On 28 March 2022, the Commercial Court of Paris fined Google €2 million for the imbalanced terms and conditions of its Play Store. While the fine is minimal, Google is also obliged to adapt those T&Cs, including the 30% fee—a much more far-reaching implication. Except for some news articles, the French judgment did not receive a lot of attention (which may be because it’s in French and locked behind a paywall). However, in the rich tapestry of current app store cases, the French judgment has some unique features.
The French legal framework
Unlike most other app store cases, the French one wasn’t based on Article 102 TFEU or national equivalents of the EU’s abuse of dominance provision. Rather, it was based on Article L442-6, I, 2° of the French Commercial Code (now Article L442-1, I, 2°). As explained in a previous post, this provision—found under the heading ‘practices restrictive of competition’—contains a list of unfair trading practices, including ‘subjecting trading partners to obligations that create a significant imbalance between the rights and obligations of the contracting parties’. The French Ministry of Economic Affairs can seek to enforce the provision before a commercial court.
While not part of competition law sensu stricto, the provision is considered part of ‘le petit droit de la concurrence’ (‘small competition law’), which protects private interests (contracting parties) rather than public interests (the economic order). Its language, which refers to a ‘significant imbalance between contracting parties’, describes exploitation rather than exclusion—the primary concern under Article 102. However, Article 102 cases based on exploitation—while sometimes criticized—have not gone extinct. For comparative purposes, and to illustrate the broader trend towards platform exploitation, another such case is worth discussing here.
The Dutch App Store case
In August 2021, the Dutch Competition Authority (ACM) ordered Apple to adjust the unreasonable conditions of its App Store. The decision wasn’t immediately published because Apple requested a preliminary injunction from the Court of Rotterdam. The court largely rejected that request in December 2021 and made its judgment publicly available, while still only a summary of the ACM’s decision has been published (for a discussion, see Daniel Mândrescu’s previous post).
One of the most interesting points of the ACM’s decision is its legal basis, Article 102(a) TFEU, which prohibits ‘unfair trading conditions’, so exploitation. There are different reasons for the ACM’s choice of legal basis. Firstly, the European Commission is investigating Apple for an exclusionary App Store abuse, which means national competition authorities are prohibited from pursuing a parallel case (Article 11.6 of Regulation 1/2003). Given their different focus—exclusion of firms Apple competes with (music streaming apps) vs exploitation of apps Apple doesn’t compete with (dating apps)—the two cases don’t conflict. Secondly, Match Group—which owns dating services such as Tinder and Match.com—has grown into a strong complainant of Apple’s App Store practices. It’s easy to see why: Match’s legal officer has testified that the company is annually paying Apple and Google $500 million in app store fees.
The Paris Commercial Court’s judgment
Let us then move to the French judgment and how it compares to the Dutch decision, focusing on market power and abusive practices (sensu lato).
Market power
Importantly, the French provision does not require market power. Nevertheless, the court elaborated on Google’s position to support how trading partners were subjected to a significant imbalance. It noted how Google Android holds a global share of 78% of the mobile operating system market (65% in France). The court found that Google Play, the app store embedded in Android, is not substitutable with Apple’s App Store, and is thus part of a different market. In any case, app developers have to be active in both stores so as not to lose a significant share of customers. Google is thus an inescapable and indispensable partner for app developers.
The ACM came to similar conclusions. Most consumers have access to either iOS with the App Store or Google Android with the Play Store (single-homing). By contrast, app developers—in particular of dating apps—must be present on both app stores (multi-homing), not only for customer access but also due to network effects: the larger the pool of users, the higher the odds of a successful match. Given that Apple does not allow any other method of downloading apps, the App Store holds a 100% share and entry is impossible.
Abusive practices
The court took issue with seven clauses in Google’s developer agreements that created a significant imbalance. The main one, which is also at the heart of other app store cases, is the 30% commission fee levied on every in-app purchase of digital products. According to the court, this fee cannot be justified because Google does not bear any financial risk in app development and does not otherwise justify its costs (e.g. from protecting developers against fraud). The court recognized Google does not charge a commission fee to developers of free apps, but those developers do pay a $25 registration fee and Google in any case has other sources of revenue (e.g. Play Store advertising and use of developer data).
The other unbalanced clauses were not price-related. They include (i) Google’s unilateral right to modify the contract at any time; (ii) Google’s unilateral right to suspend the contract, essentially at its discretion and purely in its own interest; (iii) Google’s unilateral right to terminate the contract at any time and for unclear reasons, with a 30-day notice.
Interestingly, these three clauses have meanwhile been regulated by the Platform-to-Business (P2B) Regulation. Article 3.2 obliges platforms to respect a ‘reasonable and proportionate’ notice period when T&Cs are modified, while Article 11 requires them to institute a complaint-handling system. Article 3.1 holds that platform T&Cs must clearly set out the grounds for decisions to suspend or terminate business users, while Article 4 adds an obligation to provide a statement of reasons for suspensions and terminations, in the latter case at least 30 days before it takes effect.
