Apple and Google have been facing scrutiny worldwide from both regulators and developers due to their commission policies. Developers are forced to use the payment system of either Apple and Google on their respective operating systems which can have commissions as high as 30%. Other than this, developers are barred from using third-party payment systems. This seeps into the profit of the developers as they are left with no choice but to use their own payment method. In 2020, users spent $72 billion on the App Store out of which $22 billion went to Apple. As for Google, it earned $11.2 billion in 2019 through the Play Store. It is clear that a monopoly exists in these digital distribution stores controlled by Apple and Google which is being challenged all across the world and now in India as well.
In the United States, on August 13, 2020, both Apple and Google removed Fortnite from their app stores as the parent company of Fortnite, Epic Games bypassed the payment systems of both Google and Apple by directly selling in-game currency using their own payment system. This was done to avoid the 30% commission that these tech giants charge. After the application was removed, Epic Games initiated two separate lawsuits against both Apple and Google seeking injunctive relief to allow fair competition in the two key markets of App Store and Play Store. Finally, on September 10 of this year, the case against Apple concluded, and it was held that the company is not a monopolist. However, an injunction was granted which stated that Apple cannot force developers to use their payment system anymore. Now, developers are allowed to redirect users to third-party payment systems which would have a lower commission compared to Apple’s in the app payment system. Now, Epic Games has appealed the decision of the Court stating it believes that Apple is running a monopoly which stifles competition and in the end harms the consumers. Further, Apple has banned Fortnite from the App Store until either the lawsuit is settled or all the appeals are exhausted.
This issue for Apple and Google did not crop up just in the United States. The two tech giants have faced scrutiny in European Union, South Korea, and Japan as well. Earlier this year, in the European Union, after a complaint by Spotify, the European Commission started formal investigations to assess whether Apple is imposing unfair conditions over app developers by forcing them to utilize Apple’s in the app payment system. In South Korea, exactly a week before the Epic Games ruling, the country’s parliament passed legislation that imposed curbs over app store operators with dominant positions from imposing their own payment system over app developers. Further, the bill gave the South Korean government the power to mediate any disputes that may arise due to payments, refunds, and cancellations in the app market. Other than this, in Japan, Apple reached a settlement with the Japan Fair Trade Commission [“JFTC”] where Apple agreed to allow ‘reader apps’ such as Netflix who do not sell any goods and services inside the application to utilise external websites for payments and circumvent the hefty commissions of the App Store. In exchange, the JFTC closed its investigation into Apple.
ANALYSIS IN THE INDIAN CONTEXT
Now, the same issue has reached India where reportedly a non-profit group has lodged a complaint with the Competition Commission of India [“CCI”] arguing that Apple is abusing its dominant position which is not only hurting the competition but is also acting as a barrier of entry which in turn leads to consumer harm. When such tech giants charge such a high commission, it makes the application development industry and the application market restrictive in nature. This is because this commission directly affects the profits of the developers. Which in turn reduces the scope of profitability making it unviable for new entrants to enter the market. This leads to a lack of choices for the consumer, less innovation in the market, and the risk of an increase in prices.
It is argued that the commission charged by Google and Apple is Excessive Pricing. Even though Excessive Pricing has been recognised as anti-competitive by the European Courts. In India, the concept is still under development and has been largely utilised only in relation to the pharmaceutical industry under Section 4(2) (a) (ii).
Thus, CCI should order Apple and Google to allow the use of third party payment methods. Hence, the developers will have a choice between which payment method to use just the Epic games ruling in the US. For example, the main competitor of Apple’s in-app payments system is a company called Paddle which provides the exact same services. However, they charge a maximum commission of 10%. Another way could be that CCI tries implementing what JFTC did in Japan. In order to ensure fairness, they can be asked to allow third-party payment systems for all applications and not just ‘reader’ applications. This would provide the two companies with a fair number of options to ensure that they are not losing out on their income and are getting paid adequately for the services that they offer. At the same time, the consumers and the developers would not suffer losses due to anti-competitive behaviour.
However, it is unlikely that the CCI would initiate an investigation as on a prima facie analysis, it does not seem that the complaint has any merit in the Indian context. This is because the claim in the present complaint is that Apple is abusing its dominant position to restrict the development of applications due to their hefty commission. The same is prohibited under Section 4(b) of the Competition Act, 2002.
However, even before abuse of a dominant position comes into the picture, it is important to ascertain whether a dominant position exists or not. As per the explanation given under Section 4, a dominant position means a position of strength that an enterprise enjoys in the relevant market which either allows it to operate independently or affect the competition or customers or the relevant market in its favour. The relevant product market in the present case, to fit the definition of Section 2(r) would be the market for app stores for smart mobile devices in India and the market for app stores for iOS in India. Further, to determine whether a dominant position exists, the CCI needs to look into several factors which are listed under Section 19(4). Some of the major factors which are relevant in the present case could be the market share, size, resources, and the importance of the enterprise.
However, given that in India, Apple holds a market share of less than 3%. It cannot be said that Apple is enjoying a dominant position. This is also true because the competitor of Apple, Google has a much stronger hold on the Indian smartphone operating system market.
Consequently, a similar complaint was registered against Google with the CCI last year where it was alleged that they are abusing their dominant position by forcing developers to use Google’s payment system and at the same time are charging exorbitant commissions for it. The investigation for this case is still ongoing and a decision is yet to come. However, if one looks at the market share that Google has acquired through Android in the Indian market which is well above 90%, it can be ascertained that Google enjoys a dominant position in the Indian app store market. Further, it is expected that in a different complaint, CCI will find Google liable for stifling competition and innovation as well as abusing the dominant position of Android. This was done by imposing unfair conditions upon device manufacturers in order to ensure that the applications of Google are preinstalled in Android phones to maintain their dominance.
This will set a precedent that will establish Android’s dominance in the Indian smartphone market, and the same will be useful in the present investigation to establish their dominant position in the app store market as well.
Given that there is a clear abuse of dominant position by Apple and Google, it becomes important for the regulators to ensure fair play in the marks which does not harm the consumers and the intermediaries. However, in India, even though the action may be taken against Google, it will be extremely difficult to hold Apple accountable for its policies due to its low market share. Nonetheless, given the amount of attraction this issue has garnered all over the world, the CCI may order an investigation into Apple as well. The petitioners may argue that the market for app stores for iOS is dominantly controlled by Apple and can use the same to establish Apple’s dominant position in that market. Further, it can also be argued that whenever a developer uploads their application on App Store. The application is available not only in India but worldwide. So the relevant market changes from the market for app stores for iOS in India to the market for app stores for iOS worldwide. Hence, since there is a change in the relevant market concerned, the same can be utilized to hold Apple accountable. As the relevant market for the Apple Store can be argued to be iOS smartphones. In the meantime, the CCI can hold Google accountable and make sure that the tech giant removes its policy of barring third-party payment systems. This will provide developers with the option to choose a service provider with a lesser commission.
The author is a second-year student at Jindal Global Law School, Sonipat.