Apple makes debatable claims concerning foreign investigations in answer to Brazil's antitrust authority CADE: investigation of Mercado Livre, Clique complaints

Last month it became known that Brazil's competition authority--Conselho Administrativo de Defesa Econômica (CADE), which translates as Administrative Council for Economic Defense--launched an antitrust inquiry into Apple's App Store terms and practices further to complaints by Latin American e-commerce companies Mercado Livre (in Spanish: Mercado Libre) and Clique. Brazil is becoming an increasingly important jurisdiction for patent and competition cases. Yesterday Apple filed its answers (PDF) to certain questions raised by CADE in a January 12 letter.

CADE's question 2(b) was about the state of affairs in App Store antitrust investigations in certain other jurisdictions. CADE had specifically asked about App Store investigations in the EU (agency: European Commission), UK (CMA), the Netherlands (ACM), Germany (Federal Cartel Office), Australia (ACCC), South Korea (KFTC), Japan (JFTC), India (CCI), and Indonesia (ICC).

Apple's response is somewhat defensible, but not exceedingly forthcoming, with respect to certain jurisdictions (UK, South Korea, Australia, and Germany), as I'll explain further below. Here's my translation, with [comments in brackets]:

3. The case before the European Commission and the related proceedings are confidential in accordance with applicable procedural rules. The European Commission launched a formal investigation into the App Store in June 2020. In April 2021, a Statement of Objections, with a focus on effects on the market for digital music distribution, came down. A Statement of Objections is not a final decision by the Commission, but rather a preliminary assessment of an alleged antitrust violation. The case is still pending.

   [COMMENT: The Commission issued the SO right before the Epic Games v. Apple trial in the Northern District of California. Two weeks ago, Spotify--the main complainant--and other parties wrote an open letter to EU antitrust chief Margrethe Vestager, urging her to move forward with a formal decision. Some members of the EU antitrust community believe the Commission may not be interested in taking the next steps as the EU's Digital Markets Act (DMA), which was adopted last year, is in the process of being implemented and may solve Spotify's and other music streaming services' problems next year (it won't make an actual impact on the market before). I can see why some would like the Commission to act now, but can also understand what is suspected to be the Commission's perspective, and haven't formed a definitive opinion.]

4. In India, the Competition Commission of India ("CCI") launched an investigation into the App Store in September 2021 further to representations of an organization that represents the interests of consumers and, subsequently, representions by developers. The investigation is in progress.

   [COMMENT: In India, Apple's market share is tiny--just about 3%. The focus of competition enforcers is, therefore, on Android. Google has now started to make changes, though they appear to fall short of what is actually required.]

5. In Japan, no inquiry into the App Store is currently being carried out by the Japan Fair Trade Commission ("JFTC"). The JFTC closed an App Store investigation in 2021 when Apple proposed the implementation of measures that eliminated the agency's concerns.

   [COMMENT: The Japanese settlement was narrowly focused on "reader" apps. The JFTC should do more.]

6. In the Netherlands, the Authority for Competition [WRONG: it's Consumers] and Markets ("ACM") put forward a decision in December 2021, concluding that Apple had supposedly abused a dominant position with respect to the App Store's treatment of dating apps (e.g., Tinder), and imposed a measure ("order") determining that Apple had to make certain adjustments. Apple in turn appealed the decision before the ACM itself and also obtained a preliminary judicial decision that suspended the effects of the ACM's decision in part. The proceedings concerning the recourse before he ACM are still ongoing.

   [COMMENT: What Apple is not saying here is that the preliminary injunction it obtained in court bars the ACM not only from enforcing but even from publishing a key part of the decision. The public part relates to the permission of alternative in-app payment systems. The part that the ACM is not able to talk about, but which became known nonetheless, prevents Apple from imposing excessive charges on app developers using such alternative payment systems.]

7. In March 2021, the Competition and Markets Authority of the United Kingdom ("CMA") opened an investigation into the App Store. The investigation is still in progress.

   [COMMENT: Apple's answer narrowly refers only to an investigation into the App Store, but the CMA is also conducting a market investigation into Apple's mobile browser engine dictate and its efforts to hamstring third-party cloud gaming services. Apple is appealing the market investigation reference before the UK Competition Appeal Tribunal.]

8. Upon the enactment of a new law in South Korea in 2021, the South Korean Communications Commission ("KCC") launched an investigation in order to ascertain the App Store's compliance with the new law. The investigation is still in progress.

   [Here, again, the question is whether half the truth is a whole lie. In September 2022, the Korea Fair Trade Commission (KFTC) performed a dawn raid on Apple's South Korean headquarters because it effectively charges a 33%--not 30%--App Store commission in South Korea. Apple conveniently omits that fact.]

