Apple App Store, Apple Pay Hit By EU Antitrust Investigations

The European Commission has after a year of debating, opened two formal antitrust investigations into Apple, over its App Store and Apple Pay.

The EC said the investigation would examine whether the two Apple services “violates EU competition rules.”

Earlier this week Apple confirmed that its App Store facilitated more than half a trillion dollars (£400bn) in trade worldwide last year. However it said that it did not take a commission from more than 85 percent of those transactions.

App Store probe

Apple and other major tech companies are under pressure from competition authorities in the US and Europe.

Apple chief executive Tim Cook is likely to participate in US congressional antitrust hearings set to begin in July, along with the chief executives of Amazon, Facebook and Google.

For Apple itself, many developers are unhappy with the 30 percent commission Apple exacts from digital purchases, amounting to $61bn in 2019.

Indeed, in June last year, Apple was hit with a lawsuit in the US from two app developers, who alleged that the App store gives the iPad maker a monopoly on the sale and distribution of iOS apps.

And now the EC confirmed an official antitrust investigation into Apple’s App store.

“The European Commission has 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,” said the EC. “The 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.”

It said that its investigation is a “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.”

It should be remembered that in March 2019, Spotify filed an official complaint and accused Apple of unfairly using the dominance of its App Store to give the Apple Music service a competitive advantage.

The Spotify complaint centred on Apple’s policy of charging digital content providers a 30 percent fee for using its payment system for subscriptions sold in the App Store.

Apple strongly defended itself against Spotify’s complaints, and slammed the firm for using its App Store to dramatically grow its business, and then allegedly seeking to keep all the benefits of the App Store ecosystem (including hefty revenues), without making any contributions to that marketplace.

But despite this defence, Apple now faces an official investigation into its App Store.

“Mobile applications have fundamentally changed the way we access content,” explained executive VP Margrethe Vestager, who is in charge of competition policy. “Apple sets the rules for the distribution of apps to users of iPhones and iPads.”

“It appears that Apple obtained a ‘gatekeeper’ role when it comes to the distribution of apps and content to users of Apple’s popular devices,” Vestager added. “We need to ensure that Apple’s rules do not distort competition in markets where Apple is competing with other app developers, for example with its music streaming service Apple Music or with Apple Books. I have therefore decided to take a close look at Apple’s App Store rules and their compliance with EU competition rules.”

The Commission said it would investigate in particular two restrictions imposed by Apple in its agreements with companies that wish to distribute apps to users of Apple devices.

The first is 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 percent commission on all subscription fees through IAP.

The second is the 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,” said the commission.

Apple Pay probe

And at the same time, the European Commission also announced an official investigation into Apple Pay.

“The European Commission has opened a formal antitrust investigation to assess whether Apple’s conduct in connection with Apple Pay violates EU competition rules,” said the EC.

It said that the investigation 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.

“Mobile payment solutions are rapidly gaining acceptance among users of mobile devices, facilitating payments both online and in physical stores,” said Margrethe Vestager. “This growth is accelerated by the coronavirus crisis, with increasing online payments and contactless payments in stores.”

“It appears that Apple sets the conditions on how Apple Pay should be used in merchants’ apps and websites,” she added. “It also reserves the ‘tap and go’ functionality of iPhones to Apple Pay. It is important that Apple’s measures do not deny consumers the benefits of new payment technologies, including better choice, quality, innovation and competitive prices. I have therefore decided to take a close look at Apple’s practices regarding Apple Pay and their impact on competition.”

Apple Pay of course is Apple’s proprietary mobile payment solution on iPhones and iPads, used to enable payments in merchant apps and websites as well as in physical stores.

It seems that following 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.

There is also concern that 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 investigation will also focus on alleged restrictions of access to Apple Pay for specific products of rivals on iOS and iPadOS smart mobile devices.

It should be noted that the US Justice Department is also investigating the four US tech giants (Apple, Amazon, Facebook and Google), while the Federal Trade Commission is probing Facebook and Amazon and US state attorneys general are investigating Facebook and Google.

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