Apple Faces Breach of Digital Markets Act, Potential Fines
The battle between Apple and the European Commission continues as the commission shares its preliminary findings on the non-compliance case involving Apple and the Digital Markets Act (DMA). The bottom line is that the current rules of the App Store are in violation of the DMA, which could result in fines of up to 10% of Apple’s global annual turnover.
The EU’s internal market commissioner, Thierry Breton, expressed his dissatisfaction with Apple’s practices, stating that “Apple has been squeezing out innovative companies – denying consumers new opportunities & choices.” The European Commission believes that third-party developers should have the freedom to inform customers about alternative purchasing options without any charges.
At present, developers who have apps on the App Store are not allowed to advertise different prices or alternative distribution channels within their apps. Although Apple now permits developers to include a link to their website, the European Commission argues that there are still too many restrictions associated with this mechanism.
Even if developers redirect users to their websites for transactions, they are still required to report these transactions to Apple and pay a commission. Web purchases only receive a waiver on the 3% payment processing fee.
In response to the European Commission’s feedback, Apple claims to have made changes to comply with the DMA. The company is confident that its plan aligns with the law and estimates that over 99% of developers would pay the same or less in fees under the new business terms.
Furthermore, the European Commission is launching a third investigation into Apple’s new contractual terms for EU developers. This time, the focus will be on Apple’s controversial Core Technology Fee (CTF) and alternative app marketplaces.
EU developers can choose between standard business terms or new terms that allow them to distribute apps outside of the App Store. However, opting for the new terms incurs a fee of €0.50 per installed app after one million downloads.
While Apple has made adjustments to the CTF exempting free non-commercial apps and providing a three-year transition period for small developers, the European Commission will assess whether the CTF fully complies with the DMA.
The EC will also examine the user journey involved in installing third-party app stores in the EU. Currently, this process requires multiple steps and may discourage users from exploring alternative options. The commission is concerned that Apple’s business model is designed to discourage developers and users from taking advantage of the opportunities provided by the DMA.
Apple now has the opportunity to respond to the European Commission’s findings in writing. The final decision will be made one year after the formal investigation began, allowing Apple to negotiate with the EU and potentially adjust its business terms to avoid significant fines.