EU and Australia Take Aim At App Stores

Two of the more active tech regulators signal action on Google and Apple’s anti-competitive practices app stores for some of the same reasons.

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Australia and the EU look at app stores, with possible action coming.

Cocktail Party

The European Commission (EC) is moving ahead with investigation of Apple’s potentially anti-competitive App Store practices with respect to streaming music apps. This development does not necessarily mean the European Union (EU) will pursue an antitrust action against Apple. The Australian Competition & Consumer Commission (ACCC) published its second installment of its investigation of Apple and Google’s app stores, with suggestions on how the two companies’ anti-competitive practices can be curbed. The recommendations may get folded into legislation.

Meeting

Reading the ACCC’s report and the EC’s Statement of Objections gives one a sense of the international nature of tech commerce, obviously, but also of the global response to these companies and their practices. The ACCC references the work done by other nations just as recent United States (U.S.) reports and lawsuits have relied on international efforts. The ACCC namechecked the efforts of other regulators around the world.

Geek Out

As part of its Digital platform services inquiry 2020-2025, the ACCC published its second interim report on an aspect of the online world: Apple and Google’s app stores. The ACCC asserted:

The ACCC has set out as potential measures in this Report the actions needed to reduce harms arising from Apple and Google’s freedom to set rules for their respective marketplaces. The ACCC will continue to monitor and explore issues identified in this Report as well as broader issues that arise when digital platforms occupy critical gatekeeper roles and, at the same time, compete with those businesses that rely on access to gatekeeper platforms. The ACCC will revisit these concerns in a later interim report and, as part of this process, consider overseas developments and whether there is a need for regulation to address the concerns identified.

The ACCC found that the two companies have “significant” market power in the mobile app markets in Australia. Incidentally, the market split in Australia between iOS and Android is closer to 50-50 rather than the global split of 27-73. Nonetheless, app developers told the ACCC that they have concerns about competing in the app stores regarding potentially unfair terms, a lack of transparency in how each company reviews and approves apps, and an inconsistent conflict resolution process. The ACCC also noted possible self-preferencing problems in that many iOS and Android apps are pre-installed on devices and users are not offered a choice as to which apps they would like to use. Another aspect of the self-preferencing issue is the lack of clarity in how the app stores rank or list third party apps. The ACCC said it is unable to determine the truth of this claim because the algorithms used are opaque while also noting that the more widely understood the ranking systems, the higher the chance app developers will game and manipulate the system. Developers also lodged their concerns that Apple and Google apps will work better with their operating systems, another way that third parties are disadvantaged. Consequently, the ACCC renewed its concerns about the app stores being marketplaces the companies operate to ultimately advantage their own products. The ACCC stated:

At this stage in the DPSI, the ACCC will continue to monitor and explore self-preferencing allegations as well as the impact of pre-installation or default settings. The ACCC is also considering the broader issues that arise when digital platforms occupy critical gatekeeper roles and at the same time compete with those businesses that rely on access to the gatekeeper platform. As part of this process, the ACCC is considering both the extent of these concerns and the solutions being put forward overseas, including recent amendments to the German Competition Act as well as proposals by the United Kingdom Competition and Markets Authority (CMA) and the European Commission.

In the meantime, the ACCC considers that greater transparency and more information on the operation of app discoverability mechanisms, as well as a level playing field for apps to receive consumer ratings and reviews, would go some way to addressing app developer concerns with self-preferencing.

The ACCC enumerated competition concerns about Apple and Google’s use of data from app stores and third-party apps. The agency noted the companies may have the ability and incentive to access such information to build rival apps to run the app developers out of the market.

The ACCC turned naturally to in-app payments considering that for the largest apps, Apple and Google still take a 30% cut of all such payments. In the wake of Epic Games suits in the U.S., United Kingdom, EU and Australia, the companies have announced reduced percentages for smaller app developers of 15%. Of course, Microsoft’s new 10 principles about in-app payment policy changes brought pressure on the companies also. The ACC articulated its belief that prices are higher than they normally would be absent the fact there are just two app stores. Hence, Apple and Google have dominant market power, in the view of the ACCC.

The ACCC took aim at one of the companies’ argument as to why apps should be downloaded through their app stores: the need to protect consumers from harmful and malicious apps. The agency found any number of such apps already in the app stores and found the companies need to do better at vetting third-party apps.

The ACCC lauded Apple’s iOS 14 change that gives users the choice of whether they will allow third-party apps to track them but continued to express concern about the practice in general.

The ACCC also flagged how Apple and Google handle consumer complaints about apps and found room for improvement.

The ACCC identified six measures Apple and Google could take on their own to address the competitive issues the interim report details:

Potential measure to provide for greater choice of default apps for consumers

There is a need for consumers to have more choice through an ability to change any pre- installed default app on their device that is not a core phone feature. This would provide consumers with more control to choose the app that best meets their needs, and promote more robust competition in downstream markets for apps.

The ACCC will also continue to consider how choice screens may address some of the concerns associated with pre-installation or default settings.

