[The Viewpoint] Apple's privacy update: An altruistic move?

Apple’s iOS 14.5 privacy update seeks to impose certain restrictions on third-party applications, adversely impacting their revenue through personalized advertising.
[The Viewpoint] Apple's privacy update: An altruistic move?

In June 2020, Apple Inc announced its plans to introduce a new privacy update which would enable users of iPhones and iPads to prevent third-party app developers from tracking their data such as activities of users across applications that enables the developer organization to create a digital profile of the user which can be used for personalized targeted advertisements.

This was implemented in April 2021 through the iPhone Operating system (iOS) 14.5 update, which was a welcome move as users of iOS devices could now have enhanced privacy protection and could safeguard their personal data from app developers and companies like Facebook and Google. However, these updates are applicable to third party apps and not to Apple-owned apps, which has led to numerous concerns being raised about the anti-trust implications of the said policy on the ground that Apple is attempting to stifle competition in the AppStore.

In March 2021, a group consisting of eight media and communications industry associations, including the German Advertising Federation (ZAW), filed a complaint before Germany’s competition authority known as the ‘Bundeskartellamt’ (German Federal Cartel Office), due to apprehensions of fall in revenue as a result of the update.

On July 2, 2021, the European Union’s Competition Chief Margrethe Vestager warned Apple against fending off competition under the guise of privacy and security concerns. However, a contrary position was adopted by the French Competition Authority, which refrained from taking any action against the implementation of the privacy policy.

Why did Apple introduce the update?

An Operating System (OS) serves as an intermediary between consumers and application developers and ensures the stable functioning of hardware resources. Apple’s iOS is exclusive to iPhones and iPads, which have a significant market share in countries like the United States of America.

Third-party app developers can make their applications available to Apple users on the App Store and earn revenue through personalized advertisement-based models using user data. This aspect is undesirable to Apple, which has its own proprietary advertising service offered to developers for a fee. These apps also pose a stiff competition to Apple-owned apps as they are preferred by consumers, who can use these apps on both iOS and Android devices, allowing them to switch seamlessly.

Apple’s iOS 14.5 privacy update seeks to impose certain restrictions on third-party applications, adversely impacting their revenue through personalized advertising. Furthermore, the update does not apply to Apple’s proprietary apps.

What does the update entail?

In April 2021, Apple unveiled its iOS 14.5 software update to implement a global App Tracking Transparency Policy, which allows users of the device to prohibit an app from tracking their activity or data unless they have explicitly provided permission to be tracked across apps and websites owned by them.

Further, the update creates an embargo in the form of ‘privacy nutrition label’ requirement wherein the app developers are required to report the kinds of data their apps collect from the users on the App Store in a prescribed manner.

Data collected by apps facilitates the delivery of personalized advertisements to users and subsequent revenue accrual to the developers and companies. Every mobile device has an IDFA (Identifier for Advertisers) which is unique to their device and is used by advertisers to send targeted advertisements and additionally, measure their effectiveness by tracking user activity. The update prevents third party developers from accessing the IDFA of an iOS device, thus prohibiting them from monetizing user data. The update also prevents developers from knowing which advertisements were effective by way of app downloads unless the user explicitly allows for such information to be disbursed to the developer.

Interestingly, such privacy requirements are not applicable to Apple’s own apps, thereby allowing Apple to track user data and use it for personalized advertising. If users wish to disable data collection by Apple-owned applications, they have to manoeuvre their way through the Settings app and disable ‘personalized advertisements’.

Apple’s privacy update vis-a-vis Competition law in India

Competition Law in India has shown significant development over the course of the last decade with the Competition Commission of India (CCI) proving that a smaller competition authority [as against the European Commission (EC) or the Federal Trade Commission (FTC) and Justice Department] is still able to bring in some form of value addition to the already existing international jurisprudence. CCI has in the recent past investigated cases relating to privacy policies, including the recent WhatsApp Privacy, though from a different context.

Given the above, and bordering on adventurous pre-emption, the delineation of relevant market being the most important factor, a challenge may be brought forth challenging the policy, as each application such as browser, map, music, video hosting platform, etc. have their own separate relevant market as held in the decision rendered by CCI in Umar Javeed and Ors. v Google LLC. Further, the CCI will have to determine whether Apple has a dominant position or substantial market power in the said market, after taking into consideration the market share, size and resources, size and importance of competitors, dependence of consumers, entry barriers, economic power, social obligations and costs, etc.

In line with the Google Play Store Case, if Play Store’s dominance across Android phones gives Google a dominant position in the market, it would indicate that App Store’s dominance on Apple devices makes Apple a dominant player in the market. Relevant markets are also defined based on the Substitutability Test, where interchangeability of goods or services will determine whether they are in the same market.

In the case of Apple, the CCI will have to compare Apple’s proprietary apps as against other apps and whether such apps are interchangeable/substitutable by the average consumer. A wider claim of interchangeability/substitutability will result in lesser market share, thereby not amounting to dominance. However, a narrow test will result in a higher market share and may amount to dominance. It is pertinent to note, that dominance alone will not be illegal; the complainant will have to show how an abuse of dominance has occurred, which include factors under Section 4 of the Act like directly or indirectly imposing unfair or discriminatory terms/conditions on sale/purchase of goods or services.

Apple’s conduct in this instance can be considered unfair or discriminatory on the grounds that the same privacy policy and conditions of ‘App Tracking Transparency’ are not applicable to Apple’s proprietary applications. There is a wide discrepancy in the manner consumers are warned against tracking of data by third party applications as opposed to the intricate procedure that users must follow to opt out of Apple’s personalized advertising.

Similarly, an update such as this may also be in violation of Section 3(4) of the Act, for Apple’s agreement with app developers can be considered to have an adverse appreciable impact on competition. One of the conditions for determination of such an agreement is the foreclosure of competition in the market, that is whether Apple is able to dictate terms and conditions upon which the developers may offer their apps to users of iOS devices, thereby restricting external app developers from tracking user data, an essential input that enables personalized advertising.

Appearance of Data Protection: An empty gesture?

Apple’s update has been introduced in an era during which growing privacy concerns have been expressed. While Apple, for some, is considered a ‘white knight’ for its commitment to safeguarding the privacy of its users, one cannot overlook the anti-trust issues the policy poses. An analysis of Apple’s policy against the provisions of the Competition Act reveals that Apple’s conduct may still be considered anti-competitive. Under the guise of protecting privacy of its users, Apple has sought to strengthen its own dominance and undermine the position of third-party app developers who rely on personalized advertising for their revenue. Moreover, the policy is detrimental as Apple is misleading consumers by giving a warning against ‘tracking’ by third-party apps, while data collection by their own apps is a benign setting for ‘personalized advertisement’. In light of the same, Apple’s privacy update could be viewed as a hypocritical move tending to the recent privacy trend.

Prashant Shivadass is a Partner and Sneha Phillip is an Associate with Shivadass & Shivadass (Law Chambers). The authors would like to acknowledge the contributions of Aradhana Pandit, a fourth year law student from School of Law, Christ (Deemed to be University), Bengaluru.

The contents and comments of this document do not necessarily reflect the views/position of Shivadass and Shivadass (Law Chambers) but remain solely of the author(s). For any further queries or follow up, please contact admin@sdlaw.co.in.

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