Apple found a rulebook to keep charging 30% fees

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Apple recently received its sixth consecutive €5 million fine for failing to comply with a Dutch antitrust ruling.

The Dutch Authority for Consumers and Markets (ACM) has sought to give dating app developers in the Netherlands access to third-party payment options. In theory, this would allow developers to bypass Apple’s payment system and a 30% commission. App Store fees are estimated to have generated more than $70 billion in revenue for Apple last year.

Apple claims to comply with the law, but still charges developers a 27% “reduced rate” on third-party payments. To use third-party payment providers, developers must also create a new version of their apps for the Dutch market. And Apple sticks a disclaimer on apps with third-party payment access, telling users, “This app does not support the App Store’s private and secure payment system.”

At the end of February, Apple’s chief compliance officer, Kyle Andeer, sent a letter to Dutch authorities claiming that its current situation was fully compliant with the law. Andeer made no mention of the 27% fee on third-party payments. Instead, the letter focused on the issue of Apple forcing developers to create new versions of their apps for the Dutch market. Andeer asserted that this requirement is “not onerous or difficult for a developer” and that it is necessary for Apple to comply “with its legal obligations in the Netherlands while having the ability to maintain its standard terms and conditions in the rest”. of the world.”

Some developers claim that Apple’s third-party payment solutions are anything but transparent and simple. “I’d be surprised if just one app picked them up on this,” said prominent iOS developer Marco Arment. wrote on Twitter. “This is almost certainly how Apple plans to comply with ALL regulations on external purchases, until they are forced to be more permissive.”

Regulators seem to agree. “In our view, Apple essentially prefers to pay periodic fines rather than comply with a ruling by the Dutch Competition Authority on the conditions for third-party access to its App Store,” said Margrethe Vestager, Executive Vice President of the European Commission for a Europe fit for the digital age, said in a speech delivered in California on February 22.

Apple declined to comment for this story. ACM spokesperson Murco Mijnlieff made a brief statement to the protocol acknowledging that the penalties imposed on Apple relate to “apps’ ability to use an alternate form of payment.”

Apple’s response to the Dutch antitrust order seems like a preview of things to come. EU and US politicians are trying to kill Apple’s goose, 30% App Store fee. Apple’s strategy of focusing on following the letter of the law rather than the spirit has largely succeeded in maintaining the status quo in the Netherlands. But regulators on both sides of the Atlantic are paying attention to these evasion tactics and will almost certainly account for them in future legislation. The outcome of this regulatory cat-and-mouse game will demonstrate whether EU and US lawmakers have any hope of reining in Big Tech with the tools currently at their disposal.

The first major test will likely come from the EU’s Digital Markets Act, which could pass as soon as this year and come into force in 2023. The law targets “guardian” companies – almost certainly including Apple – and would require them to allow the “effective use” of third-party services that are “accessible by means other than this gatekeeper’s core platform services”.

The DMA offers significantly higher penalties for companies that fail to comply, which in itself could make the legislation more powerful than the Dutch rules. The European Parliament has proposed fines of between 4% and 20% of the company’s total worldwide turnover for the previous financial year. Apple generated $366 billion in net revenue for the fiscal year ending September 25, 2021: that would put the range for a potential fine between $14.6 billion and $73 billion. The company would probably struggle to accept even one of those fines, and it certainly wouldn’t want to absorb six in a row.

The DMA would also impose ex ante obligations on controllers, meaning regulators would take a proactive role in stopping damage before it happens rather than simply punishing actors afterwards. In the case of DMA, the ex ante approach could give regulators more leeway to interpret whether supervisors are complying with the spirit of the laws – something that has clearly become a problem in the Netherlands.

Some EU regulators — and U.S. lawmakers — hope the DMA will serve as a guide for U.S. senators currently considering the Open App Markets Act and the American Innovation and Choice Online Act, both of which would limit Apple’s ability to promote its own payment. system. The bills rolled out of committee with bipartisan support and were placed on the Senate’s legislative calendar.

Both Senate bills share some key elements with the DMA. The Open App Markets Act, for example, would give regulators the ability to interpret whether platforms “unreasonably restrict, impede or delay” users’ ability to access competing services. This flexible language could help the feds hold Apple accountable for following the spirit rather than the letter of the law, as the DMA is trying to do.

“In the United States, several bills are moving through Congress … and they share many characteristics with our proposal,” Vestager said in his February speech. “It’s very encouraging, because it means that there is a broad global consensus.”

Some Apple competitors do not share this confidence.

“During the committee hearings [on these U.S. bills], there were a myriad of concerns and questions and hypothetical amendments that were raised by lawmakers,” Matt Fossen, head of US communications at Proton, told Protocol in an interview. “The only thing I don’t really remember hearing about was: what do we learn or take away from what is happening in the Netherlands?”

So if lawmakers are serious about disrupting Apple’s 30% fee structure, what can they do? Fossen described two scenarios. In the first, U.S. and European lawmakers would “go back to the whiteboard and basically try to rework substantial parts of those bills to account for all of those things that we’ve now seen Apple do.” The second scenario, he said, would see the bills passed as is, and then regulators such as the FTC would try to fill in the gaps in later rule-making processes.

Either way, Apple would likely take its case to court in an attempt to maintain the status quo. Lawmakers could circle Apple, trying to execute a siege, but Apple is holding some $37 billion in cash, and it’s taking time on its side.

This story was updated on March 8, 2022 to clarify a quote from Fossen regarding lawmakers.

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