Yesterday, the European Publishers Council (“EPC”) published a press release, whereby they had submitted a comprehensive report to the European Commission (EC), (i) demonstrating why Apple and Google’s respective implementation of the app-store related provisions are in breach of the DMA and (ii) providing a way forward to ensure greater contestability and fairness in mobile ecosystems.
The app store-related provisions of the DMA are of critical importance for press publishers considering that a significant number of people consume news online. They often do so on iOS and Android devices through apps that are distributed by the Apple App Store and the Google Play Store. Of course, press publishers are not the only content producers for which these app stores are the critical conduit to their users, but this press release, which summarizes the content of this report (which is not publicly available yet), represents what I consider to be the most advanced and best thought through attempt to find a way forward to ensure greater contestability and fairness in mobile ecosystems. It represents a true voice of reason in the ambient noise.
Indeed, instead of merely criticizing Apple and Google for their failure to implement the DMA or calling the EC into action (which is not necessary since the EC is already acting, although perhaps not in a sufficiently comprehensive manner), this press release offers concrete solutions, which in my opinion balances the interest of the different stakeholders in Apple and Google’s ecosystems. It does not seek to address all issues, especially those related to Article 6(4), but it deals with key issues, such as steering (Article 5(4)) and FRAND (Article 6(12)). It also places things in their right context as it is not for app developers or even the EC to determine what app store policies or fees are compatible with the DMA; rather it is for the designated app store gatekeepers (i.e., Apple and Google) to do so.
Rather than paraphrasing the substantive part of this press release (which comes after the “in more detail”), I will reproduce it below and make comments highlighted in blue when necessary.
“The EPC supports the EC’s prompt decision to open proceedings to assess whether the measures implemented by Apple and Google comply with Article 5(4), as well as its plan to send its objections to Apple in the near future. The EPC’s view is that Article 5(4) should not be interpreted narrowly. The goal should be to allow app developers to have the largest possible freedom to offer attractive offers to their users. The EPC’s view is that, although an essential step, enforcing Article 5(4) may not be sufficient. Article 6(12), and the fair, reasonable and non-discriminatory (“FRAND”) principle it contains, should also be implemented. [Damien Geradin or “DG”: The DMA does not provide a menu of options that gatekeepers can choose from. Thus, they have the burden to show that they comply with all the app store related provisions of the DMA and not only some. That is why the EC should enforce the app store-related provisions of the DMA comprehensively, rather than in a piecemeal fashion. I find it rather pointless to enforce Article 5(4) without enforcing Article 6(12) at the same time. Narrow enforcement has indeed been one of the weaknesses of EU competition law. This should not happen again here.]
Our analysis of app store fees is based on some key principles:
- Apple and Google have the burden of demonstrating that their fees comply with the DMA. It is not for the EC or third parties to demonstrate that these fees are not compliant. However, in this memorandum, the EPC proposes a way forward that would allow Apple and Google to be paid fees when they are justified and comply with the DMA.
- Our proposed way forward should be applicable not only to news apps, but also to all other apps. Our proposal is not aimed to be news-specific as we realise that there cannot be as many different regimes as app categories. [DG: One of the merits of the EPC approach is that it can be applied to all apps, not only news apps.]
Against that background, our position is as follows.
As per Article 6(12), Apple and Google need to objectively justify why they treat digital content apps and apps selling physical goods and services differently
- Apple and Google treat apps that sell digital content (“Digital Content Apps”) and apps that sell physical goods and services differently as only Digital Content Apps pay fees, although they use the exact same app store services.
- If Apple and Google are not able to justify this difference in treatment, they should apply the same fees to both categories of apps, that is “no transaction fee”. While Apple and Google may disagree, in its Apple App Store (Music Streaming) decision, the EC has recognized at § 651 that (i) app developers bring significant value to the gatekeepers’ mobile ecosystem and (ii) gatekeepers have other means of monetizing their app stores (e.g., the $99 developer fee). Apple and Google also make billions of euros in selling search ads, leaving aside the fact that Apple and Google have built extremely profitable ecosystems, which would not have been possible without the presence of apps. [DG: What most app store commentators fail to appreciate is that Apple and Google’s fees totally discount the significant value that app developers bring to their ecosystems. This is what Microsoft found out when it tried to compete with iOS and Android. Attracting app developers is key. But for the availability of a large number of apps on one’s ecosystem, it is bound to fail. In a world where mobile ecosystems would compete for distributing apps, app store fees would be very low or even negative. The high fees charged by Apple and Google only reflect unequal bargaining power.]
- Alternatively, and subject to the requirements of Articles 5(4) and 6(12), Apple and Google should charge a reasonable fee to all app developers. Given this fee would apply to all developers, it could be very low. [DG: That is indeed the only other FRAND compatible alternative to zero fee with the downside, however, that apps that have never paid any fees to Apple and Google will now be charged, albeit a low amount. They may still not like it.]
