South Korea on Tuesday passed landmark legislation regulating mobile app stores and restrictions imposed on app developers dictating which payment systems they are forced to use. The new rules now open the door to alternative purchase options, in theory allowing app developers to bypass Apple and Google's 30% commission and accept payment directly from consumers.
The law, an amendment to South Korea's Telecommunications Business Act, was passed by the country's National Assembly with the goal of reining in app store operators such as Apple and Google. In addition to requiring mobile platforms to allow alternative in-app purchasing systems, it also forbids store owners from delaying the approval of apps or from removing apps out of retaliation. Failing to comply will result in fines of up to 3% of a mobile app store operator's revenue in the country.
The law is sure to have significant ripple effects throughout the world. Both Apple and Google are under intense scrutiny from regulators in the EU and the U.S. and are also facing numerous lawsuits both from government and from competitors. The main concern of those suits is the level of control they exert over their respective mobile platforms. South Korea's new legislation, which is expected to be signed into law in short order by President Moon Jae-in, could offer a roadmap for European and U.S. regulators to follow suit.
Apple is currently embroiled in an antitrust fight with Fortnite maker Epic Games, which sued the mobile company last year. A verdict from that suit, which went to trial in May, is expected in the coming weeks. Apple also just settled a class-action lawsuit with app developers largely in its own favor by making minor concessions. Google, on the other hand, is being sued by the Department of Justice and dozens of state attorneys general in a collection of antitrust suits taking aim at its advertising business, its search engine and its Play Store business on Android.
South Korea represents only a small fraction of the overall App Store and Play Store markets, which themselves are not the largest businesses of either Apple or Google. But the stores do generate tens of billions of dollars in revenues per year for both companies, of which they take 15% to 30% on all digital transactions with a few exceptions. As was made clear in Apple's courtroom fight with Epic — which also sued Google over similar allegations — the tech giants see app store restrictions as ways to control the flow of commerce on mobile and are unlikely to ever give up control unless forced to.
Neither company appears pleased by South Korea's new law. "The proposed Telecommunications Business Act will put users who purchase digital goods from other sources at risk of fraud, undermine their privacy protections, make it difficult to manage their purchases, and features like 'Ask to Buy' and Parental Controls will become less effective," Apple wrote in a statement ahead of the law's passing. "We believe user trust in App Store purchases will decrease as a result of this proposal — leading to fewer opportunities for the over 482,000 registered developers in Korea who have earned more than KRW8.55 trillion to date with Apple."
"Just as it costs developers money to build an app, it costs us money to build and maintain an operating system and app store," a Google spokesperson told The Verge. "We'll reflect on how to comply with this law while maintaining a model that supports a high-quality operating system and app store, and we will share more in the coming weeks."
Epic CEO Tim Sweeney, an outspoken critic of digital storefronts and one of the most vocal challengers to Apple and Google's restrictions, offered effusive praise for the South Korean government. "Korea is first in open platforms! Korea has rejected digital commerce monopolies and recognized open platforms as a right," Sweeney wrote on Twitter this morning. "This marks a major milestone in the 45-year history of personal computing. It began in Cupertino, but the forefront today is in Seoul."