EU Rules Against Apple In App Store Review, Widens Investigation

The EU Commission has informed Apple that it has preliminarily ruled against the company, finding its App Store rules violation the Digital Markets Act (DMA).

The EU has been investigating whether Apple was complying with the DMA in regard to its rules allowing developers to bypass the App Store and direct customers to alternative payment methods. Developers and critics said Apple was not doing enough to comply, and was making it difficult for developers to take advantage of the options guaranteed by the DMA.

The EU has released its preliminary findings and found that Apple is not in compliance. There are three things in particular Apple is doing that violates the DMA:

• None of these business terms allow developers to freely steer their customers. For example, developers cannot provide pricing information within the app or communicate in any other way with their customers to promote offers available on alternative distribution channels.
• Under most of the business terms available to app developers, Apple allows steering only through “link-outs”, i.e., app developers can include a link in their app that redirects the customer to a web page where the customer can conclude a contract. The link-out process is subject to several restrictions imposed by Apple that prevent app developers from communicating, promoting offers and concluding contracts through the distribution channel of their choice.
• Whilst Apple can receive a fee for facilitating via the AppStore the initial acquisition of a new customer by developers, the fees charged by Apple go beyond what is strictly necessary for such remuneration. For example, Apple charges developers a fee for every purchase of digital goods or services a user makes within seven days after a link-out from the app.

Apple now has the opportunity to mount a defense. If the Commission’s charge is proven, however, it would formerly “adopt a non-compliance decision,” which could result in substantial fines for the iPhone maker.

In addition to the preliminary ruling, the Commission opened a new non-compliance investigation into Apple’s terms for allowing developers to access new features that should be protected and guaranteed by the DMA. Again, the Commission is focused on three particular terms Apple is imposing:

• Apple’s Core Technology Fee, under which developers of third-party app stores and third-party apps must pay a €0.50 fee per installed app. The Commission will investigate whether Apple has demonstrated that the fee structure that it has imposed, as part of the new business terms, and in particular the Core Technology Fee, effectively complies with the DMA.
• Apple’s multi-step user journey to download and install alternative app stores or apps on iPhones. The Commission will investigate whether the steps that a user has to undertake to successfully complete the download and installation of alternative app stores or apps, as well as the various information screens displayed by Apple to the user, comply with the DMA.
• The eligibility requirements for developers related to the ability to offer alternative app stores or directly distribute apps from the web on iPhones. The Commission will investigate whether these requirements, such as the ‘membership of good standing’ in the Apple Developer Program, that app developers have to meet in order to be able to benefit from alternative distribution provided for in the DMA comply with the DMA.

EU officials emphasized the importance of the ruling in the context of DMA enforcement.

“Today is a very important day for the effective enforcement of the DMA: we have sent preliminary findings to Apple. Our preliminary position is that Apple does not fully allow steering,” said Margrethe Vestager, Executive Vice-President in charge of competition policy. “Steering is key to ensure that app developers are less dependent on gatekeepers’ app stores and for consumers to be aware of better offers. We have also opened proceedings against Apple in relation to its so-called core technology fee and various rules for allowing third party app stores and sideloading. The developers’ community and consumers are eager to offer alternatives to the App Store. We will investigate to ensure Apple does not undermine these efforts.”

“Apple’s new slogan should be “act different,” added Thierry Breton, Commissioner for Internal Market. “Today we take further steps to ensure Apple complies with the DMA rules. We have reason to believe that the AppStore rules not allowing app developers to communicate freely with their own users is in breach of the DMA. We are also opening a new case in relation to Apple’s new business terms for iOS. Without prejudice to Apple’s right of defence, we are determined to use the clear and effective DMA toolbox to finally open real opportunities for innovators and for consumers.”

The EU Commission is sending a clear message that it will hold companies to the DMA and not tolerate efforts to minimize the legislation’s impact, or circumvent its application.

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