Antitrust Law Daily Wrap Up, ANTITRUST NEWS: EC informs Apple of preliminary findings that App Store rules are in breach of DMA, (Jun 24, 2024)

By Seth Abrams, J.D., M.A.

EC also opened a new investigation over concerns of new contractual requirements for third-party app stores and apps, particularly the Core Technology Fee.

The European Commission (“EC”) announced that it had informed Apple that it has preliminarily found that its App Store rules violate the Digital Markets Act (“DMA”). This is due to rules preventing app developers from freely steering consumers to alternative channels for both offers and content. The EC also announced that it had opened a new non-compliance procedure concerning Apple’s new contractual requirements for third-party app developers and app stores, which may fall short of its obligations under the DMA. This includes Apple’s new Core Technology Fee of €0.50 per installed app. The EC also announced it will continue to take preliminary investigative steps, outside of the scope of the current investigation, with respect to the “checks and reviews put in place by Apple to validate apps and alternative apps stores to be sideloaded.”

Background. Apple, as a gatekeeper designated by the EC in September 2023, had to fully comply with all DMA obligations by March 7, 2024. Later in March 2024, the EC opened several non-compliance investigations, including one into Apple’s rules on steering in the App and the choice screen in Safari. The EC announced at that time it would engage in additional investigation related to Apple’s alternative app distribution and new business model. In April 2024, the EC designated Apple, with respect to its iPadOS, a gatekeeper under the DMA.

Preliminary findings on steering. The DMA provides that developers distributing their apps through the App Store should be able to inform customers “free of charge” of cheaper options for purchasing, steer them to the offers, and permit them to make the purchases. The EC preliminarily found that Apple has three sets of business terms which do not permit developers to freely steer their customers. Under most of the business terms, Apple only permits steering through “link-outs”—providing a link in their app that redirects the customer to a page where the contract can be concluded. However, the EC preliminarily found that this link-out process is restricted by Apple and works to “prevent app developers from communicating, promoting offers, and concluding contracts through the distribution channel of their choice.” Finally, the EC preliminarily found that the “fees charged by Apple go beyond what is strictly necessary for such remuneration.” It also preliminarily found that Apple charges a fee for every purchase of digital goods or services made within seven days after following a link in the app.

New investigation. The EC also announced a new non-compliance investigation into Apple’s new contractual terms for developers “as a condition to access some of the new features enabled by the DMA,” such as alternative app stores or the possibility to offer an app via a different distribution channel. The EC will investigate whether the new contractual requirements are in breach of the DMA. These include Apple’s Core Technology Fee of €0.50 per installed app. This fee is to be paid by developers of third-party app stores and third-party apps. The EC will also investigate whether the “multi-step user journey” to successfully install alternative app stores or apps complies with the DMA. Finally, the EC will investigate whether the “eligibility requirements for developers” comply with the DMA.

Quotes. Margrethe Vestager, Executive Vice-President in charge of competition policy, noted that the preliminary view of the EC “is that Apple does not fully allow steering.” She continued, “[s]teering is key to ensure that app developers are less dependent on gatekeepers’ app stores and of consumers to be aware of better offers.” On the new investigation, she noted that the EC “has opened proceedings against Apple in relation to it so-called core technology fee and various rules for allowing third party app stores and sideloading.” She concluded by stressing how the “developers’ community and consumers are eager to offer alternatives to the App Store [and the EC will] ensure Apple does not undermine these efforts.”

Thierry Breton, Commissioner for Internal Market, also stressed the further steps being taken to ensure Apple complies with the DMA. He noted that, “[w]e have reason to believe that the App Store rules not allowing developers to communicate freely with their own users is in breach of the DMA.” He also commented on the new investigation related to Apple’s new business terms for iOS and stressed that while noting Apple’s right of defense, “we are determined to use the clear and effective DMA toolbox to finally open real opportunities for innovators and consumers.”

Potential penalties. For infringement by a gatekeeper, the EC may impose fines up to 10% of Apple’s total worldwide turnover. These fines can rise to 20% in case of repeated violations. Furthermore, the EC also has the authority to “adopt additional remedies such as obliging a gatekeeper to sell a business or parts of it” or “banning the gatekeeper from acquisitions of additional services related to the systematic non-compliance.”

Companies: Apple

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