Eshu Marneedi

The European Commission:

Today, the European Commission has informed Apple of its preliminary view that its App Store rules are in breach of the Digital Markets Act (DMA), as they prevent app developers from freely steering consumers to alternative channels for offers and content.

In addition, the Commission opened a new non-compliance procedure against Apple over concerns that its new contractual requirements for third-party app developers and app stores, including Apple’s new “Core Technology Fee”, fall short of ensuring effective compliance with Apple’s obligations under the DMA.

Dan Moren, writing for Six Colors:

At the root of this decision is the EC’s contention that Apple is overly limiting the way developers are allowed to send potential customers to their own storefronts. That includes both the actual design restrictions of external links, as well as Apple’s fee structure (the company takes a cut of any digital good or service up to seven days after the customer follows the external link). Such moves would seem to be in violation of the DMA regulation that developers can advertise and direct users to their own sites without cost.

So, two problems:

1. The commission doesn’t like Apple’s “scare screens,” the prompts that discourage users from accessing and downloading third-party app marketplaces and external payment processors. I surmise this is the main issue the commission has with Apple’s implementation, knowing its vibes-based approach to regulation.

2. The commission also doesn’t like Apple’s 10-to-17 percent¹ cut it takes when a developer has opted into the new financial terms and distributes their app on the App Store with an alternative payment processor. Apple has two sets of terms: the old ones, which only allow developers to operate on the App Store and use In-App Purchase, and the new ones — called the “Alternative Terms Addendum” — which allow developers to operate in third-party app marketplaces and use alternative payment providers. Per these new terms, when an app is distributed in a third-party marketplace, a per-download Core Technology Fee applies; when an app is distributed on the App Store, a per-in-app-purchase fee applies.

Speaking of the CTF:

Simultaneous to this decision, the EC has also announced a new non-compliance investigation, its third into Apple. This action specifically looks into Apple’s developer terms in the EU, including alternative app stores and distribution methods. At the heart of this matter are three issues: whether the process for users taking advantage of alternative app distribution is too onerous, whether Apple is too restrictive in its eligibility terms (such as the rule that developers must be “of good standing” to qualify), and the existence of the Core Technology Fee.

Again, vibes-based regulation. The DMA doesn’t actually prohibit Apple from being restrictive in its terms, it just requires “gatekeepers” to allow third-party app marketplaces entirely. It also doesn’t rule out the possibility of a per-download fee like the CTF, but because the European regulators simply don’t like it, they’re able to launch another one of their investigations. And the legislation certainly doesn’t describe what an “onerous” requirement may be, because, again, it doesn’t even describe this as a possibility. The commission can’t possibly levy a fine for violating a law that doesn’t exist.

About that second snag Apple was found “guilty” of: As Moren notes, the DMA does tell gatekeepers that they must allow developers to link out to their own payment processors “free of charge,” which is exactly what Apple allows them to do when they opt into the new terms, although the steps for ditching the fee are more convoluted. When a developer opts into the Alternative Terms Addendum, Apple takes a commission of 17 percent for each external, non-IAP purchase — but that commission is for App Store distribution access; it is not a royalty for linking to a third-party payment processor. The DMA says that “the gatekeeper shall allow business users, free of charge, to communicate and promote offers…” The “free of charge” clause applies to the “communicate and promote offers” part of the law.

If a developer wants to get around this 17 percent commission and pay Apple zero for distribution in the European Union, they can distribute their app via a third-party app marketplace, in which scenario, Apple would not take a commission aside from the $100-a-year developer fee for access to Apple technologies. That’s not what Apple is being dinged for here; it’s being fined for the 10-to-17 percent fee for distribution on the App Store. There is a way to be exempt from paying fees, it just requires distribution via a third-party app marketplace — and that behavior is allowed per the rules of the DMA. (See: Article 5, Section 4.)

Neither of the policies Apple is being fined for is illegal under the DMA. And the new non-compliance investigation penalizes Apple for its new developer terms purely based on feelings, not on facts, which is a horrible way to regulate. The DMA also doesn’t make a per-download CTF illegal, and the European Commission knows that — but in a few weeks, Brussels will come back with some more bad news for Cupertino because it’s set out to put technology companies in their place. Monday’s ruling is complete nonsense.