Amazon and Flipkart found violating Competition law in India-DG investigation report out
So finally, Apple Inc. one of the largest Silicon Valley giants, has also come under lens of India’s evolving Antitrust regime.
CCI vide its order dated 31.12.2021 had directed investigation against Apple Inc. upon finding a prima facie case of abuse of dominance against Apple Inc. and Apple Distribution International Limited (ADIL) for alleged imposition of unreasonable and unlawful restraints on app developers from reaching users of its mobile devices and forcing app developers to use its single payment processing option for any In-App purchase ( IAP). The information was filed by a Jaipur based Non-Governmental Organisation (NGO), Together We Fight Society (“Informant”).
Readers may recall in my earlier blog of 19 July 2021 on Apple’s App tracking policy IS APPLE REALLY A WHITE KNIGHT OF PRIVACY – APPLE’S NEW APP TRACKING POLICY – ENHANCING COMPETITION OR ABUSING DOMINANCE?, I had a premonition that Apple may soon be found and could be investigated for abuse of dominant positionin the relevant market , which I had left open for CCI to decide .
Now with the above order of 31 December ,21, although CCI has not yet got a chance to examine the Apple’s global App Tracking Transparency (“ATT”) Policy , which requires app developers to show users a prompt before they start retrieving the Identifier for Advertisements and to contextualize the same, Apple assigns a random device identifier to a user’s device which, in turn, is known as the IDFA, but Apple has now been found involved in more basic exploitative and exclusionary abusive conducts .
Adverting to the present case, described briefly as under.
Relevant Markets and allegations
The informant delineated the following three relevant markets-
- Market for non-licensable Apple smart mobile operating system, iOS.
- Market for app store for apple smart mobile operating system in India and
- Market for apps facilitating payment through Unified Payment Interface (UPI).
Apple’s dominant position
The Information asserted that Apple enjoys a dominant position in the market for non-licensable mobile OS for smart mobile devices as well as in the relevant market for app store for apple smart mobile OS in India. It has been inter alia submitted 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. Thus, Apple’s App Store is the only approved app store for iOS devices. App developers have no other alternative except Apple’s App Store through which they can reach users of iOS. Thus, Apple was stated to have a monopoly in the iOS app distribution market in India.
Informant alleged that Apple is abusing its dominant position in the above markets through the following conducts:
App Store Review guidelines
- It was alleged that Apple applies these guidelines in the form of ‘take it or leave it’ contract in an unpredictable, arbitrary and discriminatory fashion, which disrupts the ability of app developers to run their business properly as they have no choice but to concede to such unfair, arbitrary and unilateral enforcement of App Store Review Guidelines which violated Section 4(2)(a)(i) of the Act
Excessive commission of 30% on In-App purchases
- It was further alleged that Apple has made it mandatory for app developers to use Apple’s in-app payment solution i.e., In-App Purchase (‘IAP’) for distribution of paid digital content and charges 30% commission, which could be considered as ‘unfair’ in violation of the provision of Section 4(2)(a)(i) of the Act. Further 30% commission amounts to a form of ‘margin squeeze’ in breach of the provisions of Section 4 of the Act
- It was further alleged that high commission would increase the cost of Apple’s competitors and affect their competitiveness vis-à-vis Apple’s own verticals (the fee in respect of which, in any case would be internalized). Apple’s practice deters entry (and the resulting innovation) in violation of the provisions of Section 4(2)(c) of the Act.
Mandating In-app purchases and other restrictions
- Further it was alleged that mandatory use of Apple’s in-app purchases for paid apps & in-app purchases restrict the choice available to the app developers to select a payment processing system of their choice which amounts to imposition of unfair terms and condition in purchase or sale of goods or services in violation of the provisions of Section 4(2)(a)(i) of the Act. Moreover, it also amounts to denial of market access for the competing payment processors/ payment gateway in violation of the provisions of Section 4(2)(c) of the Act
- Further also that Apple’s marketing restrictions makes it difficult for multi-platform apps to inform their users of the ability to make out of-app purchases, and since 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 violates provisions of Section 4(2)(d) and Section 4(2)(e) of the Act.
Tying the App Store to In-App Purchase in the iOS In-App Payment Processing Market
- It was also alleged that Apple through its Guidelines/Agreements and unlawful policies, expressly conditions the use of its App Store on the use of its In-App Purchase to the exclusion of alternative solutions. Apple’s conduct has foreclosed and continues to foreclose, competition in the iOS In-App Payment Processing Market, affecting a substantial volume of commerce in these markets. Such anti-competitive tie-in-arrangement is in violation of the provisions of Section 4(2)(d) and Section 4(2)(e) of the Act.