9. Apple is not aware of any investigations into the App Store that are ongoing in Indonesia, Australia, and Germany.

   [COMMENT: I don't know for sure about Indonesia, though I have seen reports that something is pending there. In Australia, the ACCC performed a market investigation and believes that legislative action is needed. It is investigating Apple over Apple Pay. With respect to Germany, Apple's claim if being unaware of "any" investigations into the App Store is overbroad: There is an investigation by the Bundeskartellamt (Federal Cartel Office) into Apple's app tracking rules. Apple's App Tracking Transparency (ATT) is enforced by Apple being the App Store's gatekeeper through its arbitrary review process for which Apple self-servingly makes the rules. Mercado Livre's and Clique's complaints in Brazil are not just about the app tax but also about the current inability--due to Apple's rules--of such third parties to offer their own app stores, which could also come with different ad tracking rules. What the Federal Cartel Office cannot do is investigate the very same issues that the European Commission is looking into at the same time (Art. 11 para. 6 of EU Regulation 1/2003 lets EU Commission investigations take precedence over investigations by the Member States' national competition authorities). The German ATT case is distinguishable from the EU music streaming case, but it can be reasonably described as an App Store-related investigation and Apple should have disclosed it to Brazil's CADE.]

CADE can reach out to its counterparts in other jurisdictions to find out more, just like Australia's ACCC said today that it is "engaging with overseas regulators" in connection with their reviews of Microsoft's acquisition of Activision Blizzard.

Share|

Australian antitrust authority ACCC publicly states it's 'engaging with overseas regulators' on Microsoft-ActivisionBlizzard while its own investigation remains on hold

News from Down Under:

For the first time in almost five months, the Australian Competition & Consumer Commission (ACCC) has updated the public webpage dedicated to its review of Microsoft's acquisition of Activision Blizzard King (NASDAQ:ATVI). There were only three entries before, which I'll summarize as follows:

• June 20, 2022: start of informal review

• July 11, 2022: closing date for submissions

• September 8, 2022: timeline suspended (in EU antitrust jargon that would be called a "stop the clock")

Now the ACCC has added the following line (click on the image to enlarge or read the text below the image):

02/02/2023   ACCC engaging with overseas regulators. Timeline remains suspended

They're being very forthright. Everyone knows that competition authorities talk a lot to each other when they have similar matters before them, but many antitrust agencies wouldn't inform the public of the fact--not because it's unlawful or anything, but because it could be considered to call into question the independence of their decision-making processes.

Looking at what other jurisdictions have been doing so far with respect to Microsoft-ActivisionBlizzard, there are only two I can really commend at this juncture: Chile, where a survey showed what Call of Duty gamers' priorities are (they're loyal to Sony's PlayStation), and Brazil's CADE, which properly distinguished a competitor's misgivings from what would be harm to the competitive process.

I don't know what the European Commission's Statement of Objections (SO) says, but I can't imagine they've come up with any theory of harm we haven't all heard about before, none of which makes sense. I commented on the fact of the EU SO having issued when MLex (no reason not to trust them) reported. As I mentioned yesterday, Politico has also reported on the SO. And the latest source is Bloomberg:

Microsoft receives a formal list of concerns from the European Commission about its proposed $69 billion takeover of Activision Blizzard, marking an escalation in the regulatory body’s probe of the deal https://t.co/HIAW1O7eH9

— Bloomberg (@business) February 2, 2023

The most interesting one of the many recent developments in this context is, however, that Sony doesn't want to provide documents that the FTC has requested. Sony should do almost literally anything for the FTC. It is indebted to the FTC. And it has a legal duty to cooperate with a discovery request--an obligation that would exist even if Sony had not instigated it all in the first place. On Twitter I put it like this:

First they ask the @FTC to bring a #merger lawsuit. Then they don't want to answer questions.

Share|

To turn Android's decline around, Google should negotiate with Epic Games and the EU--and generally treat app developers as strategic allies, not adversaries: the failure of fauxpenness

If smartphones could vote instead of the people using them--a prospect I joked about in light of a "human rights" motion Apple brought in Colombia--Tim Cook would become the 47th President of the United States. In recent months, Apple overtook the aggregate of all Android devices in terms of active U.S. smartphone usage, as Counterpoint Research report (as reported by the Financial Times and Barrons).

Almost ten years have passed now since a Wall Street Journal article that asked in its headline: Has Apple Lost Its Cool to Samsung?

There hasn't been a landslide lately: for several years in a row, iOS has gained U.S. market share at Android's expense.

