What Can India Learn From Apple's Response To European Union’s Digital Market Act

These compliance proposals, particularly Apple’s, provide valuable insights for other nations, including India, that are considering digital competition laws like the Digital Markets Act. In India, the Government-appointed Committee on a Digital Competition Law has completed stakeholder discussions and is expected to release its report as well as a draft Bill in the coming months.

One of the DMA’s key objectives is loosening the grip of gatekeepers, particularly Google and Apple, on app stores. Currently, iOS users can only download and install applications on their devices using Apple’s own App Store. Sideloading, which refers to downloading applications directly from the internet or third-party app stores, is prohibited by Apple for a few reasons.

First, it claims that allowing sideloading would expose users to greater cyber-security risks as applications on third-party stores or the internet are not vetted for malware, whereas apps on the App Store are.

Second, and more importantly, prohibiting sideloading helps ensure that developers pay the required commission to Apple, which ranges from 15 – 30 per cent, on digital goods and services they sell to users through their applications. For instance, developers have to pay Apple 15-30 per cent of the amount they receive from users for purchases of in-app items, such as skins or weapons in games or subscriptions to media services.

With no alternative app stores on iOS, developers must either pay the required fee or refrain from selling digital goods and services through their applications. Notably, Spotify does not allow consumers to purchase subscriptions, a digital good, on its iOS app. Similarly, Epic Games was delisted from the App Store by Apple for allowing consumers to purchase in-game items within its Fortnite application.

Restrictions on App Stores

In the above context, the DMA seeks to loosen the grip on app stores by mandating sideloading and prohibiting gatekeepers from requiring developers or business users to use their proprietary payment services for in-app purchases.

This would allow developers to distribute their apps on iOS through alternative app stores, which may charge lower fees or commissions. It would also allow them to use payment mechanisms besides Apple’s proprietary service, empowering them with more options and flexibility in receiving payments from users. Notably, Apple does not currently accept credit card payments for in-app purchases in India.

Apple’s proposal seemingly complies with the aforementioned DMA obligations. Indeed, the proposal states that Apple will allow users to download and utilise third-party application stores on iOS. It also states that developers who opt to use such third-party stores will not have to pay any commissions to Apple on in-app purchases.

Additionally, developers who choose to distribute their apps through the App Store will no longer be confined to Apple’s own payment service and will have the option to choose an alternate payment provider.

However, a closer reading reveals that setting up alternative app stores will be costly, and developers may pay higher fees than they do under the current system. Thus, while the DMA seeks to democratise digital markets, its implementation may inadvertently disadvantage smaller players. This would potentially lead to a less diverse and innovative app ecosystem – an important takeaway for other nations considering a similar law.

Small Players May Be Disadvantaged

Under Apple’s proposal, setting up an alternative app store on iOS will be an expensive endeavour. Apple requires any entity seeking to set up such an app store to provide it with a US$ 1 million letter of credit. The letter of credit is intended to ensure that the entity setting up an alternative store has the means to support developers and customers.

However, this requirement will make it virtually impossible for smaller entities to set up stores to distribute their own apps.

Moreover, developers who opt to move away from the current system of app distribution and payments will have broadly two options:

1. Distribute apps on the App Store using an alternate payment method and pay a 10-17 per cent commission to Apple on in-app purchases plus a “core technology fee” (CTF) of 0.50 Euros for each download after 1 million downloads. Apple justifies the CTF as remuneration for the investment it makes in the tools, technology, and services that enable developers to build and share their apps with Apple users.
   
   
2. Distribute apps using an alternative app store and pay a CTF on all app downloads.

 

While Apple argues that the new app store terms would result in 99 per cent of developers reducing or maintaining the commission they pay the company, several experts note that opting for the new terms may result in developers paying millions of dollars to Apple for app downloads.

For instance, David Heinemier Hansson, the creator of RubyonRails - a web application development language, estimates that if Meta opts for the new business terms, it will end up paying Apple more than US$ 11 million annually in CTF alone. Similarly, the developer of a free app with more than 2 million downloads would have to pay approximately US$ 45,000 in CTF, even though the app generates no revenue.

These concerns have caused several companies and developers, including Spotify and Epic, both of which are embroiled in legal battles with Apple regarding its App Store policies, to label the proposals as “malicious compliance” and a rejection of the DMA’s goals.

What To Expect

Much will now depend on how the European Commission views Apple’s compliance proposal. If it deems the proposal compliant with the DMA, it could result in several EU developers being rendered worse off than their counterparts in other countries.

However, if it finds that Apple has failed to comply with the DMA, it could impose fines of up to 10 per cent of the company’s global turnover. Such fines by the EC will likely be challenged by Apple before the European Court of Justice, culminating in litigation dragging on for years.

Whatever the outcome in the EU, Apple’s plan to comply with DMA provides a valuable lesson on drafting and implementing ex-ante competition laws in digital markets. Unless these laws account for incentivising all stakeholders, including large technology companies, developers, and users, they will likely result in market failure.

Nations should instead promote growth and innovation in their domestic technology ecosystems, thereby providing citizens with meaningful alternatives to the services offered by large technology companies.

(The author is a Fellow at the Esya Centre, specialising in digital assets, data protection, and digital antitrust. Views expressed are personal)