Apple adjusts payment conditions avoiding new penalties

Last year the ACM imposed an order subject to periodic penalty payments on Apple for abusing its dominant position. According to the ACM, Apple violated Article 24 of the Dutch Competition Act (Mw) and Article 102 of the Treaty on the Functioning of the European Union (TFEU) by imposing unreasonable payment conditions on dating-app providers. A number of changes to Apple’s policy did not satisfy the ACM’s requirements, which have led to penalty payments totalling €50m. Continued pressure from the ACM on Apple seems to have worked: this weekend the ACM announced that Apple has adjusted its conditions in line with the order.

Payment conditions

The dispute between Apple and the ACM revolves around payments for purchases by consumers within dating-apps offered from the App Store. If an app provider offers digital content or services within the app for a fee, that provider is required to agree to additional contractual conditions set by Apple. These conditions require the app providers to use Apple’s In-App Puchase (IAP) system for the processing of payments. In addition, app providers were not allowed to refer within their own apps to payments options outside the app. In its decision, of which only as summary is available, the ACM states that as a result of these conditions app providers are limited in their freedom of choice: they must use Apple’s IAP service, and cannot have payments processed in any other way.

Dominance

In assessing whether Apple has a dominant position, the ACM examined if dating-app providers have any substitutes for Apple’s appstore service. It found that such substitutes do not exist to a sufficient degree and, as a result, Apple is, to a high degree, able to act independently from dating-app providers.

The ACM took into account that most Dutch only have access to one mobile operating system with that system’s appstore: Apple’s operating system iOS with the App Store or Google’s operating system Android with the Google Play Store. According to the ACM, presence in both the App Store and the Google Play Store (multi-homing) is crucial for dating-app providers, because dating apps heavily rely on network effects: the greater the odds of a successful match are, the more appealing it becomes to use the app. Consumers that use dating services assume that the reach of their dating app is not limited to the mobile operating system on which the app has been downloaded. Therefore, dating-app providers are, in the ACM’s view, forced, even more so than the average app provider, to be present in the both the App Store and the Google Play Store. Another factor that the ACM considered, was that Apple does not allow alternative appstores on its smart mobile devices and that websites are not alternatives. The ACM concluded that Apple enjoys a dominant position on the relevant market for appstore services on the mobile operating system iOS for dating-app providers (100% market share).

Abuse by harming dating-app providers

As regards the question of whether Apple abused its dominant position, the ACM is of the opinion that those conditions have harmed app providers in several ways. First, Apple restricted the dating-app providers’ freedom of choice in respect of the processing of payments for the digital content and services they sell. Second, since Apple does not give access to data about customers that have made purchases, app providers are also not able to contact their app users directly for customer service purposes such as cancellations, refunds and background checks. Therefore, the ACM concluded that Apple abused its dominant position.

Where abuse has been established, it must also be ascertained whether there is an objective justification. According to the ACM, that is not the case. Apple stated that its objectives concern the ability to exploit the App Store commercially and ensure quality, privacy, and safety. In the ACM’s view, Apple could achieve these objectives in other less harmful ways.

Order to adjust conditions

To put an end to the abuse, the ACM, by decision of 24 August 2021, ordered Apple to adjust its payment conditions in such a way that dating-app providers who offer dating apps in the Dutch App Store:

• are able to choose which providers process payments for digital content and services sold within the app; and
• have the ability to refer within the app to other payment systems outside the app.

To reinforce this order, the ACM imposed a periodic penalty payment. Apple had to comply with the order no later than two months after the date of the decision and if it failed to so, it had to pay a penalty payment of € 5 million per week, with a maximum of € 50 million.

Apple has lodged an objection against the decision with the ACM. Pending this procedure, Apple requested the District Court of Rotterdam for preliminary relief, in order to prevent the ACM from publishing its summary decision and to suspend the order.

District Court

In its preliminary judgment, the Court has largely rejected Apple’s request. Regarding the substance of the case, the abuse of a dominant position, the Court agreed with the ACM that Apple has a dominant position and that it abused that position. The Court thus confirmed the ACM’s decision that Apple violated Article 24 Mw and Article 102 TFEU. Only one part of the decision has been suspended by the Court, which has been kept confidential.

Thus, the Court determined that Apple had to comply with the order subject to periodic payments. Given the holidays at the end of 2021, the Court ruled that Apple had until 15 January 2022 to comply before the penalty payments would be incurred.

Proposals to adjust payment conditions

Apple made various (proposals for) adjustments to these payment conditions. However, the ACM rejected those proposals, in short, because:

• Apple had raised barriers for dating-app providers to use of third-party payment systems by seemingly forcing dating-app providers to make a choice: either refer to payment systems outside of the app or to an alternative payment system; and
• Apple created also unnecessary barriers with a new condition which stipulated that dating-app providers had to develop a new app if they wished to use an alternative payment system.

In March 2022, the ACM reported that Apple had still not complied with its order, which meant that Apple had to pay the maximum penalty of €50m. In that publication, the ACM indicated that a new proposal made by Apple would be assessed, also by submitting it to market participants for consultation. It added that if Apple would still not comply it may impose another order subject to periodic penalty payments with are possibly higher.

After all these complications, the ACM has now agreed to the latest adjustments made by Apple. The ACM states in this respect: “From now on, dating-app providers are able to let their customers pay in different ways.”

Battle continues

Although the ACM has won a victory, it has not yet been definitively established that Apple abused a dominant position in violation of Articles 24 Mw and 102 TFEU. Although the Court in preliminary relief proceedings ruled in favour of the ACM, the procedure regarding Apple’s objection against the ACM's decision is still ongoing.

It is likely that Apple will, depending of the outcome of the ongoing procedure, go all the way to the highest court considering, among other things, the precedent this case sets. Other app developers, who are subject to the same conditions that the dating-app providers encountered, may feel encouraged to file a complaint if the conditions have not been changed in relation to their apps, leading to potentially broader antitrust investigations. In one of its press releases the ACM stated that the payment conditions apply to 15% of all app providers. Moreover, this case is also of interest to other competition authorities. So, this case could have tremendous consequences for Apple.

In relation to the European Commission's investigation into the possible abuse of a dominant position by Apple, the ACM announced last year that it could continue its investigation since both investigations relate to different conduct.

This case demonstrates that the does not shy away from taking action against large tech companies. This is in line with its agenda, in which the digital economy is considering one of the ACM’s main priorities. More investigations into abuse of dominant positions can, therefore, not be ruled out.