The bold, visionary, and entpreneurial Google of 15 or 20 years ago wouldn't have let that happen, at least not without a fight. Today's Google is a shadow of its former self in some respects. To revitalize Android, Google must stop being just Apple's junior partner in the "Goopple" duopoly and think different--different than Apple, but much more like the amazing Google that it used to be.

It's not that Google isn't aware of the problem it has: its #GetTheMessage campaign is transparently self-serving and in the public interest at the same time. It is a sign of desperation over Android's endlessly dwindling U.S. market share.

But what Google doesn't seem to have realized is that

• faced with the choice between overtly closed (Apple prides itself on its heavy-handedness and walled garden) and fauxpen (pretending to be open), users in the U.S. and some other markets clearly prefer the former over the latter; and, therefore,

• the answer is not to be more fauxpen, but to make bold moves in order to depart from a failing strategy.

By "fauxpen" I don't mean to say Android isn't more open than iOS: but it's only marginally more open. For me, that gradual difference was enough of a reason to remigrate to Android last year. But the market at large doesn't seem to decide on that basis.

If Google wants to regain momentum for Android, it needs to solve a hardware problem and seize an opportunity on the software side: to become developers' friend again.

First, the part that I--perhaps subjectively--consider most important: app developers.

Google is still acting too much like Apple. Just yesterday, Google announced the extension of its third-party billing system pilot to India, Australia, Indonesia, and Japan. I've criticized that kind of fauxpenness on other occasions: in connection with a European announcement (that still doesn't seem to dissuade DG COMP from its preliminary--and soon probably formal--investigations), the Korean situation, and Google's recent public reaction to a Match Group lawsuit (by the way, Google's counterclaims against the Tinder company have not been dismissed at this early stage because Match Group made arguments that went beyond the content of Google's pleadings).

I do understand that Google needs to make money with Android, but there are--and could be--other ways than the app tax. The problem with the app tax is not just the cost to developers, but that it forces Google to rule its ecosystem with an iron fist, almost like Apple.

Google should change its Android business model, focus more on direct revenues from device makers (and on selling its own devices), and above all, create a situation in which the app developer community will have a strong incentive to promote and strengthen Android against iOS.

While there are more apps on Android than on iOS, the fact that the billion iPhone users worldwide are essentially the world's richest billion people means that app developers with commercial ambitions need to be on both platforms. Cross-platform development tools like Unity and Xamarin are ever more popular.

Google couldn't dissuade anyone from developing for iOS, or persuade anyone to make the Android version of a given app functionally superior over the iOS version.

But Google could open up--which should even include allowing an Android version of the Epic Games Store, for instance--and greatly improve revenues opportunities. Apple destroyed the iOS ad business with App Tracking Transparency, and Android got affected because of budgets shifting. For many types of apps, ad revenues are still an interesting revenue opportunity, and Android could also reduce user acquisition costs. In fact, having alternative app stores like an Epic Games Store compete with each other could create opportunities for developers and improve app discoverability.

With Google eliminating the app tax on Android--I really think it should be no problem to just make that money through license fees collected from OEMs--app developers would be able to offer substantially lower IAP prices on Android while still having better margins there. As a result, app developers would be interested in motivating end users to use the Android rather than iOS versions of their (functionally identical) apps. While I don't think highly of the anti-anti-steering consolation prize that the district court handed Epic in its fundamentally flawed decision, it's a fact that Apple couldn't easily prevent app developers and Google--especially if they did it together--from promoting lower IAP prices to consumers--possibly even within iOS apps.

As things stand today, Apple benefits from App Tracking Transparency in multiple ways. It totally overstates the consumer benefits (in reality, consumers are harmed because of money being sucked out of the app developer ecosystem) and consumers buy it; it harmed other Big Tech players, particularly Meta/Facebook; it forced iOS app developers to focus more on the revenues that Apple can tax; and now Apple basically owns the fastest-growing large advertising business itself.

It's Google's turn to make a bold move. To come up with a game changer. Originally, developers were interested in Android because of Google's openness at the time. Google was cool, geeky, nerdy. Today's Google isn't like that. But the company could go in that direction. The #GetTheMessage campaign raises a valid concern, but is not going to solve the more fundamental problem that Google has in the U.S. market even if Apple adopted an open standard (which appears unlikely right now, except maybe in jurisdictions that force it to do so through legislative measures, but then they could still block access via any open protocol in the U.S.).

At the moment, developers are caught between a rock and a hard place when looking at how Apple and Google are treating them. Android should become developers' sweet spot.

