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Apple’s App Store rules now subject to £1.5 billion class action claim before UK tribunal

By | Published on Tuesday 11 May 2021

Apple

As the epic legal battle over Apple’s App Store policies – or the Epic legal battle if you prefer – continues to go through the motions in the Californian courts, a legal claim has been filed with the UK’s Competition Appeal Tribunal over the exact same App Store rules. Although the UK action seeks to represent iPhone owners rather than major gaming companies.

The policies in the spotlight are those that say that app-makers which take money through their iOS apps must use Apple’s own payments system that charges a 15-30% commission, and that they can’t clearly signpost users to other ways to pay online that can circumvent the tech giant’s fees. Those rules have been a bugbear of app-makers for years, but have become particular newsworthy of late.

Spotify has been particularly vocal about its grievances with the App Store rules, which it argues constitute Apple exploiting its market dominance in a way that violates competition law. It filed a formal complaint with the European Union’s competition regulator in 2019 and that regulator said last month that its preliminary view was that “Apple’s rules distort competition in the market for music streaming services”.

The new legal claim before the Competition Appeal Tribunal in London is a class action on behalf of the millions of iOS users in the UK, presenting consumers rather than app-makers as the bigger losers when Apple adds a 30% commission onto in-app purchases. The damages sought by the action could top £1.5 billion.

The class representative is Dr Rachael Kent, a digital economy expert based at King’s College London. Explaining her involvement in the legal complaint, she says: “The App Store was a brilliant gateway for a range of interesting and innovative services that millions of us find useful, myself included. But thirteen years after its launch, it has become the only gateway for millions of consumers. Apple guards access to the world of apps jealously, and charges entry and usage fees that are completely unjustified”.

“This is the behaviour of a monopolist and is unacceptable”, she adds. “Ordinary people’s use of apps is growing all the time, and the last year in particular has increased our dependence on this technology. Apple has no right to charge us a 30% rent for so much of what we pay for on our phones – particularly when Apple itself is blocking our access to platforms and developers that are able to offer us much better deals. This is why I am taking this action”.

The law firm leading on the litigation is Hausfeld & Co LLP. The company’s Lesley Hannah says: “Apple has created a captive market where people who own Apple devices are reliant on it for the provision of both apps and payment processing services for digital purchases. It has been exploiting that market for years, by charging excessive fees that in no way reflect the actual cost of providing those services and making sure no one else can compete. App purchasers have been paying the price. This action seeks fair redress for those purchasers”.

“Apple should be held to account for its unlawful anti-competitive conduct”, she goes on. “Competition laws are there to protect everyone. Every company – especially one as popular and powerful as Apple – needs to obey the law. Millions of people use the App Store to buy apps and make digital purchases within apps, so it is more essential than ever that those purchasers are treated fairly”.

Back in California, the legal battle against Apple’s App Store policies is being led by ‘Fortnite’ maker Epic Games, which went to war – both legally and in PR terms – with the tech giant last year.

Among the things discussed in the court case so far is whether a billion dollar gaming company best known for a franchise that has been accused of exposing young fans to too much violence is the best entity to taking on big bad Apple over its allegedly monopolistic tendencies.

Although the Epic side has pointed out that while it maybe a billion dollar company, it’s taking on a trillion dollar business. “There’s a big difference between the two”, Epic marketing exec Matthew Weissinger stressed in court, according to Law360. Also, violent game play in the Fortnite world never results in any deaths, just “eliminations”, he added. See, a super sympathetic plaintiff.

Another London academic was a key witness during yesterday’s proceedings in the Epic v Apple case. Professor David Evans cited research that showed that – while technically iPhone owners could always access online services via other devices – most do not. Research from 2019 showed that 83% of adults in the US had a smartphone, 77% of respondents spent their online time on their phone instead of a desktop or laptop computer, and 89% were utilising apps when they’re using their phones.

He also argued that Apple’s profit margins on the App Store suggest uncompetitive conduct. Those profit margins are under seal at the moment so not public knowledge. However, according to Law360, Evans “testified that if Apple capped its App Store profit margins in 2019 at $1 billion and reduced its commissions rate accordingly, the app commission would be 6.8% and not its current 30%”.

“[The profit margins] provide evidence of market power because in a competitive environment, I would have expected the margins would have declined either as a result of prices falling or as a result of substantial investments in the App Store”, the professor added.

Apple, of course, continues to deny that its App Store rules are anti-competitive, insisting that the likes of Spotify and Epic just don’t want to pay their fair share towards the costs of building and running an online infrastructure that has helped them build hugely successful digital businesses. It remains to be seen if that argument can win the day in all the mounting litigation and regulatory investigation that is now underway regarding the tech giant’s App Store policies.



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