CCI orders investigation into Apple App Store policies

The Competition Commission of India (CCI/ Commission) has observed that the restraints imposed by Apple Inc. on app developers from reaching users of apple's mobile devices (iPad and iPhone) by forcing such app developers to go through App Store and imposing 30 percent commission for the same, amount to a prima facie violation of Competition Act [Together We Fight Society v. Apple Inc]..The CCI, therefore, directed that there existed sufficient grounds for further investigation into the same by the Director General (DG), which is the investigative arm of the competition watchdog."The Commission notes that App Store is the only channel for app developers to distribute their apps to iOS consumers which is pre-installed on every iPhone and iPad. Further, third party app stores are not allowed to be listed on Apple’s App Store as the developer guidelines as well as agreement prohibits app developers from offering such services. These restrictions imposed by Apple forecloses the market for app stores for iOS for potential app distributors. It 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 CCI held. It also prima facie results in limiting/restricting the technical or scientific development of the services related to app store for iOS, due to reduced pressure on Apple to continuously innovate and improve its own app store, in violation of Section 4(2)(b) of the Act, the Commission added..The order was passed on a plea by NGO, Together We Fight Society contending that Apple imposes unreasonable and unlawful restraints on app developers from reaching users of its mobile devices (e.g., iPhone and iPad) unless they go through the ‘App Store’ which is controlled by Apple. Further, it was submitted out that Apple also requires app developers who wish to sell digital in-app content to their consumers to use a single payment processing option offered by Apple, which carries a 30 percent commission..Interestingly, it was pointed out that such restrictions do not exist with respect to Apple's personal computer devices (Mac or MacBook) and app developers can 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 percent (ten times lower than the exorbitant 30% fees which Apple charges for in-app purchases on mobile devices)..It was alleged that such conduct on the part of Apple amounts to violation of Section 4(2)(a)(i) of the Act which prohibits imposition of unfair or discriminatory condition in purchase or sale of goods or service by a dominant enterprise. It was further contended that it leaves app developers with no choice but to concede to such unfair, arbitrary and unilateral enforcement of App Store Review Guidelines and their arbitrary implementation by OPs. Accordingly, the same conduct is also alleged to result in denial of market access in violation of the provisions of Section 4(2)(c) of the Act.Further, it was submitted that the 30 percent commission charged by Apple is ‘unfair’ in violation of the provision of Section 4(2)(a)(i) of the Act. The high commission would increase the cost of Apple’s competitors and affect their competitiveness vis-à-vis Apple’s own verticals (the fee in respect of which, in any case would be internalized). Apple’s practice deters entry (and the resulting innovation) in violation of the provisions of Section 4(2)(c) of the Act, it was argued.It was further submitted that App Store commission of 30% is a ‘payment processing fee’ and it is patently exorbitant as payment processors such as Bill Desk, Razor Pay, CC Avenue etc. charge significantly lower fees for similar services (usually between 1-5% of the transaction value, plus a fixed fee)..Apple responded by stating that its market share in Indian smartphone market is only 0-5 percent and it cannot, therefore, abuse any dominant position in the market.Further, even if the “market for app stores for Apple smart mobile OS in India” were to be considered and demonstrated, in which the Informant has alleged that Apple is 100 percent dominant, dominance per se is not an offence under the Act; a showing of abuse is required as well. There is no evidence that Apple’s practices are abusive, it was submitted.Pertinently, it was contended that that App Store policy is not unfair or arbitrary and has been put in place to ensure that the App Store is a safe and secure place for consumers to discover and download apps and purchase digital content.Regarding the 30 percent commission, it was argued that it is Apple’s compensation for providing app developers with a built-in user base and significant technical and marketing know-how. Apple has spent billions of dollars on developing and running the App Store and the commission derives from, and is consistent with, the value developers can and do receive from Apple, it was submitted..The CCI after examining the rival contentions ruled 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. Further, considering that App Store is the only source of downloading apps in the iOS and its condition requiring use of application store’s payment system for paid apps and in-app purchases, it appears that Apple controls the significant volume of payments processed in this market."The resultant market power being enjoyed by Apple due to its grip over iOS ecosystem apparently resulted in ‘allegedly’ high commission fee of up to 30%. This tying of two distinct products (i.e., distribution service and payment processing service for in-app purchases) does not allow the app developers to take the advantage of a competitive payment gateways market. Rather, it creates conducive condition for expropriation of the app developers as they cannot use alternate payment gateways and negotiate/pay commission at a competitive rate. The alleged high fee charged by Apple is sustained through its imposed tying of distribution service with payment processing service," the order said.Importantly, the CCI observed that prohibiting third party app stores from listing on Apple's App store denies market to app distributors and app store developers."Thus, the Commission is of the prima facie view that Apple has violated the provisions of Section 4(2)(a), 4(2)(b), 4(2)(c), 4(2)(d) and 4(2)(e) of the Act, as elaborated supra which warrants detailed investigation. 36. In view of the foregoing, the Commission directs the Director General (‘DG’) to cause an investigation to be made into the matter under the provisions of Section 26(1) of the Act," the CCI ordered.It also directed the DG to complete the investigation and submit the investigation report within a period of 60 days..[Read Order]