Saturday, February 5, 2022

Resist the App Store tyranny, but don't troll Apple: food for thought regarding compliance with antitrust rulings and new laws

I'm now going to make my little contribution to the debate on Apple's compliance (or non-compliance) with a Dutch antitrust ruling--where Apple now says it will charge a 27% commission on payments made through alternative payment systems--and a South Korean app distribution law that has a similar thrust, and where Apple's and Google's proposals appear to raise similar issues.

There was a phantom debate over the scope of the Epic Games v. Apple injunction. The injunction was narrow and got stayed just as I predicted.

I'm not afraid of speaking out against Apple. When I write my posts, I don't even think about how someone in Cupertino might perceive them. I write them for a diverse readership. Only very rarely do I specifically address entities in my blog posts (and when I do so, it's crystal clear).

Also, far be it from me to engage in "victim-blaming." Companies, entities, and law firms fighting to #OpentheAppStores are, in principle, fighting the good fight. As an app developer, I'm grateful for that. And just like Apple has the right to act as a commission maximalist and concession minimalist, complainants will probably always scream that they're not satisfied with Apple's compliance. That is the name of the game in some people's opinion. Within reason, it's not objectionable.

I'm not done analyzing the Dutch situation. I've identified only one oddity so far: the 27% rate does not appear to be lowered for small businesses that can apply for a 15% rate on the revenues they generate through Apple's IAP. Maybe that was an oversight, and Apple will actually reduce the rate to 12% for small businesses using alternative payment systems, for consistency's sake. I wouldn't vouch for Apple acting in good faith there--but there's a spectrum ranging from good-faith compliance to not-so-good-faith compliance to being out of compliance, and the distinction between the two latter parts of the spectrum is sometimes hard to make.

Take the technical implementation and its commercial effects, for instance. Sure, for app developers it's a hassle to create a separate "SKU" (shelf-keeping unit, though these shelves are virtual) for the Dutch market. I doubt it would be an issue if we were talking about the entire Single Market of the EU. I have enough programming experience to see that Apple simply chose the simplest data structure for its own purposes: it created two new entitlements, and entitlements are SKU-specific, not (so far) specific to a SKU-market combination. It would be intellectually dishonest for me not to acknowledge this, or to make it sound like Apple had purposely complicated the process.

It's even harder to find out what's going on in South Korea, but I'll try to obtain information and form an opinion, sooner or later. The issues are likely the same.

Now, where does this take us? Ultimately we'd be talking about governmental price regulation, which is anathema to a free market economy.

It would be reconcilable with the rule of law to say Apple is entitled to a FRAND (fair, reasonable, and non-discriminatory) compensation. That's precisely what the EU did in the network protocol part of its famous Microsoft case. A compulsory license on FRAND terms. The European Commission and Microsoft even reached an agreement on the amount, but had they not, the rate could have been reviewed by a court of law.

Now, FRAND compensation for app distribution could be avoided by simply forcing Apple to allow sideloading and alternative app stores. In that case, we'd just be talking about an IP license. It would have to be ensured that the terms of that IP license, especially the fees, can be determined in court. If app developers have to accept the terms or will be shut out of the market, there won't be a court review of those terms. That, of course, would be unacceptable.

It is an unsustainable situation that the App Store is the world's most powerful censorship system. It's a tyranny. It has apparently dawned on many policy makers and regulators (and sooner or later will dawn on the right judges) that this must change.

But who's actually challenging app review? Who's really pushing for alternative app stores other than Epic Games?

It would have been wrong to troll Apple with unreasonable interpretations of the California UCL injunction. It is important to consider the obvious limitations of the Dutch antitrust ruling (though it has enormous potential for expansion into other jurisdictions and app categories) and the South Korean law.

Those first attempts at fixing the problem have some childhood diseases. They are limited, and in some ways may even be flawed--and some of the decision makers may even be full well aware of that, but they have to give it a try so everyone can go back to the drawing board and focus on real solutions.

The 30% cut is not the only problem, and not even the most important one.

All that has happened so far can be summed up as "nice try." But the companies and other entities pushing for change must learn from their mistakes, and policy makers, regulators, and judges will sooner or later conclude that something more--something better--is needed.

Trolling Apple, or slinging mud at it for not going beyond the call of duty, is not worth it. It's not appropriate because the problem is just that Apple became more powerful than Steve Jobs even imagined when the initial decision to allow third-party native iOS apps was made. The evidence in Epic Games v. Apple shows that Apple initially would have been fine with just offsetting its App Store operating expenses. I have seen a worrying trend in recent years with Apple being increasingly inconsistent, or using "apploturfers" who claim to speak on behalf of small app developers with about as little credibility as a self-described turkeys' union advocating for Christmas. That's bad stuff, and I personally hope Apple will change it. But let's not forget that regardless of all that is wrong and needs to change, the decision makers there have a duty to maximize shareholder value. I consider some of what Apple does an abuse of its market power. But it's not easy for a company to just give up what is at stake here, and belongs to all of Apple's shareholders, not just to management.

I can understand many people's frustration with legislative and regulatory decisions still not having the desired effect. This is, however, a necessary (albeit painful) part of the process. When policy makers, regulators, and judges see that the nuclear option--alternative app stores--does not overshoot at all but actually represents the minimum viable solution (and even then one has to ensure Apple can't engage in self-preferencing), things will get really interesting. As an interim step, it would of course help to reduce Apple's financial incentive for clinging to its App Store control. It's just easier said than done.

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