Investigations by the European Commission

Even amidst the coverage of the ongoing COVID-19 pandemic, the news dominated the front pages: the European Commission (the ‘Commission’) has on the same day (16 June) opened formal antitrust investigations to assess whether Apple's rules for app developers on the distribution of apps via the App Store may infringe EU competition rules and whether the same may apply for Apple's terms, conditions and other measures for integrating Apple Pay in merchant apps and websites on various types devices.

The former investigation revolves around the fact that iPhone and iPad users can only download so-called native (i.e. non web-based) apps via the App Store. Following complaints by Spotify and an unnamed e-book and audiobook distributor, the Commission intends to investigate in particular two restrictions imposed by Apple in its agreements with companies that wish to distribute apps to users of Apple devices:

  1. The mandatory use of Apple's own proprietary in-app purchase system “IAP” for the distribution of paid digital content. Apple charges app developers a 30% commission on all subscription fees through IAP.
  2. Restrictions on the ability of developers to inform users of alternative purchasing possibilities outside of apps. The Commission states that such alternative purchasing possibilities are usually cheaper.

Commissioner Vestager says about the investigation: “Apple sets the rules for the distribution of apps to users of iPhones and iPads. It appears that Apple obtained a “gatekeeper” role when it comes to the distribution of apps and content to users of Apple's popular devices. We need to ensure that Apple's rules do not distort competition in markets where Apple is competing with other app developers, for example with its music streaming service Apple Music or with Apple Books”.

In the second investigation, the Commission has concerns that Apple's terms, conditions, and other measures related to the integration of Apple Pay for the purchase of goods and services on merchant apps and websites on iOS/iPadOS devices may restrict competition. Apple Pay is the only mobile payment solution that may access the NFC ‘tap and go’ technology embedded on iOS mobile devices for payments in stores. The investigation will also focus on alleged restrictions of access to Apple Pay for specific products of rivals on iOS and iPadOS smart mobile devices.
Says Mrs. Vestager: “Mobile payment solutions are rapidly gaining acceptance among users of mobile devices, facilitating payments both online and in physical stores. This growth is accelerated by the coronavirus crisis, with increasing online payments and contactless payments in stores. It appears that Apple sets the conditions on how Apple Pay should be used in merchants' apps and websites. It also reserves the “tap and go” functionality of iPhones to Apple Pay. It is important that Apple's measures do not deny consumers the benefits of new payment technologies, including better choice, quality, innovation and competitive prices."

National Authorities Have Preceded the Commission

As already mentioned, the Commission’s simultaneous investigation is not Apple’s only concern. In fact, in April 2019 the Dutch Authority for Consumers & Markets (‘ACM’) announced that it had launched an investigation into the question whether Apple abuses its dominant position through its App Store. The ACM started the investigation, the subject-matter of which appears similar if not identical to that of the Commission’s investigation, following signals it had received from other app providers during its earlier general market study into app stores. The aforementioned market study revealed that app providers depend on app stores in order to reach users. For numerous apps, no realistic alternatives to Apple’s App Store and Google’s Play Store exist. The ACM fears that that provides, at least in theory, Apple and Google with the opportunity of setting unfair conditions. The conflicting interests of Apple and Google, as they are also app providers themselves, may pose antitrust problems. According to other app providers, they do not always have a fair chance against Apple’s own apps or against apps that Google has pre-installed on phones. In addition, providers of digital products and services are required to use Apple’s and Google’s payment systems for in-app purchases and they are not always able to use all the functionalities of an iPhone (in this respect, the ACM’s investigation may also overlap with the Commission’s investigation into Apple Pay). The aforementioned 30% commission is also a possible concern for the ACM as it is for the Commission.

The ACM’s investigation is still ongoing and the results are still unknown. In any event, the ACM intends to continue its investigation alongside the Commission. On 16 June 2020, the ACM published a tweet stating that it would ‘align’ its investigation with that of the Commission and that its investigation would ‘supplement’ the Commission’s efforts.

It doesn’t quite end for Apple there, however. On the same day the Commission announced its two investigations, the French Autorité de la Concurrence (‘AdlC’) announced that on 16 March 2020, it had fined Apple for engaging in three anticompetitive practices within its distribution network for Apple electronic products, excluding the iPhone, in France. The first of these practices was a restriction of customers implemented with its two approved wholesalers; the second was a vertical agreement on the retail prices of its Apple Premium Reseller retailers; and the third was an abuse of a state of economic dependence at the expense of these retailers. In a context in which the resellers had very low margins, Apple kept them in an extreme economic dependence regarding the reception of products, especially the most demanded new items, according to the announcement. The AdlC concluded that, for new products, the independent resellers faced shortage of stocks and were unable to respond to customers’ orders, while the Apple Stores network was regularly supplied, the agency added. This situation was said to have weakened the independent resellers causing the loss of customers and, in some cases, making those independent reseller disappear from the market altogether.

All of the above led the AdlC to impose high fines totalling EUR 1.24 billion. This included the largest individual fine ever imposed by the AdlC on one single company: a record fine of EUR 1.1 billion for Apple.

What can the Loyens & Loeff Digital Economy Team do for you?

Digital technologies present companies with many online and offline business opportunities. However, they also bring about a whole new range of tax and legal challenges, from competition and intellectual property issues, to data protection and privacy questions. Loyens & Loeff has set up a dedicated and multidisciplinary Digital Economy Team. This firm-wide team unites top experts from our various practice groups in all of our jurisdictions. This integrated and dynamic approach guarantees high-end and efficient solutions for our clients covering all relevant legal and tax aspects of their business.

Over the past few years, the competition specialists in our Digital Economy Team have represented a broad variety of technology companies, from major online platforms to smaller but innovative start-ups. In this respect we have developed an impressive track record in providing legal advice on several technology related topics, such as digital commerce, block chain, fin-tech and big data.

It is our forward thinking and practical advice that helps our clients to stay ahead in the digital world and to find solutions to any (potential) competition problems that arise. In the context of our focus on the tech sector and our aim of thought leadership, we published our handbook Digital Competition Law in Europe: A Concise Guide (Kluwer), in September 2019. This book aims to be an indispensable guide to quickly and accessibly acquiring in-depth knowledge in competition law in the digital sector, and a must-read for any practitioner or academic who encounters competition law related to digital markets. According to Kluwer, this book is ‘one of [its] most significant publications of recent years’.