Epic v Apple (2): market power and foreclosure in the app distribution market(s)

Epic, Fortnite, Apple, battle royale, competition law, antitrust, district court, monopolization, monopoly, essential facilities, refusal to supply, tying, abuse of dominance

Epic’s battle against Apple has been extensively covered in media in the past month. This attention is undoubtedly due to Epic’s explicit move against Apple’s terms and conditions as well as Apple’s fierce reaction to cut all ties with Epic. Epic’s legal dispute is, however, not only against Apple but also against Google who has removed Epic from its Play Store for similar reasons. Epic’s claims against Apple and Google paint a grim picture for all app developers that consider taking the highway instead of Google and Apple’s way. Given that last week’s blog post introduced and contextualized Epic’s complaint, this post takes a closer look at market power in the app economy and how it may factor into a refusal to supply assessment in Epic’s claims against Apple and Google.

Market power and the current bottlenecks in the app distribution market(s)

Epic’s two complaints share a lot of common ground when it comes to its dependency on the app stores as the main or only mode of app distribution. Epic’s approach is that is Apple and Google’s ecosystems operate on separate markets for app distribution avenues for developers. This is not surprising as Apple’s App Store and the existing Android distribution channels cannot be used interchangeably. In the EU, the Dutch competition authority (ACM) reached a similar conclusion in its market study of app stores. Once this market segmentation is made, the significant market power of the incumbent app stores becomes quite evident.

With Apple, the App Store is the only mode of app distribution because iOS is a closed ecosystem fully controlled by Apple, which bans other methods of distribution (e.g. side-loading). Accordingly, when it comes to the iOS app distribution market, Apple controls the entire market. By contrast, in the case of Google Android, which is an open source OS, alternative distribution channels exist including third party app stores like Samsung’s Galaxy Store and Aptoide. Similar to the approach taken by the ACM in its study, Epic also acknowledges alternative distribution avenues such as direct downloads and/or side-loading. Nevertheless, Google’s Play Store is evidently by far the leading distribution channel for android apps.

Of course it is possible that the courts in the US and/or the various authorities in the EU find that there is only one market for app distribution including both iOS and Android ecosystems, as is expected to be claimed by both Google and Apple. Such a finding in the case of Epic would be problematic as both claims include multiple counts under Section 2 of the Sherman Act, which traditionally requires market shares (well) above 50% for antitrust intervention. Nevertheless, even in such a scenario, antitrust scrutiny cannot be categorically excluded. While the market shares in such a scenario would be reliably low by Section 2 standards the substantive definition of monopoly power under Section 2 may be met i.e. ‘ the power to control prices or unreasonably restrict competition’. Furthermore, several of Google and Apple’s practices relating to their terms and conditions are framed under Section 1 of the Sherman Act that does not require such significant market shares. Which way the relevant market is defined in these proceedings, it is clear that the current structure that iOS and Android app distribution market(s) is characterized by (self-created) competitive bottlenecks that convey significant market power to Apple and Google.

In the case of Apple, the setting in the app distribution market is one of single-homing. Once consumers acquire an iOS device they are locked in the ecosystem and can acquire apps only via Apple’s app store that is also the only distribution channel open for developers to offer their apps. Generally speaking, single homing scenarios are considered indicating that markets are very competitive when such outcome results from competition on the merits. With Apple, however, this end result is due to Apple’s closed system rather than an explicit consumer or developer preference for Apple’s distribution channel. Consequently, Apple possesses significant market power with regard to both consumers and developers as the gatekeeper for transactions between the two.

In the case of Google, due to the open source nature of its OS, the situation is one of (potential) multi-homing on both sides of the app distribution market. Accordingly, both consumers and developers have, in principle, multiple avenues through which they can conduct transactions. In practice, however, Epic’s claim as well as the recent decision by the EU Commission in the case of Android show that Google seems to aim for the same goal like Apple. Through its contracts with OEM’s, which ensure preferential treatment of its Play Store (e.g. through pre-installation and prominent placing on the main screen of Android devices), Google is able to tilt the scale in its favor and lead to single-homing by both consumers and developers. Here too, the (sought-after) outcome of single-homing is not a result of intense competition in the market for app distribution. It is simply the consequence of Google’s strategies.

Accordingly, while Google and Apple have different approaches for their ecosystem from a technical perspective, their business strategy seems to lead to very similar outcomes in terms of market power in the app distribution market(s). In the case of both iOS and Android apps it would appear the main if not only distribution channel is that of the incumbents. It now remains to be seen whether such market conditions are sufficient for Apple and Google to fall under the scope of Section 2 of the Sherman Act. Although the technical difference between iOS and Android has limited consequences for the finding of significant market power in practice, such differences have led to diverging approaches by Epic in its claims when it comes to access to the app distribution market(s).

Essential facility vs. foreclosure

In the case of Apple, Epic’s claim starts with a refusal to supply access to an essential facility. Since iOS is a closed system fully controlled by Apple access to the (iOS) app distribution market is in the hands of Apple. Since such access cannot be achieved without Apple’s approval, the constant refusal of Apple to grant it gives rise to question of whether it controls the access to an essential facility. In the EU, the ACM study seems to hint that the answer to this question is yes due to the lack of alternative app distribution channels. It now remains to be seen if US courts reach the same conclusion. In the case of Google that designed an open source system, Epic’s claim is not focused on getting access to the ecosystem. Since Android is open source, alternative app distribution channels can and do exist. Accordingly, the claim of Epic with regard to the (android) app distribution market is one of foreclosure of access rather than a refusal of access.

