Defeat for Apple in London: App fees far too high

Apple has abused its monopoly in the App Store for iPhones and iPads and has charged far too high fees for years. This is the ruling of the Competition Appeal Tribunal, responsible for England and Wales. It orders Apple to make extensive refunds to customers, who in most cases can expect double-digit pound amounts. However, as there are millions of affected customers, the total amounts to hundreds of millions of pounds. If the court's decision becomes legally binding, it is a more significant defeat for Apple than this amount might suggest.

Because the ruling concerns the period from October 1, 2015, to November 15, 2024, and thus more than five years before Great Britain's exit from the EU. Accordingly, the three judges also refer to EU law. Their unanimous decision therefore has a precedent-setting effect not only for Scotland and Northern Ireland but for the entire EU. Furthermore, since 2023, a parallel class action has been pending at the same court on behalf of those app providers who had to process their software and in-app purchases through the same App Store. A ruling in favor of Apple in the parallel proceedings would be a surprise.

The ruling, issued on Thursday, dates back to a class action by Briton Dr. Rachael Kent filed in 2021. According to her own statement, she is the first woman to have ever initiated a class action in Great Britain. The scientist researches digital culture and society and teaches at King's College London. As an iPhone owner, she could only obtain apps for her mobile phone through Apple's App Store because Apple has always prohibited alternative distribution channels. This monopoly makes things expensive, as Apple regularly charges 30 percent in fees. Kent went to court (Dr. Rachael Kent v Apple Inc and Apple Distribution International Ltd, Case No. 1403/7/7/21).

30 percent fee "excessive and unfair"

According to the grounds for the judgment, Apple has indeed abused its monopoly in two markets: (selling) apps, and revenues within apps. In both markets, Apple has excluded all competition. Apple argued that this was justified by performance competition, after all, iPhones and iPads are a fine thing. "Apple's conduct cannot be justified as performance competition in this context, as Apple is not in competition at all," it states in the summary of the almost 400-page judgment document. Furthermore, Apple also forces the use of its payment processing system for in-app purchases.

With this, Apple has repeatedly violated Article 102 of the Treaty on the Functioning of the European Union and Chapter II of the UK Competition Act. "Apple has abused its market power by charging excessive and unfair prices, in the form of commissions for the distribution of iOS apps and for the payment processing of in-app purchases," it states in the summary of the judgment further.

Article 102 TFEU

"The abuse by one or more undertakings of a dominant position on the internal market or on a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. (...)"

The difference between the fees charged and the costs is significant and persistent. This shows that the prices are excessive. The rate is unfair both in itself and in comparison to the online shops of Epic Games, Microsoft, and Steam.

Apple's arguments fall flat

Apple attempted to justify this by stating that the exclusion of competition was necessary and proportionate to achieve legitimate objectives. The court rejects both. Furthermore, Apple argued that a single app store is more efficient; consumers would benefit from this to a greater extent than they would be burdened by the high prices. The court does not accept this either, as Apple excludes all competition in the two markets from the outset.

Instead of 30 percent, the ruling states that a maximum of ten percent for in-app purchases and a maximum of 17.5 percent for app purchases are justified. However, the difference burdened not only customers but also the providers of the apps and in-app content. The providers only passed on half of the additional burden to their customers.

This half is to be refunded by Apple for the relevant period of just over nine years, plus eight percent interest. The other half must be claimed by the app providers. The pending proceedings for this are called Dr Sean Ennis v Apple Inc and Others (Case No. 1601/7/7/23).

The parties in dispute should agree on the exact modalities of the refund and present the result at the next hearing, no earlier than November. In parallel, Apple can apply for leave to appeal, which the company will surely do. The court will then have to decide against which parts of the ruling Apple can appeal.

(ds)