Digital platforms such as Apple and Google that control access to markets in which they themselves participate have an incentive to set and enforce rules to their own advantage. Measures are required to discourage or prohibit digital platforms with market power from acting in this way. Two such measures are:

Potential measure to increase transparency and address risk of self-preferencing in app marketplace discoverability and display

There is a need for greater transparency about key algorithms and processes determining discoverability including impending changes to the key parameters used by algorithms and editorial processes to enable app developers to adapt in a timely way.

Increased transparency would help address third-party app developers’ concerns that algorithms and other processes determining discoverability are treating all apps equally on their merits and that certain apps receive preferential treatment.

Potential measure to provide an option for consumers to rate and review first-party apps

To enable third-party apps to compete on their merits and ensure informed consumer choice consumers should be able to rate and write reviews on all apps including Apple apps on the App Store and Google apps on the Play Store.

The ACCC will continue to monitor these markets and explore self-preferencing allegations, as well as the impact of defaults.

Potential measure to address the risk of misuse of commercially sensitive information

There is a need for information collected by Apple and Google in their capacity as app marketplace operators to be ring-fenced from their other operations and business decisions. This would minimise the risk of this information being used to provide Apple and Google with an unfair competitive advantage over third-party app developers in downstream markets for apps.

Potential measure to address inadequate payment option information and limitations on developers

App developers should not be restricted from providing users with information about alternative payment options. This would provide greater choice and potentially lower prices to consumers and allow app developers greater scope to innovate.

Potential measure to address the risks of malicious, exploitative or otherwise harmful apps

The ACCC considers that app marketplaces should do more to address the risks associated with harmful or malicious apps (such as subscription traps or real prize scams). While both Apple and Google have publicly stated their commitment to protect consumers from harmful apps, and both have policies in place that are intended to facilitate this, the ACCC considers that Apple and Google should take steps to more proactively monitor those apps which have made it through their review processes and are available on their app marketplaces for continued compliance with their marketplace policies.

There appear to be a number of ways Apple and Google could potentially do this, including through their monitoring of consumer app reviews and the implementation of a process for active consideration and intervention if certain triggers are met (based on, for example, the substantiality or duration of non-compliance, or the numbers of consumers affected).

Incidentally, the first above recommendation ties directly into the next phase of the ACCC’s digital inquiry. In March, the ACCC published an issues paper “on market dynamics and consumer choice screens in search services and web browsers.” 

The ACCC harkened back to its 2019 final report “Digital Platforms Inquiry” with four recommendations that would require legislation:

Recommendation 20: Prohibition against unfair contract terms

Amend the Competition and Consumer Act 2010 so that unfair contract terms are prohibited (not just voidable). This would mean that civil pecuniary penalties apply to the use of unfair contract terms in any standard form consumer or small business contract.

Recommendation 21: Prohibition on certain unfair trading practices

Amend the Competition and Consumer Act 2010 to include a prohibition on certain unfair trading practices. The scope of such a prohibition should be carefully developed such that it is sufficiently defined and targeted, with appropriate legal safeguards and guidance.The ACCC notes the current work on this issue being undertaken as part of the Consumer Affairs Australia and New Zealand (CAANZ) process, and will progress its support for the recommendation through that forum.

Recommendation 22: Digital platforms to comply with internal dispute resolution requirements

The development of minimum internal dispute resolution standards by the ACMA to apply to digital platforms. The standards should, among other things, set out requirements for the visibility, accessibility, responsiveness, objectivity, confidentiality and collection of information of digital platforms internal dispute resolution processes. They should also set out the processes for continual improvement, accountability, charges and resources.

All digital platforms that supply services in Australia, and have over one million monthly active users in Australia, will be required to comply with the standards. Once published, relevant digital platforms will have six months to comply with the standards. Breaches of the standards would be dealt with by the ACMA, which will be vested with appropriate investigative and information gathering powers and the capacity to impose sufficiently large sanctions for breaches to act as an effective deterrent.

Recommendation 23: Establishment of an ombudsman scheme to resolve complaints and disputes with digital platform providers

The establishment of an independent ombudsman scheme to resolve complaints and disputes between consumers and digital platforms, and businesses and digital platforms. The ACMA and the relevant ombudsman will determine the nature of complaints and disputes that would be subject to the scheme. At a minimum, it should cover complaints or disputes from businesses relating to the purchase or performance of advertising services and complaints or disputes from consumers, including in relation to scams and the removal of scam content.

The ombudsman should have the ability to compel information, make decisions that are binding on digital platforms, order compensation in appropriate cases and compel digital platforms to take down scam content.

The ACCC recommends that the ACMA and the Telecommunications Industry Ombudsman (TIO)investigate the feasibility of the TIO taking on this role. If the ACMA and the TIO conclude that it is not feasible for the TIO to undertake this role, a standalone ombudsman should be created to resolve complaints about digital platforms.

