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Policy / DCN perspectives on policy, law, and legislative news surrounding digital content

Apple flouts ruling to flex its monopoly power

January 25, 2024 | By Chris Pedigo, SVP Government Affairs – DCN @Pedigo_Chris
The topline: One company's ability to manipulate the market – and the legal system – so openly demonstrates the need for a stronger legal framework to ensure a fair and competitive landscape.

Big tech monopolies face a regulatory reckoning right now. One area of intense scrutiny is the ability of these companies to exert their market dominance in ways that extract sky-high profits while limiting the ability of other companies to sufficiently monetize their offerings. The four-year legal battle between Epic Games and Apple vividly illustrates these issues. Of course, Epic is far from alone in believing that Apple’s stronghold on the app marketplace is what allows it to extract a 30% cut from every in-app purchase.  

Earlier this month, a federal court ruling officially asserted that Apple had violated California competition law by limiting the ability for app developers to point consumers to alternative payment systems that offer lower prices and fees. But almost immediately, Apple announced a brazen new approach to extend the charging of exorbitant fees on purchases even when those purchases are made outside of Apple’s walled garden – in direct contradiction with the spirit of the court’s ruling.

Once a company known for breathtaking, innovative technological advancements, this is now a company laser-focused on maintaining its stronghold on the app market. While we might see little else to applaud from Apple, we have to marvel at the breathtaking chutzpah of its legal team. At the same time, the ability of one company to manipulate the market – and the legal system – so openly demonstrates the need for a stronger legal framework.

Epic battle

Epic’s battle against Apple (and Google) has come to epitomize app developers’ struggle to sustain their businesses given that the distribution marketplace is so heavily weighted in the favor of big tech. Since 2015, Epic Games’ founder and CEO Tim Sweeney has questioned the need for digital storefronts to take a 30% revenue share cut. He reasoned that this not only unduly affected the ability of developers to monetize their offerings, but that it drove price increases that ultimately impacted consumers.

In 2020, when Epic first filed suit against Apple, Sweeny pointed out that “Apple has locked down and crippled the ecosystem by inventing an absolute monopoly on the distribution of software, on the monetization of software.”

In 2021, US District Judge Yvonne Gonzalez Rogers ruled in favor of Epic that Apple’s policies prevented consumers from getting cheaper prices and, thus, violated the California Unfair Competition Law. Then, in 2023, the Ninth Circuit Court of Appeals affirmed the ruling. When the Supreme Court recently refused to take the case, the ruling became final.

Monopolists gonna monopolize

This legal ruling seems to have done little to dissuade Apple from its monopolistic practices, however.

Last week, Apple announced they would charge a 27% fee on all charges outside of their payment system and 12% on all recurring charges. That’s a 3% reduction from the fee they take on charges within their payment system. Given that third-party payment systems typically charge 3% to 6%, Apple is ensuring that developers will never be able to offer consumers a viable, cheaper option outside of Apple’s walled garden. Perhaps even more appalling is that Apple’s proposal amounts a massive land grab where they could start collecting nearly a third of all consumer web transactions.

Building a stronger legal framework

It’s important to note that Judge Gonzalez Rogers and the Ninth Circuit called out the shortcomings with current federal competition law when they ruled against Epic’s claims that Apple had violated federal law. In their 2023 ruling, the Ninth Circuit said, “There is a lively and important debate about the role played in our economy and democracy by online transaction platforms with market power. Our job as a federal court of appeals, however, is not to resolve that debate — nor could we even attempt to do so. Instead, in this decision, we faithfully applied existing precedent to the facts.”

The Ninth Circuit ruling clearly underscores the need for new federal law to ensure a level playing field for existing and new market players. The Open App Markets Act, the American Innovation and Choice Online Act, and the AMERICA Act are vital to updating competition law in the US so that true competition can flourish and consumers can benefit from lower prices and continued innovation.

As if there weren’t enough headlines about big tech companies thumbing their noses at anyone who would suggest they need to be held accountable, Apple’s latest move should remind and inspire Congress to finally enact new, stronger guidelines to curb the pattern of abuse by big tech platforms.