Would it take quite some courage for Google to be the anti-Apple, to be truly open again, and to be developers' ally rather than adversary? To charge device makers rather than app developers? Absolutely. Would it make Google uncomfortable that promoting openness could make it harder to maintain the search engine monopoly? Yes, but Google itself always says competition is just one click away, and with every percent of market share that Apple gains at Android's expense, Apple can significantly increase the amount it demands from Google for being the default search engine on iOS.

Android was a moonshot. Opening up would be a bold move, but not a long shot. If done right, it would definitely work.

Imagine what it would mean if Google settled with Epic Games, with Match Group, and with others. The collective power of the developer ecosystem is huge:

Fauxpen Google < Closed Apple

Open Google + Developer Allies >> Evil Apple

Now, the hardware problem, which is in no small part a geopolitical one. Simply put, Chinese companies are nowhere to be seen in the U.S. and the only major non-Chinese Android smartphone maker left is Samsung. I still have great respect for the quality of Samsung's products, but that one company is not enough to stop the erosion of Android's market share in the U.S. and some other places. Other than Samsung, there's just Google with its Pixel brand (which I really like a lot). Things are going to get worse with the Biden Administration now even contemplating an executive order against U.S. investment in China.

I don't want to take a strong and definitive position on the hardware aspect of this, as I'm naturally more interested in what all of this means for app developers. So, without having thought this through, I believe Google should consider one or more of the following options:

• Put even more muscle behind the Pixel. Make it a much better product than the iPhone in more people's eyes.

• Talk to the European Commission (yes, the same Commission on whose Google Android antitrust decision the EU General Court will pass judgment this month). The EU is now very much concerned with digital sovereignty, but none of the world's leading smartphone makers is based there anymore. Maybe HMD (the licensee to Nokia's brand, and a company in which Google--like Qualcomm--made a defensive investment) is a good starting point.

• The most important company in terms of U.S. wireless innovation is Qualcomm. But it's not so much of a consumer brand, and it would obviously be a very difficult decision for Qualcomm to compete with its own customers. Maybe some solution could still be found to harness the strength of Qualcomm's innovation pedigree and undisputed Americanness as an alternative to Apple. The "Intel inside" of wireless devices.

Share|

Developer class action settlement with Google over Google Play tax on Android apps: same sham as in Apple App Store case, offers material benefits only to monopolists and lawyers--meanwhile, new consumer class actions filed in Australia

I don't mean to engage in media bashing, especially not in connection with mobile app stores where press coverage has really informed many people of the serious issues affecting my fellow developers and me. But Elon Musk does have a point about class-action law firms (often) being "the real plaintiffs, not the puppets they find to masquerade as such":

The press always plays along with the class-action law firms, who are the real plaintiffs, not the puppets they find to masquerade as such. Why is this?

— Elon Musk (@elonmusk) June 4, 2022

When class actions are brought against large corporations, they usually appear more formidable than they ultimately turn out to be. In-house lawyers often tell their colleagues in charge of running the business to keep calm because "it's just another class action." In other words, it's only going to be about money, particularly for the lawyers.

However, sometimes good things with a structural effect do come out of class action lawsuits. In the app store context, the Pepper v. Apple case is a great example: it went all the way up to the Supreme Court, which (unlike Judge Yvonne Gonzalez Rogers, and only by a narrow vote) determined that iPhone users are directly harmed by--should there be any--monopoly abuse by Apple in the form of excessive App Store commissions. In a way, Epic Games then jumped on the bandwagon and brought its own cases against Apple and Google, knowing that the class actions (from which Epic opted out as it had to) were not going to be the definitive answer.

Having said that, here's the latest development in mobile app store class actions--a motion for preliminary settlement approval in several cases targeting Google over its Google Play Store terms and practices in the Northern District of California:

https://www.documentcloud.org/documents/22077056-22-06-30-app-developer-class-action-v-google-motion-for-preliminary-settlement-approval

This motion didn't come as a total surprise: a May 25 filing had already announced that an agreement on the principal terms had been reached, and the original plan for last night's motion was to be submitted two weeks sooner.

Those class actions were consolidated with the far more serious cases brought in the same district by Epic and the attorneys-general of 36 U.S. states. There's now going to be some back and forth about whether the settlement should be approved, but it's unlikely that the court will say "no, you gotta keep litigating."

There was also a lot of outrage at a similar deal (involving partly the same people) with Apple, such as a statement by the Coalition for App Fairness, from which I'll quote now because this equally applies to the structurally very similar proposal for a class action settlement with Google:

"Apple’s sham settlement offer is nothing more than a desperate attempt to avoid the judgment of courts, regulators, and legislators worldwide. This offer does nothing to address the structural, foundational problems facing all developers, large and small, undermining innovation and competition in the app ecosystem. [...] We will not be appeased by empty gestures and will continue our fight for fair and open digital platforms."