The EC has decided to move to the next phase of an antitrust/anti-competition investigation of Apple, its App Store rules, and music streaming apps. Much of this investigation necessarily covers some of the same ground the ACCC did in its interim report. The EC explained its concerns about Apple’s App Store in its Statement of Objections related “to the combination of the following two rules that Apple imposes in its agreements with music streaming app developers:

  • The mandatory use of Apple’s proprietary in-app purchase system (“IAP”) for the distribution of paid digital content. Apple charges app developers a 30% commission fee on all subscriptions bought through the mandatory IAP. The Commission’s investigation showed that most streaming providers passed this fee on to end users by raising prices.
  • “Anti-steering provisions” which limit the ability of app developers to inform users of alternative purchasing possibilities outside of apps. While Apple allows users to use music subscriptions purchased elsewhere, its rules prevent developers from informing users about such purchasing possibilities, which are usually cheaper. The Commission is concerned that users of Apple devices pay significantly higher prices for their music subscription services or they are prevented from buying certain subscriptions directly in their apps.

The EC said that its “preliminary view is that Apple’s rules distort competition in the market for music streaming services by raising the costs of competing music streaming app developers…[and] [t]his in turn leads to higher prices for consumers for their in-app music subscriptions on iOS devices.” The EC said “[i]n addition, Apple becomes the intermediary for all IAP transactions and takes over the billing relationship, as well as related communications for competitors.” The EC declared “[i]f confirmed, this conduct would infringe Article 102 of the Treaty on the Functioning of the European Union (TFEU) that prohibits the abuse of a dominant market position.”

The EC stated that ”[t]he sending of a Statement of Objections does not prejudge the outcome of an investigation.”

In June 2020, the EC announced two antitrust investigations of Apple regarding allegations of unfair and anticompetitive practices with its App Store and Apple Pay. In a press release, the EC announced it “has opened a formal antitrust investigation to assess whether Apple’s conduct in connection with Apple Pay violates EU competition rules…[that] concerns Apple’s terms, conditions and other measures for integrating Apple Pay in merchant apps and websites on iPhones and iPads, Apple’s limitation of access to the Near Field Communication (NFC) functionality (“tap and go”) on iPhones for payments in stores, and alleged refusals of access to Apple Pay.” The EC noted that “[f]ollowing a preliminary investigation, the Commission has concerns that Apple’s terms, conditions, and other measures related to the integration of Apple Pay for the purchase of goods and services on merchant apps and websites on iOS/iPadOS devices may distort competition and reduce choice and innovation.” The EC contended “Apple Pay is the only mobile payment solution that may access the NFC “tap and go” technology embedded on iOS mobile devices for payments in stores.” The EC revealed “[t]he investigation will also focus on alleged restrictions of access to Apple Pay for specific products of rivals on iOS and iPadOS smart mobile devices” and “will investigate the possible impact of Apple’s practices on competition in providing mobile payments solutions.”

In a press release issued the same day, the EC explained it had also “opened formal antitrust investigations to assess whether Apple’s rules for app developers on the distribution of apps via the App Store violate EU competition rules.” The EC said “[t]he investigations concern in particular the mandatory use of Apple’s own proprietary in-app purchase system and restrictions on the ability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of apps.” The EC added “[t]he investigations concern the application of these rules to all apps, which compete with Apple’s own apps and services in the European Economic Area (EEA)…[and] [t]he investigations follow-up on separate complaints by Spotify and by an e-book/audiobook distributor on the impact of the App Store rules on competition in music streaming and e-books/audiobooks.”

The EC provided further detail on the scope of its inquiry and “will investigate in particular two restrictions imposed by Apple in its agreements with companies that wish to distribute apps to users of Apple devices:

(i)   The mandatory use of Apple’s own proprietary in-app purchase system “IAP” for the distribution of paid digital content. Apple charges app developers a 30% commission on all subscription fees through IAP.

(ii)  Restrictions on the ability of developers to inform users of alternative purchasing possibilities outside of apps. While Apple allows users to consume content such as music, e-books and audiobooks purchased elsewhere (e.g. on the website of the app developer) also in the app, its rules prevent developers from informing users about such purchasing possibilities, which are usually cheaper.

The EC explained the genesis of part of this inquiry being allegations leveled by Swedish music streaming platform, Spotify. The EC stated “[o]n 11 March 2019, music streaming provider and competitor of Apple Music, Spotify, filed a complaint about the two rules in Apple’s license agreements with developers and the associated App Store Review Guidelines, and their impact on competition for music streaming services.” The EC explained the other part as “[o]n 5 March 2020, an e-book and audiobook distributor, also filed a complaint against Apple, which competes with the complainant through its Apple Books app.” The EC asserted “[t]his complaint raises similar concerns to those under investigation in the Spotify case but with regard to the distribution of e-books and audiobooks.”

© Michael Kans, Michael Kans Blog and michaelkans.blog, 2019-2021. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michael Kans, Michael Kans Blog, and michaelkans.blog with appropriate and specific direction to the original content.

Image by Walkerssk from Pixabay

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