Introduction
It has been long recognized that changing technologies and changing marketplaces present new challenges to the antitrust framework. One recent case highlighting this is the antitrust complaint, filed by ‘Together We Fight Society’, a non-profit group based in Rajasthan (“Group”), with the Competition Commission of India (“CCI”) against Apple Inc. (“Apple”). It alleges that Apple has abused its dominant position and violated Section 4 of the Competition Act, 2002 (“the Act of 2002”). It alleges that Apple did so by mandating the app developers to not only use its iOS-based payment mechanism but also by compelling them to pay a fee of up to 30% of their gross sales. According to the Group, these provisions have a detrimental effect on the competition by raising costs for the customers as well as the app developers and also discourage new entrants in the market. Last year, the CCI initiated an investigation against Google in XYZ v. Google (2020) for mandating the use of Google Pay for the purchase of apps as well as in-app purchases (“IAP”) through the Play Store. Similar complaints have also been brought in the European Union (“EU”) and the United States of America (“US”). In light of this, this article aims to discuss the jurisprudence regarding these practices in the EU and US, and juxtapose this to the position in India.
The “Epic” American Perspective
The recent case of Epic Games v. Apple (2021), decided by a federal court in California, dealt with the issue of Apple’s IAP system and exorbitant fees being antithetical to fair competition. Epic Games (“Epic”), the developer of the popular online video game ‘Fortnite’, alleged that Apple’s App Store enjoys a monopoly by virtue of which it compels app developers to follow its disadvantageous rules in order to reach out to billions of iOS devices. Epic also filed a lawsuit against Google (Epic Games v. Google) on similar allegations which has been categorically denied by Google in the answers and counterclaims filed by it.
The Federal Court in California, in its verdict, neither found Apple to be an antitrust monopolist in the mobile gaming transactions market nor its terms regarding payment of commission to be anti-competitive. While the Court did find evidence which suggested that Apple’s 30% commission rate was inflated as well as potentially anticompetitive, it did not delve into this as Epic had challenged the imposition of any commission itself rather than the rate at which it was being imposed. The Court therefore held that Apple was entitled to some compensation for its intellectual property. The Court further held that the requirement of using its IAP leads to Apple having a “competitive advantage on security issues” which ultimately leads to increased consumer choices and user experience, and is, thus, not anticompetitive. The Court did, however, find Apple’s anti-steering restrictions which forbids app developers from directing consumers to third-party payment systems to be anticompetitive and issued an injunction to eliminate this provision. While Apple has already discarded this practice globally, its rigid control over the app developers will remain intact as this ruling will not bring any radical changes to its App Store policies regarding its IAP and commissions rates because the Court did not deem App Store’s structure to be illegal.
To curb the effects of this ruling, the Open App Markets Bill (“the Bill”) has been promulgated in order to promote competition, improve quality, increase choice and reduce cost for the consumers, and most importantly to decimate the ability of digital giants like Apple to impose policies which perpetuate anticompetitive conduct. The Bill addresses various concerns raised by several stakeholders and industry actors, the most important being the issues of IAP mechanism, the provision of commission on gross sales, and the restrictions imposed on the app developers to freely communicate with their customers. The Bill mandates Apple and Google to, inter alia, allow users to download apps from third party app stores, to permit app developers to freely engage with their customers in both in-app and out-of-app communications and to confer a choice to app developers to either choose the IAP mechanism or a different purchasing mechanism.
The Bill has received a mixed reception from the experts and stakeholders. While many have lauded the Bill for promoting consumer choice and facilitating the entry of many small startup tech companies into the app development market, others have expressed their apprehensions that it blatantly overlooks the cardinal trinity of convenience, trust and security cherished by the customers in app stores. Furthermore, the most problematic part of the Bill is its Section 4 which deals with the protection of security and privacy of the users. It excludes those gatekeepers who need payment or distribution from their app stores to prevent occurences of fraud as well as to ensure user’s digital security and privacy. This section will act as an escape hatch for companies like Apple as they have a history of justifying many restrictions under the garb of user safety and security.
The European Gold Standard
Apple faces similar charges in the European Union (“EU”). Following a complaint by Spotify in 2019, the European Commission (“EC”) opened a formal investigation against Apple in June 2020 for, inter alia, mandating usage of its own IAP and charging a 30% commission from app developers on all subscription fees through IAP. In April 2021, the EC released its Statement of Objections to Apple’s practices, preliminarily finding Apple to be a dominant entity in the market for the distribution of music streaming apps to owners of Apple devices, and abusing such position. It found that mandatory usage of IAP distorts competition and the commission fee is ultimately imposed on the end user of Apple’s services. This raises prices for both the consumers and competing players in the market, and violates Article 102 of the Treaty on the Functioning of the European Union which deals with abuse of dominant position by one or more undertakings.
Although this case is sub judice, it is unlikely that the EC will let Apple walk away scot-free given the EC’s strict enforcement of Article 102. With its technology laws serving as the gold standard for countries around the globe, the EU has always been proactive in regulation of big tech companies. In line with this, the EC has proposed the Digital Markets Act (“DMA”), which revamps and integrates the antitrust framework with technological developments. The main purpose of this ex ante legislation, which would regulate apprehended anticompetitive behavior before it takes places, is to promote new market entrants and ensure that the online platforms market does not turn into an oligopoly. Article 6 of the DMA prohibits gatekeepers, i.e. providers of core platform services, from preventing use of third party apps and restricting switching between apps and services while also mandating imposition of “fair and non-discriminatory general conditions of access for business users to its software application store”. Thus, it restricts self-promoting behaviour, such as restriction to use different IAPs.