Just like in the Apple case, it's about

• roughly $100 million to be distributed to small developers,

• meaningless promises (for instance, Google won't backtrack on its small business program for the next few years, which I'm sure it wouldn't have intended during that timeframe at any rate), and

• above all, it's about this:

  "Plaintiffs will make a request for attorneys’ fees of up to $27 million, which represents 24% of the sum of the cash Settlement Fund ($90 million) and structural relief ($22 million) that can be reasonably quantified ($112 million total). This does not account for the other forms of structural relief that were likewise included in the Apple settlement and found, at final approval, to be 'valuable to the settlement class.'" (emphasis added)

What could be more befitting of a sham settlement than seeing Google--the company that says it manages the world's information--not even getting the date of its blog post on this deal right? Look at this screenshot (I'm pretty sure they'll fix it shortly, but I took this screenshot around midnight Pacific Time with Chrome for Windows):

The post was made on June 30, but Google (until they fix(ed) it) said July 30.

The real issue, however, is that this is simply a cheap way for Google to be let off the hook and to make it look like the issues that Epic and 36 state AGs are still suing them over have gone away--which they haven't.

The blog post says this about the lower commission rate for little guys:

"To continue to provide developers with a tiered pricing model, we’ll maintain Google’s 15% commission rate for the first $1 million in annual revenue earned from the Google Play Store for U.S. developers, which we implemented in 2021."

What Google omits there is that it's only a short-term commitment. The court filing itself says this:

"The Settlement requires that Google maintain this program for U.S. developers through at least May 25, 2025." (emphasis added)

Like in the Apple case, some out-of-app communication with users will be allowed. With respect to how little value that has, may I just refer you to the Coalition for App Fairness statement mentioned further above.

Google is also leveraging this settlement to make it sound like alternative app stores had a level playing field on Android:

"In new versions of Android, Google will maintain certain changes implemented in Android 12 that make it even easier for people to use other app stores on their devices, while being careful not to compromise the safety measures Android has in place." (emphasis added)

With that safety (security) pretext, Google can still strongly discourage users from using other app stores than Google Play, or "sideloading." Let's again take a look at what the actual court filing says:

"Competing Stores. Developer Plaintiffs have alleged that one impediment to distributing apps outside of Google Play is that apps downloaded from other Android app stores do not automatically update. [...] The Android 12 operating system, released by Google on October 4, 2021, facilitates auto updates by allowing 'installer apps to perform app updates without requiring the user to confirm the action.'" (emphasis in original)

So this is about a feature that is almost a year old. I'm not saying it's totally useless. But this falls far short of addressing the host of issues identified and tackled by Epic and the 36 states.

Google also promises to do something it hasn't done yet, but which I'm pretty sure it intended to do at any rate:

"One of the most significant challenges for small developers is getting their apps discovered. The Settlement improves discoverability by requiring Google to create an 'Indie Apps Corner' on the apps tab on the U.S. homepage of Google Play and maintain it for at least two years following final approval. [...] This feature will spotlight a revolving roster of apps created by independent and small startup developers. Developers within the Settlement Class will be able to submit their apps for inclusion in the Indie Apps Corner, and Google will select qualifying apps based on objective criteria."

This isn't bad at all, but again, the issues are so fundamental that they can't be cured with cosmetics. Also, in my experience, "objective criteria" for app review (whether for the purpose of approval or for the selection of apps to be showcased) don't really exist beyond whatever may be measurable, such as memory footprint.

There's also an item that Google doesn't even mention in its blog post:

"For at least three years from final approval, Google will publish an annual 'transparency report' that (at a minimum) will convey meaningful statistics such as apps removed from Google Play, account terminations, and objective information regarding how users interact with Google Play."

The bottom line is that class action lawyers and Google have agreed on a window-dressing package. The primary beneficiary are the lawyers; the secondary one is Google, which saves litigation costs, avoids the risk of potentially having to pay really large amount to developers (as most developers will likely not care to opt out of the settlement) should Epic and the 36 states prevail, and will way overstate the significance and usefulness of those promises.

Meanwhile, Apple and Google have been slapped with new class action lawsuits in Australia.

The Australian Financial Review was first to report (though largely behind a paywall) on "twin legal actions" against Apple and Google brought on behalf of Australian consumers, arguing that Apple and Google are charging excessive commissions on in-app purchases, which consumers end up paying for. That's the same kind of argument as in the Pepper v. Apple case I mentioned further above.

News.com.au picked up the story as well.

Share|