CCI Directs Investigation Into Apple's App Store Policies On Allegations Of Unfair Trade Practices

Allegations raised by Informant

The informant, alleged that -

"Apple uses barrage of anti-competitive retrains and abuse dominate practices in markets for distribution of application for users of smart phone and tablets, and processing of consumers' payments for digital content used within iOS mobile application."

It was contended that Apple imposed unreasonable and unlawful restraints on app developers from reaching users of its mobile devices unless they go through the 'App Store' which is controlled by Apple itself. For selling digital in-app content the app developers are supposed to use a single payment processing option offered by Apple with a 30% commission. However, it was pointed out that there is no such restriction for Mac or MacBook, which are Apple's personal computer devices. In such cases, the app developers can make their products available to users of Apple personal computer devices in an open market, through a variety of stores or even through direct downloads from a developers website, with a variety of payment options and competitive processing fees that average 2%-5%, which is 10 times lower than the exorbitant 30% fees which Apple charge for in-app purchases on mobile devices. As per the informant, this is a blatant violation of Section 4 of the Competition Act ("Act"), which amounts to abuse of its dominant position. It was specifically averred that:

• App Store Guidelines are determined by Apple and are one sided contracts, which Apple uses in an arbitrary and discriminatory manner in violation of Section 4(2)(a)(i).
• As denoted earlier, Apple charges an excessive 30% commission from the app developers on In-App Purchase, which would increase the cost of Apple's competitors and affect their competitiveness vis-a-vis Apples' own verticals. Such practices adopted by Apple would deter entry of new players into the market and thus would be in violation of Section 4(2)(c). It would also result in margin squeeze and overall in violation of Section 4.
• Apple's policy to mandate in-app purchases and the restriction imposed on the app developers from selecting payment process system of their choice is also in violation of Section 4(2)(d) and 4(2)(e) of the Act.
• Apple conditions the use of its App Store on the use of its In-App Purchase to the exclusion of alternative solutions by means of unlawful tying arrangement. Such anti-competitive tie-in arrangements are in violation of Section 4(2)(d) and Section 4(2)(e).

Submissions made by Apple

At the outset Apple submitted that it is focused on making its devices as attractive as possible by developing all the components in-house, in an integrated ecosystem that can be differentiated from its competitors. The contentions raised by Apple are as under:

• The relevant market definition put forth by the Informant was excessively narrow.
• Apple's market share is 0-5% of the appropriate relevant market for smartphones in India. Therefore, the informant's allegation of use of dominant position does not hold ground.
• No evidence has been adduced to show that Apple's practices are abusive.
• The App Store guidelines are not unfair or arbitrary and have been formulated to ensure that the App Store is a safe and secure place for consumers to discover and download apps and purchase digital content.
• Most developers using the App Store pay no commission and the ones that do, pay at the rate of 15%.
• It cited Epic Games Inc v. Apple INC, a judgment passed by United States District Court to demonstrate that it had made findings with respect to the App Store's business model, which undermine allegations made by the informants.
• Informants are working in cahoots with parties with whom Apple has ongoing contractual disputes.

Analysis by CCI

The Commission was of the 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 developers and in-app purchases."

The Commission observed that in many cases Apple's proprietary apps are competing with third party apps on the iOS platform. Therefore, such high commission would indeed increase the cost of Apple's competitors and would eventually affect the competitiveness vis-a-vis Apple's own apps. It further noted that the conditions imposed by Apple were to limit the developers from offering payment process solutions of their choice. The Commission considered that Apple might have access to data collected from the users of downstream competitors which would enable it to improve its own services giving it advantage over its competitors. Thus, the Commission held that prima facie, the imposition of such conditions is unfair in terms of Section 4(2)(a) of the Act. The Commission observed that such conduct also results in tying of its in-app purchase payment processing service with App Store and Apple's conditioning of the provision of app distribution services on the app developer in accepting obligations which are not connected to the contract for distribution services are in violation of Section 4(2)(d). It noted -

"It also prima facie results in leveraging by Apple of dominant position in App Store market to enter/protect its market for in-app purchase payment proceeding market, in violation of Section 4(2)(e) of the Act."

The Commission was of the view that the restrictions imposed by Apple forecloses the market for App store for iOS for potential app distributors and result in denial of market access for the potential app distributors/app developers in clear violation of Section 492)(b) of the Act. Considering the allegations and submissions of the informant and the response of Apple, the Commission held:

"…the Commission is of the prima facie view that Apple has violated the provision of Section 4(2)(a). 4(2)(b), 4(2)(c), 4(2)(d) and 4(2)(e) of the Act…which warrants detailed investigation"

The Commission further directed the Director General to investigate the matter under Section 26 of the Act and complete investigation and submit the report within a period of 60 days.

[Case Title: Together We Fight Society v. Apple Inc. And Another, Case No. 24 of 2021]

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