Thursday, February 24, 2022

EU competition chief's harsh words on Apple's Dutch antitrust issue presuppose non-compliance, which is very debatable

I just reported on Apple's latest patent settlement (with Japan's national patent licensing firm IP Bridge). This story is now about Apple's App Store monopoly, and an utterance by the EU's competition chief that I don't agree with.

The European Union is fortunate to have two really strong commissioners in key positions at the same time: both Margrethe Vestager (competition enforcement and digital industry) and Thierry Breton (who is dealing with a lot more than just the EU's Single Market) are power brokers, great communicators, and shakers and movers. At different times I had doubts about either one. I was worried about Mrs. Vestager being on an anti-American crusade, and I still don't believe in that Apple-Ireland "state aid" case because the issue is political, not one of (existing) competition law. However, most of the time she's right, also in the opinion of the EU judiciary. With Mr. Breton my concern came from the opposite direction, but his resistance to a clampdown on some major standard-essential patent holders ultimately proved right, as Daimler's settlement with Nokia and subsequent signing of a license agreement with the Avanci pool tells us that the sky isn't falling on Europe's automotive industry. Mr. Breton has a sense of Europe's weaknesses and is serious about addressing them.

The jury is still out on whether they will accomplish their goals. The problems Europe faces--such as with Apple and Google--are difficult to solve. Previous generations of politicians failed. Mrs. Vestager and Mr. Breton will either go down in history as the ones who put Europe's industrial policy on the right track for the Digital Age, or their efforts will ultimately be judged as "too little, too late"--or the outcome could land in a gray area between those two scenarios.

Today, however, I saw articles such as Techcrunch's story on the EU swiping at Apple that made me aware of an acceptance speech Mrs. Vestager gave in Berkeley, CA, where she received the Riesenfeld Memorial Award. The following passage strikes me as gratuitous Apple-bashing:

"Effective enforcement, which includes the [European] Commission having sufficient resources to do so, will be key to ensure compliance. Some gatekeepers may be tempted to play for time or try to circumvent the rules. Apple’s conduct in the Netherlands these days may be an example. 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. And that will also be one of the obligations included in the [Digital Markets Act]."

There's that qualifier or disclaimer: "As we understand it ..." But even those four words don't justify prejudging the Dutch situation, and denying Apple the right to disagree on what appears to be a reasonable basis. Let's look at this issue from the perspective of the rule of law:

  • Yes, the Dutch Authority for Consumers & Markets (ACM) has fined Apple for five weeks in a row, to the aggregate amount of €25 million by now (with a cap of €50 million being approached soon). Here's my commentary on the fifth weekly fine, which was threatened for this week.


  • The ACM is an executive government agency. Its decisions are reviewable by the courts of law, in this case potentially all the way up to the European Court of Justice, which also has the power to toss or affirm Mrs. Vestager's decisions.

  • A court allowed the ACM to go ahead for the time being and force Apple to comply. However, Apple is still appealing the underlying decision, and no court of law has held Apple to be out of compliance with the ACM's decision.

  • All we have is the ACM itself saying week after week that Apple is not doing enough to comply. So, what exactly is it that leads the ACM to deem Apple to be out of compliance? The only issue that the ACM specified in its most recent statement on this enforcement dispute is the requirement to submit a separate app for the Dutch market. There are other--but totally unspecified--issues.

  • The Google-Apple mobile app store duopoly must be broken. However, if a regulatory agency or even a legislature in one small country orders Apple to support alternative payment systems there, it's not unreasonable for Apple to argue that all it has to do is to allow the submission of--and grant approval to--apps that are designed for that particular market and meet those requirements.

  • There is a possibility--and that's undoubtedly the case in the Dutch market now--that developers won't benefit from a decision in practice. The market may be too small to create a separate app and have the existing user base migrate; and with Apple imposing an app tax of 27%, developers couldn't even pass on any savings to end users. That's understood. But that's not necessarily non-compliance. It may just be a structural issue with a decision that didn't go far enough.

  • Some jurisdictions--such as the Netherlands--may allow a government agency to enforce an antitrust decision while it is being appealed. By contrast, in the United States the government firstly has to go to court and seek an injunction from an impartial judge. But Dutch lawmakers apparently didn't elect to give the ACM the power to really impose its own interpretation and application of a decision on private companies like Apple. The ACM faces a limit of €50 million; that maybe a draconian sanction for most companies, but not for Apple, and the alternative would have been a percentage of worldwide sales (which is what the EU Commission can impose, subject to court review) or even the possibility of sending executives to prison (which would obviously have to be decided by a court in the end, but the law could allow the ACM to initiate the process).

    Given that Dutch lawmakers decided that any sanctions for disagreeing with the ACM on the scope of its decisions should be limited. That makes it a legitimate choice for Apple to take its chances and continue with its appeal.

Having said that, I believe Mrs. Vestager should have given Apple the benefit of the doubt here. In dubio pro reo. That's an old European and even pretty universal concept. Mrs. Vestager is one of the most important players in the global fight against app store monopoly abuse. She should avoid coming across as biased. Here, she simply takes sides with the Dutch antitrust authority--when she doesn't even have a basis at this stage to be convinced of whether the underlying decision by the CMA was right (much less whether the ACM is applying it appropriately now), given that the Commission itself has not made a single final decision against Apple on App Store issues, and the only preliminary decision (the Statement of Objections in the Spotify case) that it has handed down deals with the narrow issue of a third-party app maker competing with an Apple offering (Apple Music), while the Match Group can't (and to the best of my knowledge doesn't) claim that Apple is competing in the dating-app business.

So the ACM is far ahead of DG COMP with respect to App Store monopoly abuse both on the merits and in procedural terms. It's simply too early for Mrs. Vestager to endorse the ACM's course of action. DG COMP and the CMA obviously communicate through the European Competition Network. Still, if DG COMP believes that Apple is abusing its App Store monopoly by requiring the use of its own in-app payment (IAP) system even when app makers don't compete with Apple as directly as Spotify does with Apple Music, then why leave it to its smaller Dutch counterpart to enforce the law?

And why does Mrs. Vestager just ask for more resources for her institution when the very best and most effective way to enforce the Digital Markets Act is actually to enable private enforcement (through litigation, of course) in addition to DG COMP's own efforts?

It's very shortsighted on some app developers' part to bet on overreaching interpretations of decisions--be it Judge YGR's "consolation prize" injunction in Epic Games v. Apple or the Dutch ACM's dating-app ruling. What's needed is a structural and principled approach--such as requiring Apple to allow third-party app stores and enabling enforcement through private lawsuits.

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