Apple gets rejected: Dutch competition authority demands unreasonable terms for dating apps to be amended

On 24 August 2021, the Dutch competition authority (ACM) imposed an order subject to a penalty on Apple Inc. and Apple Distribution International Ltd (together: Apple) for abuse of a dominant position. According to the ACM, Apple imposes unreasonable App Store conditions on providers of dating apps. Via proceedings before the District Court of Rotterdam (the Court), Apple tried to prevent both the order and publication by the ACM. However, on 24 December 2021 the Court ruled in favour of the ACM on important points.

Concerns about the power of big tech companies are growing worldwide. Apple, too, is currently under close scrutiny worldwide. Competition law investigations are currently initiated against the company in the EU (following complaints from Spotify and Epic Games – the developer of the popular online game Fortnite), South Korea and the United States itself. The Netherlands, however, has a first: the ACM seems to be the first (national) competition authority to actually start enforcing competition laws against the tech giant. Apple has tried to stop enforcement, but after Court intervention, it is now known that the ACM found that Apple has applied unreasonable conditions for dating apps in its App Store.

Summary of the ACM Decision

Under the threat of a penalty payment of €5 million per week with a maximum of €50 million, the ACM demands that Apple amends its unreasonable conditions in the App Store for dating apps. Where according to the ACM many app providers can freely choose the payment systems in their app (such as Amazon, Booking or Uber), dating app providers cannot. Consumer purchases made in a dating app can only be handled through Apple’s own In App Purchase (IAP) service. Dating app providers are also prohibited from referring in their app to alternative payment methods outside the app (anti-steering). According to the ACM, Apple – not entirely surprisingly – has a dominant position on the relevant market for app store services on mobile operating system iOS in respect to dating app providers. The ACM considered that there is no substitution possible for Apple’s app store service, there is only one App Store for iOS and also that websites are not an alternative for a (dating) app in terms of functionality. According to the ACM, Apple abuses its dominant position with the IAP and anti-steering conditions. The conditions also have negative consequences for customer service and user verification. According to the ACM, the goals that Apple claims to pursue with its policy, such as safeguarding privacy and quality, can also be achieved in less harmful ways.

District Court of Rotterdam

Apple opposed the imposed order subject to a penalty and publication of (part of) the ACM decision and a news item by requesting a provisional ruling from the Court. However, Apple was largely unsuccessful. As far as the dominance of Apple is concerned, the Court in preliminary relief proceedings endorsed the investigation and the conclusions of the ACM and took into account, inter alia, the (lack of) substitution, a 100% market share for Apple, barriers to entry and websites as an alternative. Also with regard to the abuse of the dominant position, the ACM decision was followed. Furthermore, the Court was of the opinion that the dating app providers have no other real option than to accept Apple’s (unfair) conditions concerning IAP and anti-steering. The Court also had an eye for the obstacles in respect to customer service and user verification. The Court noted, inter alia, that dating app providers cannot directly contact their app users for the purposes of providing customer service in relation to invoices, cancellations and refunds because this goes through Apple. The Court therefore agreed with the ACM that the conditions are disproportionate (because non-essential). Thus, the Court in preliminary relief proceedings concluded that Apple had violated Article 24 of the Dutch Competition Act and Article 102 of the Treaty on the Functioning of the European Union (TFEU).

With regard to one specific part of the judgement, the Court sided with Apple. This part will be kept confidential pending further legal discussion. It is quite possible that this part concerns the tariffs that Apple charges for its IAP services (allegedly 15 or 30% of the transaction value). The Court suspended the order subject to a penalty (only) with respect to the still contested part and to the extent that the penalty payment would exceed the maximum amounts. Due to the holidays, Apple was given until 15 January 2022 to amend the unfair conditions, which it has done. After investigation, the ACM concluded that Apple did not comply with the set requirements, therefore the ACM proceeded to collect the penalty payment. Regardless of the ACM’s verdict, Apple has already announced that it will further challenge the ACM’s decision and its consequences.

Comments

On 24 December 2021, only a (partially confidential) summary of ACM’s decision and the judgement was published, but a number of points immediately stand out:

• Close coordination between ACM and the European Commission (Commission). First of all, it is noteworthy that there has been coordination between the ACM and the Commission on various Apple investigations. In June 2021, the ACM published a news item that it could continue its investigation into Apple despite an ongoing investigation by the Commission. The content (and theories of harm) of both investigations were apparently sufficiently different. The ACM investigation focused on the conditions that Apple applies to the App Store for app providers that offer apps that do not compete with Apple’s apps, particularly in the field of online dating in the Netherlands. The Commission, on the other hand, is investigating competition between Apple’s own apps versus apps from external app developers, for example in the field of music streaming.
• Why an order subject to a penalty and not a fine? It is remarkable that the ACM has opted for an order subject to a penalty instead of a fine. The latter is the most common sanction for this type of infringement. In fact, we are not aware of any cases in which the ACM opted for an order subject to a penalty instead of a fine. Presumably, the ACM believes that an order subject to a penalty offers a faster and more structural solution to this market problem. An order is primarily aimed at ending Apple’s infringement. a penalty would . Nevertheless, it can be argued that for Apple is getting away with this violation of the competition rules rather ‘easily’ without a fine.
• Why an exploitation case and not an exclusion case? There are two categories of violations of the abuse prohibition. On the one hand, the possibility of exclusion: the company in a dominant position can prevent competitors from entering the same market or force them out of the market. On the other hand there is the possibility of exploitation: the dominant company can exploit its customers, for example through unreasonable conditions. The ACM based its decision on this second category. This is remarkable, because a exploitation based theory of harm is almost never used by competition authorities. ACM’s choice to focus on exploitation is probably related to the fact that with this approach, the ACM did not have to prove that Apple favoured itself over its competitors (self-preference). From a practical point of view, the choice of the ACM for an exploitative infringement (through unfair terms) is quite understandable. This does not alter the fact that in this case the ACM could probably also have invoked a theory of harm based on exclusion: its conditions excluded other payment service providers (e.g. Adyen or Mollie). Anti-steering is, in principle, an important indication for this. In view of the judgement of the Court in preliminary relief proceedings, the strategy of the ACM has worked out well so far.
• Similar app developers. Other app developers, who are subject to the same API and anti-steering regime of Apple, may feel encouraged to also take a stand against such terms after this legal victory for the ACM. We can well imagine that this rebuke of Apple will lead to enforcement requests to the ACM by other app developers.

Conclusion

The ACM has (for the time being) achieved a success against Apple, both in terms of substance and in terms of its publication policy. The judgement of the Court in preliminary relief proceedings confirms that a request to stop the publication of an ACM decision is often not honoured. For Apple, the step to the preliminary relief judge may even have backfired. Based on the judgement, it seems that in first instance there is little to criticize about ACM’s investigation and its conclusions. That puts Apple at a disadvantage in its defence in a substantive assessment of the ACM decision. However, it is noted that on the basis of the currently available information, much is still unclear. The full decision will have to provide more insight, although its publication will probably take some time in view of further legal procedures. In addition, we are curious to know whether this case is the start of more proceedings by app developers with similar conditions for the App Store. Should Apple also give way in following procedures, then Apple can probably expect claims for damages from, for instance, the dating app providers. In the meantime, the ACM will feel vindicated in its first decision against a major tech company, and it may mark a turning point in its rather lousy track-record in the field of abuse of dominance cases.