All you need to know about CCI's antitrust probe against Apple's app store practices

Apart from India, Apple is facing antitrust scrutiny over its app store business practices in several countries, including the United States.

On New Year's Eve, India's competition regulator Competition Commission of India (CCI) opened an investigation against Apple's business practices in the country, saying it was of the prima facie view that the tech giant has violated some of the provisions of the Competition Act.

In its order, CCI noted that the mandatory use of Apple's in-app payment solution for paid apps and 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"

The regulator said its activities warrant a detailed investigation and directed the Director-General of the commission to complete the probe within a period of 60 days.

It's worth noting that Apple currently has a negligible 1-2 percent market share of India's smartphone market in the country, although the base is growing rapidly. Apple crossed a record 2 million shipments in India for the first time in a quarter in Q3 2021, according to market research firm Counterpoint Research.

Interestingly, this development also comes at a time when the Indian government has proposed that Apple make goods worth $50 billion in the country over the next 5-6 years in a major push to its 'Make in India' programme, according to a report by The Times of India. Top government officials have reportedly asked the firm to develop India as a global sourcing base that would be used to export fully-built products across the world.

Rival Google is also facing a similar investigation by CCI over the mandatory use of its Play Store’s payment system for paid apps and in-app purchases since November 2020.

The order from CCI comes after a Rajasthan-based non-profit group 'Together We Fight Society' filed an antitrust complaint against Apple in September 2021.

The group alleged that Apple was abusing its dominant position in the apps market by forcing app developers to use its proprietary payment system for the distribution of paid digital goods or services on the App Store and pay 30% of the sales generated as a commission to the company.

It also alleged that Apple 'imposes unreasonable and unlawful restraints' on app developers from reaching users of its mobile devices outside the App Store. In comparison, app developers can make their products available to users on desktop computers through direct downloads from a developer's website or multiple stores with various payment options and competitive processing fees that average 2-5%, the group said.

The complainant alleged this 'exorbitant' commission increases the cost for app developers, thereby hurting competition, especially in verticals where Apple has its own products. It would also act as a roadblock to the entry of new players, thereby impacting innovation.

Apart from this, the non-profit group also alleged that Apple often applies its guidelines in an "unpredictable, capricious and discriminatory manner". The resultant uncertainty with the difficulty to get in touch with Apple, may severely affect app developers’ ability to run their business properly, it claimed. CCI said in its order that this aspect needs to be investigated.

Apple levies a 30% commission from the sale of paid apps and in-app purchases of digital goods and services. For subscription apps, the commission drops to 15% after one year.

Developers who are making less than $1 million per year can also apply for the company's App Store Small Business Program to receive a reduced commission of 15% until they cross the sales threshold of $1 million per calendar year. Once they cross the threshold, the standard 30% fee will apply to their sales.

The complainant alleged that the iPhone maker forces developers to distribute their apps solely through the App Store and not to distribute third-party app stores. It also alleged that the company prevents iOS users from downloading app stores or apps directly from websites, pre-installs its own App Store on every iOS device and does not allow users to remove the App Store from their devices.

In the order, CCI noted that as per the company's anti-steering provision, Apple prohibits app developers from informing app users about the ability to purchase on the website.  The regulator observed that the provision prima facie "imposed an unfair restraint on the ability of app developers to offer cost-effective subscription models to app users."

Following Apple's submission that its modified guidelines now allows developers to communicate to their user base about purchasing methods other than in-app purchase outside the app, CCI said "this aspect requires detailed investigation."

In September 2021, a US district court had directed Apple to drop this provision, also called as anti-steering provision, as part of the judgement in the Apple-Epic Games court case.

However, the company received a last-minute reprieve from a US appeals court on December 8 that agreed to the company's request to delay these changes.

In December 2021, Apple had asked CCI to dismiss the case since it has an "insignificant" 0-5 percent market share in the country, where Google is dominant.

CCI; however, said in the order that Apple's argument was "completely misdirected" as the alleged anti-competitive restrictions were about the abuse of dominance by the company on app developers and not end users.

The regulator said it is of the prima facie view that Apple holds a monopoly position in the market for 'iOS app stores in India', which it believes is the relevant market for this case.

It also said Apple controls a significant volume of payments processed in this market, since the company’s App Store is the only app store that iPhone and iPad users can use to download apps for their mobile devices.

"At this stage, it appears that the lack of competitive constraint in the distribution of mobile apps is likely to affect the terms on which Apple provide access to its App Store to the app developers, including the commission rates and terms that thwart certain app developers from using other in-app payment systems," CCI said in the order.

The regulator also noted that it needs to be seen whether Apple would have "access to data collected from users of its competitors to improve its own services", which could provide them a competitive advantage over its rivals.

Apart from India, Apple is facing antitrust scrutiny over its app store business practices in several countries, including the United States. Here's a quick look at some of them:

Netherlands: On December 24, Netherlands Authority for Consumers and Markets directed Apple to let dating apps offer alternative payment systems by January 15 or face a fine of 5 million euros per week, up to a maximum of 50 million euros.

Russia: In October 2021, Russia's Federal Antimonopoly Service opened an antitrust case against Apple's App Store, after the tech giant didn't comply with its earlier warnings to allow app developers to inform customers about alternative payment options.

The regulator said Apple could face a fine based on its turnover if it is found guilty of violating the Russian competition law. Apple however challenged this action earlier this month, seeking a judicial review of the regulator's warning.

South Korea: In September 2021, South Korea's parliament approved a bill that bans app store operators like Google and Apple from forcing app developers to use their own billing systems for in-app purchases.

European Commission: In June 2020, the European Commission opened formal antitrust investigations against Apple to assess whether the company's rules for app developers violates its EU competition rules. This was following complaints from various companies such as Spotify, Rakuten, and Telegram.

United Kingdom: Competition and Markets Authority (CMA) announced in March 2021 that it has launched an investigation into Apple following complaints of 'unfair and anti-competitive' from app developers.

Last month, the competition regulator also raised concerns over Apple and Google's duopoly, stating that it has provisionally found that both the firms have been able to leverage their market power to create "largely self-contained ecosystems", making it "extremely difficult for any other firm to enter and compete meaningfully with a new system".

United States: In August 2021, US Senators Richard Blumenthal, Marsha Blackburn, and Amy Klobuchar introduced a bipartisan antitrust bill 'Open App Markets Act' that targets the app marketplaces of Apple and Google. They said both the companies have gatekeeper control of the two dominant mobile operating systems and their app stores that allow them to exclusively dictate the terms of the app market, inhibiting competition and restricting consumer choice.

Japan: Apple announced in September 2021 that it has settled an antitrust investigation by the Japan Fair Trade Commission, allowing developers of “reader” apps to include an in-app link to their website for users to set up or manage an account. Reader apps provide previously purchased content or content subscriptions for digital magazines, newspapers, books, audio, music, and video to users.

However, the Japan Fair Trade Commission has opened another antitrust probe to investigate whether Apple and Google are using their dominance in the smartphone operating system market to eliminate competition and severely limit options for consumers, according to a Nikkei Asia report.

Germany: Germany's competition regulator Federal Cartel Office (Bundeskartellamt) launched an investigation against Apple in June 2021. At the time, FCO president Andreas Mundt had said that Apple's operation of the App Store will be the main focus of the investigations, since it enables the firm "in many ways to influence the business activities of third parties."