 2020
Features von Daniel Mandrescu

Why you (often) don’t need the essential facility doctrine in the digital economy? – Interpreting Lithuanian Railways and Slovak Telekom

The insights from Lithuanian Railways and Slovak Telekom may have serious implications for the application of the Oscar Bronner case law in the future. These insights may prove, however, to have the most value in the digital economy where it would appear that the essential facility doctrine might often not even be needed – not even in the case of […]
26. Nov 2020
Features von Daniel Mandrescu

Lithuanian Railways and Slovak Telecom – Implications for the Essential Facility Doctrine

The recent cases of Lithuanian Railways and Slovak Telekom address the matter of refusal to deal. Both cases, which do not engage in the assessment of this abuse, in fact, provide important guidance on the scope of application of the essential facility doctrine for current practice that will be covered in this post. Refusals to deal and the essential facility […]

If you are interested, please use our Newletter to stay informed about our upcoming conferences, workshops, trainings and current published journals in our core areas of EU competition, data protection, substances and environmental law, as well as exciting new projects in emerging technologies and digitalisation.

Don’t miss any news and sign up for our free news alert.  Sign up now