Thursday, January 19, 2023

Brazil's antitrust authority (CADE) opens full-blown investigations of Apple's App Store monopoly abuse further to complaints by Mercado Libre and Clique, regardless of low iPhone market share

Brazil is becoming an increasingly important jurisdiction for competition as well as patent enforcement. In October, Brazil's competition authority--Conselho Administrativo de Defesa Econômica (CADE), which translates as Administrative Council for Economic Defense--rendered a well-considered decision clearing Microsoft's acquisition of Activision Blizzard. Earlier this week, IAM's Adam Houldsworth pointed out that Ericsson was on the winning track against Apple in Brazil, with a key decision by Brazil's top court shortly before the December 2022 settlement (paywalled article). I've obtained some documents and will analyze them in the days ahead.

The latest news is that CADE yesterday opened formal investigations of Apple's alleged abuse of its iOS app distribution (and in-app payments) monopoly further to complaints by Latin America's e-commerce giant Mercado Libre and another complainant named Clique. Mercado Libre is the Amazon on the continent of the Amazon river: the leading regional ecommerce company. To be precise,

  • Mercado Libre (Spanish for "free market") is known in Brazil as Mercado Livre (the Portuguese version), and

  • the formal complainants in Brazil are and Mercado Pago Instituição de Pagamento Ltda, which belong to the Mercado Libre group.

The respondents are Apple Inc. (of Cupertino, California) and Apple Computer Brasil Ltda., Apple's Brazilian subsidiary.

In December, it became known that Mercado Libre brought formal antitrust complaints not only in Brazil but also with Mexico's competition authority Cofece (Comisión Federal de Competencia Económica, Federal Economic Competition Commission). It will be interesting to see whether the Brazilian momentum will also benefit the Mexican initiative. As I reported in September, Cofece referred another complainant to Mexico's telecommunications regulator.

Mercado Libre's complaints raise two closely related issues:

  • Apple's exclusionary conduct with respect to the distribution of digital goods and services on iOS devices: In its complaint, Mercado Libre says that Apple "impedes the emergence of other distributors of digital goods and services on iOS devices." Apple "monopolizes the market by not allowing Mercado Livre or whatever other economic actor to expand its offering to digital goods and services produced by others and to become a marketplace for digital goods and services that would compete with Apple, which itself does offer such service."

  • Mercado Livre furthermore says Apple imposes a restraint on the growth of developers of digital goods and services, with video streaming serving as a good example. The complaint argues that developers' growth is impeded by not having access to alternative distribution channels (and, therefore, having to pay Apple's app tax).

What makes Mercado Libre's complaints in Brazil and Mexico so interesting in the global context are two aspects:

  1. When defending itself against complaints by Epic Games and other purely digital companies, Apple always argues that it doesn't levy its app tax on the distribution of physical goods. The core business of the Latin American complainants actually is the sale of physical goods--but they also want to compete in the distribution of digital goods and services.

  2. Apple's market share is particularly low in Latin America (though it's even lower in India). CADE's decision to open full-blown investigations quotes from Apple's response to the complaint that the iPhone allegedly has a market share below 10% in Brazil, and iOS devices (also including the iPad) of less than 20%.

Mercado Libre's Brazilian complaint contains the following chart, which compares the iOS and Android ecosystems and effectively visualizes what comes down to a single-brand market (foremarket and aftermarket) argument (click on the image to enlarge):

CADE is already investigating Google's Android practices (investigation no. 08700.002940/2019-76), but I'll leave that topic for another day.

CADE took note of Apple's argument about market share in the market for devices (or operating systems) and Apple's reference to other ways in which Mercado Libre can reach customers, but nevertheless decided that there were indications of monopoly abuse that warranted an investigation. Here's a screenshot of the final part of the decision (click on the image to enlarge):

The four action items CADE has put on its to do list are

  1. to identify and better understand and define the key players who are affected by Apple's conduct in the relevant markets;

  2. to conduct an inquiry into the existence (or lack thereof) of a dominant market position by Apple in the relevant market (Mercado Libre makes a tying ("venda casada" in Portuguese) argument, which presupposes market dominance);

  3. to study in detail similar investigations in other jurisdictions in order to understand inhowfar they are relevant to the Brazilian case; and

  4. to analyze the Terms & Conditions imposed by Apple, particularly the Apple Developer Program License Agreement, Paid Applications Agreement, and App Store Review Guidelines, and the role they play in the alleged restrictive conduct.

While the launch of formal investigations does not make it a foregone conclusion that Apple will be held in violation of Brazil's competition laws, the decision makes reference to preliminary investigations, so CADE is already fairly familiar with the issues.

I have confidence in CADE's understanding of digital markets (in light of the Microsoft-ActivisionBlizzard decision) and I'm reasonably optimistic that Apple will be found to have an aftermarket monopoly, and that it will ultimately be required to open up app distribution in Brazil.

In other App Store antitrust news, Spotify and various other companies and several European industry associations sent a letter to EU antitrust chief Margrethe Vestager, urging her to take action against Apple and other digital gatekeepers, particularly in connection with Spotify's complaint over Apple's restrictions on music streaming services.