Thursday, February 9, 2023

Japan's competition authority (JFTC) publishes study, finds Apple and Google to abuse superior bargaining position; recommended measures relate to third-party app stores, app tax, app review

Japan is the jurisdiction du jour where Apple and Google have been found to abuse their gatekeeper powers as the duopolistic operators of the two major mobile ecosystems. The Japan Fair Trade Commission (JFTC), with which Apple reached an antitrust settlement in 2021 on the narrow issue of "reader" apps, has released its Market Study Report on Mobile [Operating Systems] and Mobile App Distribution. Some documents are already available in English, particularly a 27-page slide deck that summarizes the findings and recommendations (PDF); others are still being translated.

A week ago I commented on Apple's partly debatable answers to Brazil's competition authority CADE in the Mercado Libre (Livre) case, where Apple was requested to specify parallel investigations in other jurisdictions. I said "[t]he JFTC should do more"--and it has. The market study report published today is a huge milestone. If Apple had been more forthcoming, it would have disclosed that market investigation to CADE. Well, Apple has never been suspected of engaging in overcompliance with regulatory orders...

In the market study on which the JFTC reported today, the competition regulator has correctly identified Apple and Google as a duopoly. The English translation says "oligopoly", which is also correct, but when an oligopoly consists of two, "duopoly" is preferable.

The JFTC makes a clear distinction between conduct that raises concerns under Japan's Antimonopoly Act (AMA) and further observations and recommendations that may require new legislation in order to restore competition.

Potential violations of the AMA relate to "exclusion of competition through self-preferencing", the unilateral imposition of "high commission rates" (app tax), and a concept that is increasingly relevant in Japan as well as South Korea, and possibly also in other East Asian jurisdictions: "abuse of a superior bargaining position".

The English version of the summary doesn't use the word "gatekeeper", but the concept of an abuse of a superior bargaining position has scope for certain abuses of gatekeeper powers--and to the extent that traditional competition law doesn't have enough teeth, Japanese lawmakers could take action. The summary doesn't indicate that the JFTC itself is at the point of submitting a legislative proposal; it may leave that to the ministry in charge. But the following sentence leaves no doubt that app store-specific legislation may indeed be put on the agenda, and possibly soon:

"While it is desirable for Google and Apple to take the following measures, it is effective to secure them by law to the extent necessary to ensure the effectiveness of measures."

Those measures relate to (inter alia) the use of alternative in-app payment systems (the report makes it clear that the commission rates imposed by Apple and Google are supracompetitive), the use of app data for the purpose of "Sherlocking", and user choice with respect to apps (such as default apps or services).

The JFTC also notes that--beyond enforcement action under existing antitrust law--"it is important to take measures in terms of competition policy ... to increase competitive pressure." And it warns that enforcement of existing antitrust rules may be too slow and cumbersome:

"[T]he market definition and the proof of competitive harms may take time, and the verification of issues such as security may require highly specialized knowledge and a large amount of verification work."

In its market study, the regulator correctly identified the problem that switching rates between mobile operating systems are low, and that Android apps don't compete with iOS apps (and vice versa). Also, 97.4% of all Android app downloads in Japan are made from the Google Play Store, which shows that Google faces "[l]imited competitive pressure from other app stores." Sideloading on iOS (which again is entirely impossible on iOS) also exerts "[l]imited competitive pressure" because users commonly download apps from app stores. Web apps are also dismissed as a competitive force as they just can't compete with native apps, and raises the issue of Apple's prohibition of alternative browser engines (which the UK CMA is already tackling, but facing a procedural challenge).

The report notes that Apple does not allow alternative iOS app stores at all, but the policy recommendations clearly include alternative iOS app stores: the JFTC recommends "[p]romoting the entry of new mobile [operating systems] and app store[s]" and says that for Android and iOS smartphone devices, the download of "apps including app store apps" must be enabled "whether or not" Apple's or Google's own app stores are used for that purpose.

Having formally complained over Apple's and Google's app review tyranny, I was pleased to see that the JFTC is aware of some of the issues caused by the gatekeepers' app review regimes.

On the final page of the summary, the JFTC vows to enforce the country's AMA, to work with other government agencies (including ministries) to develop further proposals, to monitor developments, and notes that it is in contact with competition authorities in other countries and regions.

It looks like a Japanese equivalent of the European Union's Digital Markets Act (DMA) is a realistic prospect now--as are further crackdowns on violations of antitrust law as it stands.