The Case Against Apple in India
The proposed legislations in the USA and the EU reflect that a dominant entity mandating use of its IAP system and charging high commission fees for purchases made through this system would constitute anti-competitive practices. However, the case against Apple in India faces certain complexities.
Defining a Relevant Market
The first step in assessing abusive conduct by Apple would be to define the relevant market in which the allegedly dominant entity operates. An entity’s market share in the defined relevant market is one of the necessary prerequisites that determine whether it is dominant in that market.[i] The broader the market, the higher the number of competitors, and the lower the market share. Illustratively, Apple’s market share for smartphones in India is only 3.8% and its share in the PC market is only 5.4%. Since Apple’s app stores are used by Apple product users, in a broadly defined product market including all app stores, Apple has high chances of getting away with its practices.
Conversely, the CCI can delineate a narrower market. In XYZ v. Google, the CCI delineated three separate product markets in its preliminary order. One of these markets was the “market for app stores for Android OS”, which included other app stores such as Samsung’s Galaxy store. A similar delineation of app stores for iOS would make it a single brand market as it would include only Apple’s App Store, thus making it a 100% monopoly and resultantly deeming it a dominant entity in this market. This has been done in the EC’s Statement of Objections, wherein the relevant market is delineated as “distribution of music streaming apps to owners of Apple devices” in which Apple is a monopoly. However, delineating a one brand market is arduous and involves factors such as establishing high switching costs and lock-in effects. It is also important to note that in Sonam Sharma v. Apple, the CCI had refused to delineate a distinct relevant market for Apple iPhones, noting that one brand markets are rarely tenable. Thus, it is unlikely that a single brand market will be delineated in this case, making it likely that Apple gets away scot free due to the large number of players in app stores market.
Single Dominant Entity
An entity can be held liable for abusive practices only if it is dominant in the relevant market. In this respect, Apple may use India’s single dominant entity policy to defend itself. Unlike the USA and EU, India’s CCI has repeatedly held that there can be only one dominant entity in a particular relevant market. In XYZ v. Google, another one of the three markets delineated was the “market for apps facilitating payment through UPI.” Since Apple has recently allowed UPI payments in its app store in India, a similar market delineation in the current case against Apple would cause complications. If the CCI finally finds Google to be dominant in the UPI apps market, Apple cannot be held to be dominant in the same market.
The Industry Practice Defence
One gray area in Indian competition law is whether a dominant entity can take the defence that its practices are in line with standard industry practices. In 2014, the CCI noted that industry practices, in absence of other evidence, would not amount to abusive practices. However, one year later, the CCI reversed this stand while stating that a dominant entity cannot indulge in abusive practices to harm competitors and consumers while hiding behind the garb of “industry practices”. Per contra, in Vinod Kumar Gupta v. Whatsapp (2017), the CCI accepted that despite Whatsapp being a dominant entity, providing free services was an industry practice and therefore, not an abuse of dominant position. Conversely, in 2019, the CCI had condemned the defence of industry practice, stating that a dominant entity is “expected to have set an exemplary trend for other players in the industry to emulate.” In the present case against Apple, it may take advantage of this legal ambiguity and defend its practices by citing that other brands with higher market share, such as Google, indulge in similar practices.
Lack of Legislative Grasp
It is said that prevention is better than cure. This holds true for antitrust violations as well. The CCI does not have powers to take action on the basis of apprehension of antitrust violations unless a prima facie case exists, i.e., it can only take ex post facto action. This can cause irreversible harm in the payment apps market due to the existence of network effects, because of which the value of the app would increase as more users use the app, and status quo bias, because of which users would prefer using the existing app over alternatives. Thus, it becomes pertinent to have a technologically adept ex ante antitrust framework in place, which would expressly prohibit anti-competitive behavior like placing restrictions on using other apps. Unfortunately, unlike the USA and the EU, India is not in the process of updating its antitrust framework in accordance with the era of technology. Although a Draft Competition (Amendment) Bill was released in 2020, it failed to address several issues related to technology markets, including accountability of big tech firms. India is, thus, in dire need of a comprehensive antitrust legislation.
Conclusion
The various lawsuits filed against Apple worldwide and the resultant jurisprudence that is developing serves as a lesson for Indian authorities to frame a robust antitrust legislation in line with existing technologies. This would prevent big companies to get away with anti-competitive behavior, like in Epic v. Apple. Given the current antitrust framework in India, it is likely that Apple will not be held liable for its impugned practices. The current case brought against Apple in India is thus an opportunity for the CCI to implant the advanced antitrust framework reflected in the US’s Bill and the EU’s DMA into the Indian antitrust regime. It is also a strong indication to the legislature to modernize and fix the lacunae in the Act of 2002, so that it effectively regulates technology markets and prevents powerful players like Apple and Google from indulging in anticompetitive practices.
[i] Raghavan Committee Report, Report of High-Level Committee on Competition Policy Law, available at https://theindiancompetitionlaw.files.wordpress.com/2013/02/report_of_high_level_committee_on_competition_policy_law_svs_raghavan_committee.pdf.
This article has been authored by Kavya Jha, Senior Editor, and Divyanshu Ganesh, Associate Editor at RSRR. This blog is a part of the RSRR Editor’s Column Series.