Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma, Bhagwant Singh Bishnoi (Members) directs the investigation in view of an alleged violation of provisions of the Competition Act.

The informant had filed the present information under Section 19(1)(a) of the Competition Act, 2002 against Apple Inc. (OP-1) and Apple India Private Limited (AIPL) alleging contravention of various provisions of Section 4 of the Act.

Informant alleged that Apple uses a barrage of anti-competitive restraints and abuse of dominant practices in markets for distribution of applications (‘apps’) to users of smart mobile phones and tablets, and processing of consumers’ payments for digital content used within iOS mobile apps (‘in-app content’).

Further, it was added that Apple imposes unreasonable and unlawful restraints on app developers from reaching users of its mobile devices unless they go through the ‘App Store’ which is stated to be controlled by Apple. Adding to this, Apple required app developers who wish to sell digital in-app content to their consumers to use a single payment processing option offered by Apple, carrying a 30% commission.

The 30% commission may also amount to a form of ‘margin squeeze’ in breach of the provisions of Section 4 of the Act.

In contrast to the above position, app developers could make their products available to users of an Apple personal computer in an open market, through a variety of stores or even through direct downloads from a developer’s website, with a variety of payment options and competitive processing fees that average 2-5%.

In the informant’s view, the above-stated amounted to abuse of its dominant position on the part of Apple.

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 on part of OPs is in violation of the provisions of Section 4(2)(d) and Section 4(2)(e) of the Act.

Mandating the use of IAP limits the ability of the app developers to offer payment processing solutions of their choice to the users for app purchases as well as IAPs and amounts to imposition of unfair terms and condition in the purchase or sale of goods or services and moreover, it amounts to denial of market access for the competing payment gateway in violation of the provisions of Section 4(2)(c) of the Act.

Elaborating further, Apple expressly conditions the use of its App Store on the use of its In-App Purchase to the exclusion of alternative solutions in a per se unlawful tying arrangement.

Analysis, Law and Decision

While analysing the matter, Coram 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.

Some consumers may have preference for closed ecosystem like Apple and others may have a preference for open ecosystems like that of Google.

 Apple’s proprietary in-app purchase system (IAP)

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. While the App Store policies of Apple allows users to consume content such as music, e-books, etc. purchased elsewhere (e.g., on the website of the app developer) also in the app, its rules restrict the ability of app developers to inform users about other purchasing options through a notification in the app itself, which might be cheaper. This would result in higher price for the users of such apps.

Commission found that the 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.

Coram prima facie opined 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.

Market power being enjoyed by Apple due to its grip over iOS ecosystem resulted in ‘allegedly’ high commission fee of up to 30%.

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.

Another significant point noted by Commission was that App Store is the only channel for app developers to distribute their apps to iOS consumers which are pre-installed on every iPhone and iPad. Further, third party app stores are not allowed to be listed on Apple’s App Store.

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.

Conclusion

Coram 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 hence warranted detailed investigation.

The Commission directed the Director-General to cause an investigation to be made into the matter under the provisions of Section 26(1) of the Act also directed the DG to complete the investigation and submit the said report. [Together We Fight Society v. Apple Inc., 2021 SCC OnLine CCI 62, decided on 31-12-2021]


Additional Read:

Apple: A monopolist under Federal or State Law? A win for Epic or Apple? Read to know

Legislation UpdatesStatutes/Bills/Ordinances

The Parliamentary Committee of South Korea has approved a bill, Partial amendment to the Telecommunications Business Act (alternative) (Chairman of Science and Technology Information Broadcasting and Communication), on August 31, 2021.

 

Key highlights of the Bill are:

  • The Bill shall ban major app store operators like Google and Apple, from requiring developers to only use their payment systems to process the sale of digital products and services.
  • The Bill is intended to promote fair competition among participants in the app market industry by barring them.
  • The policies of Apple and Google policies usually require developers to pay the tech giants a commission as high as 30% of every transaction. Now, as per the current Bill approved by the Parliament, the developers will be able to avoid paying commission to major app store operators like Google and Apple by directing users to pay via alternate platforms.
  • The law also gives the South Korean government the power to mediate disputes regarding payment, cancellations and refunds in the app market.

The Bill awaits Presidential assent. Once passed, South Korea will be the first country to take a legislative action in curbing the Apple and Google’s app store charges.


*Tanvi Singh, Editorial Assistant has reported this brief.

Hot Off The PressNews

In 2016 the Commission adopted a decision2 concerning two tax rulings issued by the Irish tax authorities (Irish Revenue) on 29 January 1991 and 23 May 2007 in favour of Apple Sales International (ASI) and Apple Operations Europe (AOE), which were companies incorporated in Ireland but not tax resident in Ireland.

The contested tax rulings endorsed the methods used by ASI and AOE to determine their chargeable profits in Ireland, relating to the trading activity of their respective Irish branches. The 1991 tax ruling remained in force until 2007, when it was replaced by the 2007 tax ruling. The 2007 tax ruling then remained in force until Apple’s new business structure was implemented in Ireland in 2014.

By its decision, the Commission considered that the tax rulings in question constituted State aid unlawfully put into effect by Ireland. The aid was declared incompatible with the internal market. The Commission demanded the recovery of the aid in question. According to the Commission’s calculations, Ireland had granted Apple 13 billion euro in unlawful tax advantages.

By today’s judgment, the General Court annuls the contested decision because the Commission did not succeed in showing to the requisite legal standard that there was an advantage for the purposes of Article 107(1) TFEU. According to the General Court, the Commission was wrong to declare that ASI and AOE had been granted a selective economic advantage and, by extension, State aid.

General Court considers that the Commission incorrectly concluded, in its primary line of reasoning, that the Irish tax authorities had granted ASI and AOE an advantage as a result of not having allocated the Apple Group intellectual property licences held by ASI and AOE, and, consequently, all of ASI and AOE’s trading income, obtained from the Apple Group’s sales outside North and South America, to their Irish branches. According to the General Court, the Commission should have shown that that income represented the value of the activities actually carried out by the Irish branches themselves, in view of, inter alia, the activities and functions actually performed by the Irish branches of ASI and AOE, on the one hand, and the strategic decisions taken and implemented outside of those branches, on the other.

Read the Press Release here: PRESS RELEASE


Image Credit: Bloomberg

Hot Off The PressNews

“Spotify” is a digital music, podcast, and video streaming service that gives you access to millions of songs and other content from artists all over the world.

As reported by media, on 13-03-2019, Spotify filed a complaint against Apple with the European Commission.

The crux of the issue is that Spotify has alleged Apple to be creating an unfair ecosystem by deliberately disadvantaging other app developers. Daniel Ek, Founder, and CEO of Spotify in his blogpost stated that Apple requires Spotify and other digital services to pay 30% tax on purchases made through Apple’s payment system, including upgrading Spotify’s Free to Premium service. He further states that if they choose not to use Apple’s payment system, and forgo the charge, then Apple applies a number of “technical and experience-limiting restrictions on Spotify.”

Spotify alleges that Apple uses its ownership over iOS and the App Store to impose an ‘Apple tax’ that stifles competition.

[Source: The Verge]


Image Credits: ITPRO