- If Apple and Google are able to objectively justify this difference of treatment (something they have never been able to do), they should be allowed to charge fees for their app store services provided that the fees charged to digital content apps comply with the DMA (see below). [DG: The burden of providing an objective explanation to this difference of treatment is indeed on Apple and Google. Absent that explanation, there is a manifest breach of Article 6(12).]
If Apple and Google can objectively justify the difference of treatment between Digital Content Apps and other apps (which is unlikely), Apple and Google should only be allowed to charge digital content apps DMA compliant fees
- The fees charged by Apple and Google for link outs to purchase, the use of alternative PSPs or the use of IAP/GPB breach at least Articles 5(4) and 6(12).
- Article 5(4) provides that app developers should be allowed “free of charge, to communicate and promote offers, including under different conditions, to end users acquired via its core platform service or through other channels, and to conclude contracts with those end users.”
- Apple and Google are in manifest breach of this provision considering nothing is “free of charge” in their terms and conditions. The basic rule is that communication of offers to existing users and the signing of contracts with them should be free.
- Now, if the EC was to interpret Recital 62 in such a way that Apple and Google should be allowed to charge a fee in some circumstances, they should only be allowed to charge an “acquisition fee” when they play a role in the acquisition of the user by the app developer.
- This “acquisition” fee should be applied on the first sale and it should not be recurrent.
- This fee should apply equally to all modes of payment (link outs to purchase, use of alternative PSPs, or even use of IAP/GPB in which case an extra 3% fee should apply for payment processing). But for payment processing, there is no justification for charging different rates depending on the payment solution used by the developer. An acquisition fee is linked to acquisition, independently of the mode of payment. [DG: That is correct. Google’s charging of different fees depending on the mode of payment makes no sense at all. Even Apple does not do it, although their fee structure is highly problematic.]
- No acquisition fee would be owed when the user bought digital content as a result of the publisher’s commercial efforts, e.g., when a news app developer converts a user of one of its free apps into a paying user.
- In order to make this approach practicable, we suggest that Apple and Google be allowed to charge a one-time acquisition fee when the user downloads an app via their app store and makes a purchase within a 7-day window of the install; subject to two exceptions: (i) when the user has typed the trademark of the app developer in the app store search box and (ii) when the app developer has bought search ads. In the former case, the app developer brought the user to the app store and in the latter case the app developer has already paid fees for acquisition. [DG: This is a fair compromise. Apple and Google should be entitled to a one-time acquisition fee, but only when it can be shown they contributed to the acquisition of the user (and have not been for it already through the purchasing of ads by the app developer. In all other circumstances, no acquisition fee is justified.]
- To the extent that Apple and Google intend to charge additional fees for services they render:
- The services must be clearly identifiable and app developers must be able to decide not to use them by opting out;
- Opting out of such services should be easy to perform and can be done without the approval of users (as app developers know what is best for their users);
- When an app developer decides to opt out of such services, its apps will continue to function (as otherwise the possibility to opt out is illusory); and
- If the app developers decide to continue to use these services, they should be priced in a fair, reasonable and non-discriminatory manner. [DG: This should force Apple and Google to explain why these fees are exactly charged for, instead of very broad statements explaining that they are needed to maintain their ecosystem, etc. Apple and Google can unbundle these services and price them in FRAND way.]
- Finally, to the extent that Apple and Google conclude tailored-made deals with some app developers whose apps sell digital content, these deals should apply to all other developers unless Apple and Google are able to objectively justify the difference of treatment. In this regard, the EPC would like to stress the essential function of news publishers in today’s society.
Apple should not be able to charge a Core Technology Fee (CTF)
That is the case for the following reasons: (i) Apple is sufficiently compensated with the proposed method above; (ii) the CTF does not comply with Article 6(4) and 6(7). It seeks to prevent alternative forms of distribution (such as direct downloading and alternative app stores), and it hurts app developers which have a freemium business model; (iii) The CTF is both unfair and excessive. [DG: The CTF should go. It is designed to make alternative methods of app distribution fail and force app developers with a ad-based or freemium business model to stick to its existing terms.]
We believe that the proposed approach is principled and simple to implement. It is based on the principles that: (i) apps using the same app store services should be treated equally and that (ii) Apple and Google should be fairly compensated for the specific services they render to app developers, considering they already draw significant value from the presence of apps in their ecosystem.
No friction
We finally note that Apple and Google have introduced unnecessary friction preventing app developers from enjoying the benefits of the DMA. These take the form of “scare screens” or UX restrictions which are entirely unnecessary. These restrictions should be removed to allow for optimized customer experience in competition with the Apple and Google IAP / GPB solutions.
Conclusion
EPC regrets that Apple and Google have failed to implement the app store related provisions of the DMA, which aimed at ensuring greater contestability and fairness in mobile ecosystems to the benefit of consumers.
It is great time for the EC to enforce Article 5(4), but also to ensure that the other key provisions of the DMA are implemented in full by both Apple and Google. Otherwise, the adoption of the DMA will have been a wasted opportunity.
[DG disclosure: I contributed to the drafting of the above EPC report. The comments I have made on the press release are however mine only.]
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