Context: About a month ago, the European Commission (EC) handed down an antitrust ruling with a fine on Apple that amounted to €1.8 billion (though only €40 million were specific to the case and the rest just due to Apple’s size) further to a multi-year investigation of complaints, started by Spotify a long time ago, over the rules concerning music streaming apps. Spotify’s case was narrowed to the question of anti-steering and the question of how much Apple could still charge was left open (March 4, 2024 games fray article). Spotify submitted a modified version of its app shortly after the ruling, and kept complaining for weeks that Apple’s App Review still hadn’t made a decision. Separately, the EU’s Digital Markets Act (DMA) entered into force and also requires Apple to allow outbound links to alternative purchase methods, though only on the iPhone for now and not on the iPad, as the EC’s gatekeeper designation is being disputed. The EC launched two compliance investigations, one of which relates to anti-steering (March 25, 2024 games fray article).
What’s new: On Friday (April 5, 2024), Apple announced its new rules for music streaming apps in the European Economic Area (which is the EU plus three smaller countries) (Apple developer website). Those rules are undoubtedly Apple’s response to the EC decision, and commercially consistent with Apple’s DMA terms: Spotify and other music streamers can link out to external purchasing options, but will pay essentially the same App Store commission, reduced by just 3%, which will be eaten up (more or less) by payment processors like Stripe.
Direct impact: Without the slightest doubt, the app version Spotify submitted a month ago to Apple either (which is most likely) has been rejected by now (after a month in review) or will be rejected shortly. as it is technically impossible that Spotify could have incorporated an “entitlement” (a data point that indicates to iOS that an app may perform certain actions, in this case limited to certain App Store regions) before it became available. It’s equally a given that Spotify will vociferously complain over Apple’s rules and accuse Apple of failing to comply with the EU ruling. The EC may then decide to investigate this compliance question in parallel to the DMA investigations. Apple’s course of action may, however, be legally defensible and any such charge cannot be held unlawful without a whole new investigation or a FRAND determination by a court of law.
Wider ramifications: Google’s rules for outbound purchase links in the EU (in response ot the DMA) raise similar questions (March 11, 2024 games fray article). There is also an overlap with the enforcement proceedings in the United States District Court for the Northern District of California, where Epic Games (supported by various amici curiae, whose submissions the court has meanwhile accepted) accuses Apple of acting in contempt of the injunction by charging a commission and imposing other rules. Apple has already stressed its right to charge (April 4, 2024 games fray article) and will file its opposition to Epic’s motion next Friday (April 12, 2024).
It was perfectly clear that Apple wasn’t just going to let Spotify and smaller music streaming providers provide free-of-charge outbound links to alternative purchasing options. When Spotify submitted its modified app version a little over a day after the EC handed down its decision, Spotify undoubtedly knew that it would be rejected. The reason Spotify rushed that submission was not that they wanted to save money (on commissions) in a matter of days or weeks, but that they couldn’t wait to give the EC a reason to launch yet another compliance investigation.
Apple’s position on the commission it charges for outbound links or, as applicable, alternative in-app payment options is consistent across multiple issues and jurisdictions:
- EU DMA (note that the DMA would have helped Spotify only for the iPhone, not for the iPad, as the exact scope of the gatekeeper designation is in dispute; otherwise Apple might not even have had to make this new announcement as its DMA-related rules would have taken care of everything, though it also gives Apple the flexibility now to let those EU music streaming and EU DMA rules diverge depending on how much of a need it identifies during the enforcement proceedings)
- EU Spotify case
- Dutch competition authority’s (ACM) dating app case (complaint by Match Group)
- South Korean telecommunications law
- Epic’s U.S. anti-anti-steering injunction under California Unfair Competition Law
In all those cases, Apple faces a requirement to allow alternative payment methods within an app or to allow outbound links to alternative purchasing methods. Time and time again, Apple charges roughly the same effective commission as on in-app purchases made via its App Store. With outbound links, Apple obviously cannot rule out that some purchases will take place outside of the seven-day attribution window, in which case Apple will not be compensated. But the bulk of those purchases presumably will be attributed, and Apple will get paid.
Apple explains the rationale for this commission on the page of its developer website that discusses the new EU music streaming rules:
“All App Store developers — including those who place buttons or links with calls to action in their apps — benefit from Apple’s proprietary technology and tools protected by intellectual property. These include Apple’s ongoing investments in developer tools that make it easy to build apps for Apple’s ecosystem, SDKs, and APIs, and updates to the platform itself. Apple also provides a safe and trusted experience through the App Store, made possible by App Review and antifraud initiatives, which enables users and developers to transact with confidence. Developers benefit from App Store discovery, marketing tools and opportunities, and analytics, while leveraging Apple’s infrastructure for hosting apps and distributing app downloads, redownloads, and updates.
“Apple is charging a commission on digital purchases initiated within seven days from link out, as described below. This will not capture all transactions that Apple has facilitated through the App Store, but is a reasonable means to account for the substantial value Apple provides developers, including in facilitating linked transactions.”
The term “intellectual property” is key here, as it is in the DMA context where Apple’s Core Technology Fee (CTF) is at the center of a preliminary EU investigation (March 27, 2024 games fray article). But IP isn’t Apple’s only argument: the passage quoted above also stresses Apple services that are used to enable Spotify to make an iOS music streaming app and to bring it to end users. So it’s a combination of IP, services and access to customers. Legally, for Apple to defend its commission it would merely have to prevail on a subset of those reasons. For example, if a court of law determined that the commission may be justified on IP grounds alone, Apple wins and the EC and complainants like Spotify lose.
While some are accusing Apple of non-compliance with certain laws as well as judicial and regulatory decisions for charging such a commission, it is a major effort for regulators and courts to determine fair, reasonable and non-discriminatory (FRAND) terms. That is why it’s premature to just support any allegations of non-compliance that Spotify will voice in 3, 2, 1…