UK regulators launch Apple App Store probe

The UK has launched a probe into suspected anti-competitive behavior in regard to Apple’s App Store, the latest in a series of investigations of the company.

What’s the problem?

That an investigation has been announced is not the same as declaring guilt. The UK Competition and Markets Authority (CMA) explains: “No decision has yet been made on whether Apple is breaking the law.”

“The CMA’s investigation will consider whether Apple has a dominant position in connection with the distribution of apps on Apple devices in the UK — and, if so, whether Apple imposes unfair or anti-competitive terms on developers using the App Store, ultimately resulting in users having less choice or paying higher prices for apps and add-ons,” the agency said.

The UK Competition and Markets Authority (CMA) says its enquiry follows complaints from “several developers” who claim Apple’s conditions are unfair and break competition law. They’re unhappy because apps must be approved by Apple and developers must agree to certain terms to do business on the platform the company has built.

The CMA is also questioning the commission Apple charges developers of up to 30% for sales on its store.

What they said

In a statement, CMA Chief Executive Andrea Coscelli said:

“Millions of us use apps every day to check the weather, play a game or order a takeaway. So, complaints that Apple is using its market position to set terms which are unfair or may restrict competition and choice — potentially causing customers to lose out when buying and using apps — warrant careful scrutiny.”

The European Commission currently has four open antitrust probes into Apple, including three investigations into the App Store.

What happens next?

The investigative process is quite formal. Investigators are now equipped with formal information-gathering powers to equip the probe. This initial inquiry is expected to extend into September and will include requests for written information, interviews, and possibly even investigators searching Apple’s premises to get information.

In the event sufficient evidence of an infringement is found, the CMA will set out its provisional findings, with evidence, and propose both remedial action and penalties. Apple then gets the right to reply, after which a final decision will be reached with a right of appeal.

It’s a lengthy process.

What might Apple think?

Apple CEO Tim Cook has discussed scrutiny and big tech to the extent that I think he sees scrutiny coming. He recently told shareholders, “scrutiny is always fair,” but argued that Apple does not dominate in any industry in which it works.

It’s important to note that whatever decisions regulators reach will also impact the company’s competitors, crafting a level playing field within which to do business.

The company is also clear that it is built on the marriage between hardware and software: “The kind of things that we love to work on are those where there’s a requirement for hardware software and services to come together because we believe that the magic really occurs at that intersection,” Cook said during the most recent financial call.

To my mind, Apple will argue that its platform is a unique invention that belongs to, and is made by, a company that consists of both hardware and software.

Among other positions it will take, it will likely argue:

  • It is not the biggest phone maker, tablet maker or computer maker in its markets.
  • There are alternative platforms developers can choose.
  • Side loading of apps may damage customer security and the customer experience.
  • It has recently moved to change its App Store fees.
  • Its models have enabled businesses across the globe.
  • App Store developers have earned more than $155 billion in App Store sales since 2008. 
  • It is not unique in offering platform-focused App Stores.
  • Most such stores take around the same commission.
  • And it doesn’t demand exclusivity.

What Apple says

Apple’s most recent Form 10-k regulatory report has plenty of sections concerning regulation, including the following statement:

“The technology industry, including, in some instances, the Company, is subject to intense media, political and regulatory scrutiny, which exposes the Company to government investigations, legal actions and penalties. For example, the Company is subject to antitrust investigations in various jurisdictions around the world, which can result in legal proceedings and claims against the Company that could, individually or in the aggregate, have a materially adverse impact on the Company’s financial condition and operating results. In addition, if enacted, legislative and other proposals to further regulate technology companies could result in changes to the Company’s business, including requiring the Company to modify its product and service offerings, limiting the Company’s ability to invest in strategic acquisitions, or affecting the Company’s business relationships with other technology companies, and could have a materially adverse impact on the Company’s financial condition and operating results. Further, the Company’s business partners are or may become subject to litigation that, if resolved against them, could affect the Company’s relationships with these business partners and have a materially adverse impact on the Company’s financial condition and operating results. There can be no assurance that the Company’s business will not be materially adversely affected, individually or in the aggregate, by the outcomes of such investigations, litigation or changes to laws and regulations in the future.”

What might happen

So, what’s the likely outcome?

Governments tend to be 10 steps behind reality, and in the case of Big Tech they seek high profile targets which will make them seem to be acting tough.

Apple is one of the highest profile targets. I suspect the inquiries will coalesce around setting arbitrary limits to App Store fees.

I can also imagine a compromise around some form of sandbox in which third-party application installs may be suggested, but I expect Apple to prevail in insisting on the right to protect platform security —  particularly in a digital age characterized by state-sponsored cyberattacks.

Personally, I think Apple has a stronger argument in terms of how it invests in enabling third-party developers on its platform by providing the APIs and tools they use to create software than developers have to demand such access.

If Apple didn’t make these platforms, they wouldn’t exist. If it has any form of monopoly, it is over its own intellectual product and should have a right to decide what products get stored in that space.

Governments seek ways to punish high profile Big Tech names that don’t actually involve raising tax rates against billionaires, so it’s not impossible for things to go awry. It’s easier to make life hard for Apple than it is to fight the climate crisis or protect people against hunger or the COVID-19 pandemic, after all.

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