Commission’s Prima facie view
Relevant Market
Commission for the purpose of investigation delineated the relevant market as ‘market for app stores for iOS in India’.
Assessment of Dominance
On the issue of dominance, the Commission noted that Apple App Store is the only means for developers to distribute their apps to consumers using Apple’s smart mobile devices running on Apple’s smart mobile operating system iOS and the user of iOS platform do not have any other alternative app store through which they can download apps, on their iOS device. Therefore, Commission was of the prima facie view that Apple holds a monopoly position in the relevant market for app stores for iOS in India.
Assessment of alleged abusive conduct
CCI firstly noted that Apple’s ecosystem is tightly knit and vertically and exclusively integrated throughout the value chain wherein it offers apps, app store as well as smart devices.
It was noted by the Commission that an App developer who wishes to launch its iOS App on Apple App store needs to enter into Apple Developer Program and agree to pay Apple an annual $ 99 fee for participating in the same. Further Apple implements its App Store policies through App Store Review Guidelines. Article 3.1.1 of the Guidelines state as under:
“If you want to unlock features or functionality within your app, (by way of example: subscriptions, in-game currencies, game levels, access to premium content, or unlocking a full version), you must use in-app purchase. Apps may not use their own mechanisms to unlock content or functionality, such as license keys, augmented reality markers, QR codes, etc. Apps and their metadata may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase.”
Further Article 3.1.3 states that
“…Apps in this section cannot, within the app, encourage users to use a purchasing method other than in-app purchase. Developers cannot use information obtained within the app to target individual users outside of the app to use purchasing methods other than in-app purchase (such as sending an individual user an email about other purchasing methods after that individual signs up for an account within the app). Developers can send communications outside of the app to their user base about purchasing methods other than in-app purchase
Based on the above two Articles of the Guidelines, the Commission noted that it is mandatory to use Apple’s proprietary in-app purchase system (IAP) for distribution of paid digital content and it charges app developers commission of up to 30% on subscriptions bought through the mandatory IAP.
Commission found that the above lack of competitive constraint in the distribution of mobile apps affects the terms of which Apple provides access to its App Store including the commission rates and terms that thwart certain app developers from using other in-app payment systems.
Further it was also noted that Apple prohibits app developers to include a button/link in their apps which take/steer the user to third party payment processing solution other than Apple’s IAP which restrict the ability of app developers to inform users about other purchasing options through a notification in the app itself, which might be cheaper which results in higher price for the user.
The Commission was of the prima facie view that mandatory use of Apple’s IAP for paid apps & in-app purchases restrict the choice available to the app developers to select a payment processing system of their choice especially considering when it charges a commission of up to 30% for app purchases and in-app purchases and 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. Rather, it creates conducive condition for expropriation of the app developers as they cannot use alternate payment gateways and negotiate/pay commission at a competitive rate. The alleged high fee charged by Apple is sustained through its imposed tying of distribution service with payment processing service. It was also noted that in many cases Apple’s proprietary apps are competing with third party apps on the iOS platform. Resultantly, it appears that such ‘allegedly’ high fee would increase the cost of Apple’s competitors and thus might affect their competitiveness vis-à-vis Apple’s own apps (the fee in respect of which, in any case would be internalized). Such a policy of the App Store may disadvantage its competitors.
Commission also observed that 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 in violation of Section 4(2)(e) of the Act.
The app developers have to agree to the usage of Apple’s IAP payment processing service, if they want to distribute their apps to the iOS users through Apple’s App Store. Apple conditions the provision of app distribution services on the app developer accepting supplementary obligations which by their nature or according to commercial usage, have no connection with the subject of the contract for the provision of distribution services, which results in violation of Section 4(2)(d) of the Act.
The above conduct, 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.
Therefore, the above conduct 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. The said also results in limiting/restricting the technical or scientific development of the services related to the app store for iOS, due to reduced pressure of Apple to continuously innovate and improve its own app store, in violation of Section 4(2)(b) of the Act.
Based on the allegations and findings made by CCI, prima facie opined that Apple violated the provisions of Section 4(2)(a), 4(2)(b), 4(2)(d) and 4(2)(e) of the Act, and orders DG to carry out detailed investigation into the matter.
Comment: The present CCI order directing investigation against Apple is on expected lines and is in a way similar to a consolidation of the ongoing three investigations against Google relating to the Android OS, Play Store and Google Pay. Both the investigations are going to be long drawn and contentious battles similar to the one noticed in US and EU.
#Apple #abuseofdominance #Antitrust #iOS
Related posts