Google tried to rely on the P2B Regulation as a shield, arguing that it took priority over the French Commercial Code, but without success. The French Ministry’s case—initiated in 2018—targeted developer contracts from 2015 and 2016 (in effect until changes in 2018 and 2019), while the P2B Regulation only entered into force in 2020, without retroactive effect.
The Dutch case also centred on the 30% fee, but the ACM focused on how it was imposed through an obligation for developers to use Apple’s billing system In-App Purchase (IAP), and how developers are prohibited from referring to payment options outside the App Store (the anti-steering provision). The ACM also described how Apple prevents dating app developers from directly interacting with their users (a disintermediation that helps prevent steering).
The ACM decided that these restrictions are disproportionally onerous for dating app developers. This is the case commercially: dating apps, which are mostly monetized through in-app purchases of digital products (e.g. ‘boosts’ and ‘superlikes’) are faced with a 30% fee on every sale. But it is also true for the user experience: given that developers are disintermediated, they cannot take care of billing, cancellation or refunds, which lead to unhappy customers. Moreover, they cannot check the identity of their customers, which is especially relevant for dating apps that can be abused by bad actors. The reasons given by Apple—in particular privacy and safety—were not accepted: after all, it allows many other paying apps not to use IAP without significant problems.
Analysis
This analysis focuses on two features of the judgment: the fact that it concerns Google rather than Apple and the shift towards exploitation instead of exclusion (which is also apparent in the ACM decision).
Apple v Google
There are some differences between the Play Store and the App Store. Firstly, Google does allow downloads outside of the Play Store, either through third-party app stores or via side-loading. Given the power of defaults, the Play Store still holds a market share of over 90%, but at least the possibility is there.
Secondly, while both the Play Store and the App Store charge a 30% fee, Google has enforced this policy much less strictly. In 2020, it even had to clarify that developers were indeed obliged to use its billing system with its 30% fee (and finally almost gave them two years to do so). Google recently also announced a deal with Spotify that allows subscribers to bypass the Play Store’s billing system.
Given that Apple’s App Store policies are more restrictive in these two ways (where to download apps and how to pay for them), the French Ministry’s choice for pursuing a case against Google rather than Apple isn’t immediately obvious. However, the French Ministry has also been pursuing a case against Apple since 2017, so it’s not really an ‘or’ story.
A shift towards exploitation—and its difficulties
The most salient feature of these cases is the fact that they are based on exploitative theories. Other cases (e.g. those of Spotify and Epic) also centre on the 30% fee, but fit this into an exclusionary mould. The 30% fee would, for example, be the result of a tie between the App Store and IAP. The dichotomy between exclusion and exploitation actually isn’t as strict. Though underappreciated in the EU, exploitation is actually one of the theories of harm of tying. And another exclusionary abuse, margin squeeze (which I have argued applies to the Spotify case), also includes exploitative elements (its legal basis is also Article 102(a)).
Given the implied recognition that the 30% as such (in combination with some other clauses) is the problem, exploitation cases are in a way more honest. However, when the developer subject to the fee competes with Apple and operates with high margin costs, the fee can turn exclusionary quickly. For example, given that most of the revenue from a Spotify subscription goes to music labels, there simply isn’t enough margin left to pay the App Store’s 30%.
It’s therefore difficult to say that exploitation theories are necessarily more fitting than exclusionary theories. Moreover, competition authorities are notoriously unwilling to serve as ‘price regulators’, which offers another reason to stay away from exploitative abuses, in particular excessive pricing. Note how both the French and the Dutch case were conceived as unfair terms rather than prices.
However, talking about terms rather than prices does not solve the problem of remedies. IAP is simply a mechanism to charge the 30% fee. If authorities break the tie between the App Store and IAP, Apple will find a way to charge it directly. Indeed, when the ACM obliged Apple to let developers use other payment mechanisms, they adapted their commission fee to… 27%, which comes out to 30% when accounting for a 3% credit card fee. Perhaps the French remedy, given that it does not refer to the 30% fee’s relation with anti-steering, can fare better. Finally, given its as-efficient-competitor test, margin squeeze comes with a more defined remedy (an App Store fee at a level that as efficient competitors can survive, e.g. around 15% for music streaming), but the test is confined to competing developers with high marginal costs.
Conclusion
In the ever-growing list of app store cases, exploitative theories are gaining in prominence. Depending on the facts of the case, such theories may be fitting—indeed, they may even be more honest than exclusionary theories. Of course, these theories are often closely related to specific national regimes, which—in line with Article 3.3 of Regulation 1/2003—provide for ‘stricter national laws which prohibit or sanction unilateral conduct engaged in by undertakings.’ The French Google judgment follows a similar Amazon judgment, while the Bundeskartellamt has also pursued a case against Amazon based in part on abuse of relative dominance provision. For now, European competition authorities remain ‘united in diversity’ in trying to find adequate ways to solve the perceived problem of app store abuses.
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For a deeper dive into app stores, read the paper I co-authored with Daniel Mândrescu on app stores, available in the European Competition Journal and on SSRN.
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Picture via Pixabay