Apple faces potential Digital Markets Act fine over App Store rules

The Commission, which opened its investigation in March this year, provisionally found on 24 June that terms that govern Apple’s relationship with app developer users of its App Store service breach ‘steering’ rules set out in the DMA.

Article 5(4) of the DMA requires ‘gatekeepers’ – which Apple has been designated as in respect of its App Store service – to allow app developers to “steer” consumers to offers outside the gatekeepers' app stores, free of charge.

The Commission’s preliminary view is that none of Apple’s terms “allow developers to freely steer their customers”. It said, for example, that 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”.

The Commission said that while Apple’s terms mostly enable app developers to steer consumers to offers via hyperlinking from their app to web pages where contracts can be concluded, this ‘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”. It has further taken issue with fees Apple charges app developers for facilitating the onboarding of new customers – stating its preliminary view that these “go beyond what is strictly necessary for such remuneration”.

Before the Commission reaches a final decision in the case, Apple will be given an opportunity to review the evidence that the Commission has compiled and make its own representations to contest the preliminary findings.

Tadeusz Gielas of Pinsent Masons, a specialist in competition law, said: “This is the first European Commission investigation into alleged breaches by a gatekeeper of their conduct obligations under the DMA that has progressed to provisional findings of infringement. If it leads to a final infringement decision being adopted by the Commission, it could lead to the first penalty being imposed under the new DMA regime. Such fine can be set at up to 10% of the company’s global annual turnover – and up to 20% of global annual turnover for repeated breaches of the same or similar DMA obligations.”

The App Store investigation is one of two DMA investigations the Commission opened into Apple in March. The second investigation relates to Apple’s compliance with user choice obligations in Article 6(3) of the DMA in respect of its Safari browser service. The Commission said at the time that it is concerned measures applied by Apple, including the way it has designed its web browser choice screen, “may be preventing users from truly exercising their choice of services within the Apple ecosystem”.

In its latest statement, the Commission confirmed that it has opened a third DMA investigation into Apple services.

The Commission said this separate new investigation is focused on contractual terms that govern app developers’ and app stores’ access to features Apple has introduced to promote compliance with the DMA. The Commission said it will assess whether the conditions Apple allegedly imposes – on access to alternative app stores or on the possibility for developers to offer an app via an alternative distribution channel – comply with rules set out under Article 6(4) of the DMA.

Under those rules, gatekeepers must “allow and technically enable the installation and effective use of third-party software applications or software application stores using, or interoperating with, its operating system and allow those software applications or software application stores to be accessed by means other than the relevant core platform services of that gatekeeper”. They are prohibited from preventing the downloaded third-party software applications or software application stores “from prompting end users to decide whether they want to set that downloaded software application or software application store as their default” – and must “technically enable end users” that wish to make such a choice to “carry out that change easily”.

However, the rules allow gatekeepers to take “strictly necessary and proportionate” measures to ensure that third-party software applications or software application stores “do not endanger the integrity of the hardware or operating system” they provide, or, similarly, to apply measures and settings other than default settings that enable end users “to effectively protect security in relation to third-party software applications or software application stores”. In both scenarios, the rules require gatekeepers to be able to justify their actions.

As part of the new investigation under Article 6(4) of the DMA, the Commission will examine the legality of Apple’s ‘core technology fee’, of €0.50 per installed app for developers of third-party app stores and third-party apps; the multi-step journey for Apple users to download and install alternative app stores or apps on iPhones; and the eligibility requirements developers have to meet to be able to offer alternative app stores or directly distribute apps from the web on iPhones.

Gielas said: “The speed with which the Commission has moved to open and progress new investigations under the DMA demonstrates its willingness to robustly enforce the new ‘ex ante’ digital markets competition rules. It is also notable that the Commission recently fined Apple in a separate case after finding that its anti-steering provisions relating to music streaming services breached wider EU competition rules. Apple is appealing that infringement decision.”

In parallel, the Commission announced that it has closed a separate antitrust investigation into Apple’s App Store practices involving the same conduct. The Commission said that it “has decided to close its antitrust investigation … following the designation of Apple as a gatekeeper in relation to its App Store under the Digital Markets Act (DMA). Under the DMA, Apple must not obligate app developers to use its IAP [in-app purchase system] and must refrain from imposing monetary and non-monetary restrictions on steering. In view of these clear prohibitions and to avoid multiple investigations into the very same conduct, the Commission has decided to close its antitrust proceedings.”