Policy

Apple's plan to battle global App Store regulation: Ignore it, mostly

Apple is fighting tooth and nail to keep 30% App Store fees. Its tussle with Dutch regulators shows how it plans to combat forthcoming EU and U.S. regulation.

An illustration of a golden App Store icon

Apple’s response to the Dutch antitrust order seems to be a preview of things to come.

Image: Apple

Apple recently received its sixth consecutive 5 million euro fine for failing to comply with a Dutch antitrust ruling.

The Dutch Authority for Consumers and Markets (ACM) sought to give dating app developers in the Netherlands access to third-party payment options. In theory, this would allow developers to circumvent Apple’s payment system and 30% commission. App Store fees are estimated to have generated upward of $70 billion in revenue for Apple last year.

Apple claims it complies with the law, but it still charges developers a “reduced rate” of 27% on third-party payments. To use third-party payment providers, developers must also create a new version of their apps for the Dutch market. And Apple sticks a warning on apps with third-party payment access, telling users: “This app does not support the App Store’s private and secure payment system.”

At the end of February, Apple Chief Compliance Officer Kyle Andeer sent a letter to Dutch authorities arguing that its existing situation is fully compliant with the law. Andeer made no mention of the 27% fee on third-party payments. Instead, the letter focused on the issue of Apple requiring developers to make new versions of their apps for the Dutch market. Andeer claimed this requirement is “not costly or difficult for a developer,” and that it is necessary for Apple to comply “with its legal obligations in the Netherlands while at the same time having the ability to maintain its standard terms and conditions in the rest of the world.”

Some developers claim Apple’s third-party payment accommodations are anything but seamless and straightforward. “I’d be surprised if a single app ever took them up on this,” prominent iOS developer Marco Arment wrote on Twitter. “This is almost certainly how Apple plans to comply with ALL external-purchase regulations, until and unless they’re forced to be more permissive.”

Regulators seem to agree. “As we understand it, Apple essentially prefers paying periodic fines rather than comply with a decision of the Dutch Competition Authority on the terms and conditions for third parties to access its App Store,” Margrethe Vestager, executive vice president of the European Commission for a Europe fit for the Digital Age, said in a speech delivered in California on Feb. 22.

Apple declined to provide a comment for this story. ACM spokesperson Murco Mijnlieff gave Protocol a brief statement acknowledging the penalty payments imposed on Apple concern “the ability for apps to make use of an alternative way for payments.”

Apple’s response to the Dutch antitrust order seems to be a preview of things to come. Politicians in both the EU and U.S. are attempting to kill Apple’s golden goose, the 30% App Store fee. Apple’s strategy of focusing on complying with the letter of the law rather than the spirit has largely succeeded in upholding the status quo in the Netherlands. But regulators on both sides of the Atlantic are paying attention to these evasion tactics and will almost certainly account for them in future legislation. The outcome of this regulatory cat-and-mouse game will demonstrate whether the EU and U.S. legislatures have any hope of reining in Big Tech with the tools currently at their disposal.

The first major test will likely come from the EU’s Digital Markets Act, which could pass as soon as this year and go into effect in 2023. The law targets “gatekeeper” firms — almost certainly including Apple — and would require them to allow the “effective use” of third-party services that are “accessed by means other than the core platform services of that gatekeeper.”

The DMA proposes significantly higher penalties for companies that don’t comply, and that in itself could make the legislation more potent than the Dutch rules. The European Parliament has proposed fines between 4% and 20% of total global revenue from the company’s previous fiscal year. Apple generated $366 billion in net revenue for the fiscal year ending Sept. 25, 2021: That would put the range of a potential fine between $14.6 billion and $73 billion. The company would likely have a hard time accepting even one of those fines, and it certainly wouldn’t want to absorb six in succession.

The DMA would also impose ex ante obligations on gatekeepers, meaning regulators would take a proactive role in stopping harms before they happen rather than simply punishing actors afterward. In the case of the DMA, the ex ante approach could give regulators more leeway to interpret whether gatekeepers are complying with the spirit of the laws — something that has clearly become an issue in the Netherlands.

Some EU regulators — and U.S. lawmakers — hope that the DMA will act as a guide for the U.S. Senators are currently considering the Open App Markets Act and the American Innovation and Choice Online Act, both of which would limit Apple’s ability to favor its own payment system. The bills made it out of committee with bipartisan support and have been placed on the Senate Legislative Calendar.

Both Senate bills share some key elements with the DMA. The Open App Markets Act, for instance, would give regulators the ability to interpret whether platforms “materially restrict, impede, or unreasonably delay” the ability of users to access competing services. This flexible language could help the federal government hold Apple accountable for following the spirit rather than the letter of the law, as the DMA attempts to do.

“In the U.S., several bills are progressing through Congress … and they share many features with our proposal,” Vestager said in her February speech. “This is very encouraging, because it means that there is a great degree of global consensus.”

Some Apple competitors don’t share this confidence.

“During the committee hearings [on these U.S. bills], there were myriad concerns and questions and hypothetical amendments that were brought up by legislators,” Matt Fossen, the U.S. communications manager at Proton, told Protocol in an interview. “The one thing I don’t really recall hearing about was: What are we learning or taking away from what’s happening in the Netherlands?”

So if lawmakers are serious about disrupting Apple’s 30% fee structure, what can they do? Fossen outlined two scenarios. In the first, lawmakers in the U.S. and EU would “go back to the whiteboard and basically try to rehash substantial parts of these bills to account for all these things we’ve now seen Apple do.” The second scenario, he said, would see the bills pass as they stand, and then regulatory agencies such as the FTC would attempt to address loopholes during later rulemaking processes.

In either scenario, Apple would likely take its case to the court in an attempt to uphold the status quo. Lawmakers might be circling Apple, attempting to execute a siege, but Apple holds some $37 billion in cash, and that puts time on its side.

This story was updated March 8, 2022 to clarify a quote from Fossen regarding legislators.

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