Although both practices can give rise to antitrust scrutiny the difference between the two should not be underestimated. Proving that an undertaking has control of an essential facility and wrongfully denies access to it requires meeting a difference standard of proof than that of foreclosure. Reliance on the essential facility doctrine is known to be one of the most difficult claims against alleged monopolists or dominant undertakings. In the US the department of justice for example does not even support the use of this doctrine in the context of Section 2.

The two parallel approaches taken by will be interesting to follow since it is likely that similar claims will come up also in the EU (e.g. in the case of Spotify v Apple). In the EU, however, choosing the form of abuse in the context of access to app stores and the app distribution market will likely require quite some complex legal maneuvers. The recent AG opinion in Solavak Telekom that provides guidance on the application of the EU version of the essential facility doctrine (i.e. the Bronner case law) created quite a few grey areas in this context (that will be addressed in a different post!).

In practice, however, it is clear from Epic’s claims that the commercial harm experienced by developers that do not abide by Google or Apple’s app store rules is rather identical. The different technical characters of iOS and Android do not appear to translate into different opportunities for app developers. A ban or removal by either party means in both cases that developers have no other realistic channels to rely on. The competitive bottlenecks in both ecosystems allow Apple and Google to call the shots even when dealing with other tech ‘giants’ like Facebook or Amazon that had their apps denied or removed as well.

With the above matters in mind it is safe to conclude that Epic’s claims will do justice to the company name as these cases are bound to be game changers with regard to the questions of market definition/power in multi-sided markets and access to platforms. For a more extensive discussion on the EU perspective concerning the abuse of dominance in the case of app stores see our recent paper.

However, Epic’s claims cover a lot more ground and we intend to follow suit! Stay tuned for the next post in this mini-series to read more on what may become the seminal case(s) of our times, at least on one side of the Atlantic.

Tags

About

Daniel Mandrescu

Blog editor Assistant Professor EU competition law, Europa Institute, Leiden University >> Daniel's CoRe blog posts >>

Related Posts

18. Mar 2024
by Daniel Mandrescu
competition law, abuse of dominance, apple app store, the digital markets act

The Apple App Store – A New Kind of Hallmark Case

After almost three years since the Commission sent Apple its statement of objections, which was significantly trimmed down, the Commission reached a finding of abuse for which it imposed a whopping fine of 1.8 billion euros. Alongside this case, Apple was also involved in an almost identical case running parallel in the Netherlands, with similar findings. Meanwhile, during these procedures, […]
04. Jan 2024
Features by Friso Bostoen
antitrust books

The antitrust books you should’ve read in 2023

This fifth edition of ‘the antitrust you should’ve read last year’ has three entries. This is notably fewer than the four to six books included the previous years, which is due either to a slow year in antitrust publishing, or to my starting a new job and having less time to read. There were also some last-minute contenders such as […]
16. Nov 2023
Features by Daniel Mandrescu
platforms, dma, gatekeepers, digital markets act, apple, google, microsoft, smasung

Rebutting the gatekeeper status – what does it take?

The deadline for appeals on the gatekeeper designation under the DMA is nearing its end.  Since the DMA imposes gatekeepers with demanding obligations, it is only natural that the potential subjects of this regulation will attempt to contest this status. What remains, however, to be clarified is what prospective gatekeepers can put forward as evidence to avoid being designated as […]
07. Nov 2023
Features by Daniel Mandrescu
app store, apple, abuse of dominance, platforms, ACM, art. 102 TFEU.

The ACM vs. Apple AppStore – A Second Chance To Get It Right

The Dutch case concerning the Apple App Store appears to make a (welcome) comeback. The case that started in 2019 came to a rather disappointing end in the summer of 2022 when the Dutch competition authority issued a public statement that gave the impression that it was satisfied with Apple’s adjustments to the App Store front in the Netherlands. This […]
26. Oct 2023
by Daniel Mandrescu
airport travel, competition law, platforms, antitrust, EUMR, booking.com, etraveli

Booking / eTraveli: assessing envelopment strategies and mixing up market power thresholds

About a month ago the European Commission announced that it was prohibiting the acquisition of eTraveli by Booking Holdings (Booking.com). The prohibition, which is a rare occurrence in itself, did not attract much attention beyond comments on the ‘ecosystem’ theory of harm which it may have introduced. But this case offers more than that. First, it shows that current practice […]
12. Sep 2023
Features by Daniel Mandrescu
Microsoft teams antitrust claim, abuse of dominance, European commission

Microsoft III – Paving The Way To A Tying Trilogy?

This summer the European commission (finally) announced it will start a formal investigation against Microsoft following Slack’s complaint concerning the (abusive) tying or bundling or Teams to the Microsoft and Office 365 suites. Not long after, Microsoft came out with an official statement concerning the changes in its pricing and distribution strategy  of Teams it will introduce in order to […]
08. Mar 2023
Features by Friso Bostoen
Requiem for an objection: the Commission drops half of its App Store case - zhiyue 7DOU5NlNIcE unsplash

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 […]
18. Jan 2023
Features by 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 by 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 […]
07. Dec 2022
Features by Daniel Mandrescu
market definition notice, relevant market, market power, market analysis, notice update, digital platforms, multisided markets, multisided platforms, online platforms, SSNIP test, SSNDQ test, Google android, Google shopping, merger control, abuse of dominance

The draft notice on market definition and multisided (digital) platforms – avoiding rather than resolving some of the main challenges

Approximately a month ago the Commission published its draft notice on the definition of the relevant market. The new notice is supposed to replace the old one that dates back to 1997 and thereby bring the entire process up to date with today’s new challenges, particularly in the context of digital markets. A first read of this long awaited document […]

Subscribe to our newsletter for updates on legal developments, upcoming conferences, workshops, and publications in your areas of interest.

Newsletter: Subscribe now