European Commission finds Apple in breach of Digital Markets Act

Cupertino faces multi-billion euro fine over App Store terms

Life

Margrethe Vestager

Apple’s could be on the hook for billions in fines after the European Commission ruled that its App Store rules prevented app developers from freely steering consumers to alternative channels for offers and content. The ruling, coming under the Digital Markets Act (DMA), could see Cupertino have to hand over 10% of its worldwide global turnover – based on figures from 2023 that would amount to about €40 billion.

Under the Digital Markets Act, developers distributing their apps via Apple’s App Store should be able, free of charge, to inform their customers of alternative cheaper purchasing possibilities, steer them to those offers and allow them to make purchases.

Apple currently has three sets of business terms governing its relationship with app developers, including the App Store’s steering rules. The Commission found against Apple on three points:

• Its business terms do 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.
• What steering Apple permits is 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 the initial acquisition of a new customer via the App Store, the fees charged go beyond what is necessary. 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.

If the Commission’s preliminary views were to be confirmed, none of Apple’s three sets of business terms would comply with the DMA, which requires gatekeepers to allow app developers to steer consumers to offers outside the gatekeepers’ app stores, free of charge. The Commission would then adopt a non-compliance decision within 12 months from the opening of proceedings on 25 March 2024.

Contract terms

The Commission also opened a new non-compliance procedure against Apple over concerns that its new contractual requirements for third party app developers and app stores, including Apple’s new ‘Core Technology Fee’.

The Commission will investigate whether new contractual requirements for third party app developers and app stores breach Article 6(4) of the DMA and notably the necessity and proportionality requirements provided therein.

At issue are:

• Apple’s Core Technology Fee, under which developers of third party app stores and third-party apps must pay a 50c 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.

Along with Alphabet, Amazon, ByteDance, Meta and Microsoft, Apple was designated as a ‘gatekeeper’ the six gatekeepers which had to fully comply with all DMA obligations.

“Today is a very important day for the effective enforcement of the DMA: we have sent preliminary findings to Apple,” said Margrethe Vestager, European Commission Executive Vice-President in charge of competition policy (pictured).

“Our preliminary position is that Apple does not fully allow steering. 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.”

TechCentral Reporters

Read More: App Store Apple Digital Markets Act DMA European Commission