Justice Department affirms potential Apple antitrust investigation in the United States

Individuals declined to say which states or how many have expressed interest, although some of the states are also involved in antitrust investigations on Google and Facebook.

Apple and the Justice Department declined to comment.

Apple’s problems had previously been limited to the European Union, which in 2017 launched an ongoing tax investigation and more recently increased its scrutiny from Apple to include the two antitrust probes. By following the example of the EU, the US antitrust police. USA They add to CEO Tim Cook’s headaches, at a time when the coronavirus crisis has depressed Apple’s sales and forced it to close many of its stores.

An antitrust investigation in the US USA It would pose a threat to the company’s second-largest slice of revenue after the iPhone: the $ 46.2 billion service business, which includes App Store sales and subscription services like Apple Music and Apple TV +.

Reuters reported in February that the Justice Department had spoken to “a handful” of app developers, including the parental control app Mobicip, which filed a complaint with EU authorities last year. But the most recent discussions are the clearest signal to date that the United States’ antitrust authorities may soon begin to gather documents and other information necessary for a full investigation.

While Apple’s iOS smartphone operating system has historically been less dominant than Google’s Android, the trend is changing. In In September, Apple’s iOS accounted for about 47 percent of smartphones in the United States, compared to 51 percent for Android, according to comScore. When tablets are included, Apple’s share jumps to 58 percent. For an antitrust lawsuit, that growing dominance may be a key factor, said Gene Kimmelman, who worked at the Justice Department. Antitrust Division during the Obama administration.

“It is one thing to restrictively structure your services or use exclusive contracts when you are little,” said Kimmelman, now a senior Public Knowledge Advisor. “But the bigger you get, the more dominant you become in a market, the more likely those types of restrictions, unless they are absolutely essential to benefit consumers, are skeptically viewed as detrimental to competition.”

Developers say Apple unfairly ties access to its App Store, the only way they can reach customers using iPhones and iPads, with its in-app payment system, which is a 30 percent cut from most of transactions. But the company has different policies on the applications it requires to pay that 30 percent, which developers derisively call the “Apple tax.”

Companies that offer what the company considers physical goods and services, including e-commerce platforms like Amazon, delivery apps like GrubHub or Uber, and reservation services like AirBnB are exempt. Apple also absolves what it calls “reading apps” from using its in-app payments. That category includes apps for things like magazines, newspapers, music, video, VoIP providers, and cloud storage.

Apple contends that all other digital goods and services, including those that compete with their own offerings, must use in-app purchase. The company also prohibits developers from telling customers that they could pay less if they register directly.

Some companies like Amazon circumvent Apple’s restrictions by refusing to sell digital products like e-books through the app, and instead require customers to log into the website on a desktop or mobile device to make purchases. Other subscription-based services Like Spotify, Pandora, or Netflix used to allow app registration, but only at a higher price that passed the 30 percent fee to the customer. (Netflix and Spotify have changed their policies and no longer allow new users to sign up through Apple apps.)

“The in-app purchase is broken,” said Phillip Shoemaker, a former Apple executive who helped design and manage the App Store from 2009 to 2016. “As Apple is entering more and more of these areas and pulling out of the business to more developers, they really have to think differently. “

Consumers around the world downloaded a record 204 billion apps on all platforms last year and spent approximately $ 120 billion, according to the app analysis firm. Annie App. Globally, Apple’s iOS has a small share of the phone and tablet market, at 26 percent compared to about 72 percent running Google’s Android system. But the problem is more serious in the United States, where the iPhone has grown in popularity in recent years.

Microsoft President Brad Smith implicitly criticized Apple last week, saying that today’s app stores are more dominant than the Windows maker 20 years ago, when a Justice Department lawsuit accused him of being an illegal monopoly. .

“I think the time has come … for a much more focused conversation about the nature of app stores,” Smith said during a POLITICAL Live event. “They impose requirements that increasingly say that there is only one way to access our platform, and that is to go through the door that we have created ourselves. In some cases, they create a very high price or toll. “

On Monday, Apple announced The changes to its App Store are intended to alleviate some concerns, including one that will allow developers to challenge the company’s guidelines for app approval, in addition to individual app reviews. The company also said it will not delay updates that are simple bug fixes due to violations of the company’s app store guidelines.

Apple declined to comment on what prompted its decision to change its rule or the challenging guidelines process.

Swedish music streaming service Spotify has long been one of the loudest to oppose Apple’s App Store policies. The company was the first to file an official complaint with Europe’s main competition authority, the European Commission, in March 2019.

“Apple intentionally designed a rigged system in its favor,” Spotify legal director Horacio Gutiérrez told reporters last week after the EU announced its investigation on the App Store. “Apple’s behavior is not an accident: they designed these rules to harm us and other rivals to their advantage. There is no doubt that Spotify would be a more successful company today if it weren’t for Apple’s conduct. “

Match Group, which owns dating platforms like OkCupid, Match.com and Tinder has also criticized Apple’s app store policies. (Tinder, the world’s most popular dating app, ranks second in consumer spending, according to App Annie.)

“We are very aware of its power over us,” he said. Vidhya Murugesan, Match spokesperson. “The reality is that ‘digital services’ are the only category of applications that have to pay App Store fees.”

While Apple may be known for its privacy, critics say the iPhone maker’s rules offer an incentive for developers to use business models that are less privacy-friendly, such as offering a free app that makes money from advertising. directed. For example, Facebook and its dating app Facebook Dating pay Apple nothing. In comparison, Tinder, Bumble and Grindr offer subscriptions, but they have to pay a part of Apple.

The developers also allege that Apple interprets its rules on in-app purchases arbitrarily, as evidenced by a dispute last week between the company and the email service Hey. Hey created by the founders of the Project management software company Basecamp is a paid email service that includes features like post-response reminders, the ability to ignore group threads, and detection to help eliminate marketing and spam.

After initially approving the Hey app for iOS, Apple rejected two days later an update with bug fixes because the service was not offering in-app purchase, David Heinemeier Hansson, co-founder of Basecamp and Hey, said in an interview with POLITICO.

“Apple is solving case by case and changing law enforcement because they can,” Hansson said. who is also a vocal critic of Apple’s rival Google, and testified before the House Judiciary Committee earlier this year. “When you have a guardian role like this, they can do whatever they want.”

Hey and Apple came to a detente: Apple agreed to approve the app with bug fixes, and Hey on Monday unveiled a new version that allows users a 14-day free trial. By Tuesday, a week after the service debuted, Hansson said Hey had 50,000 subscriptions, and 80 percent of customers were using the service on Apple products.

“We just need to be able to access the iPhone. It is the dominant platform for this type of service, “Hansson told CNBC.

Developers who have spoken to US authorities have voiced concerns about other aspects of Apple’s App Store beyond price. Because customers register through Apple, the iPhone maker controls both the data and the relationship with customers, POLITICO was told by several companies on condition of anonymity not to publicly criticize a business partner. That can lead to customer confusion over who is in charge of cancellation and refund processing.

Customer satisfaction surveys show that users who register and deal with a company directly rate their happiness much more than those who subscribe through Apple, said a company that has complained in the US. USA And the EU.

Apple, which has made a name for itself as the tech company most concerned with user privacy, has also resisted when apps have tried to add user privacy protections, such as offering multi-factor authentication or requiring additional identification for subscriptions, they said.

Shoemaker, who left Apple in 2016, said developers frequently approach him whose apps were improperly rejected from the App Store and estimated that he has helped at least 30 in the past year. He has also spoken to various crypto and cannabis companies, companies that have had difficulty accessing the App Store, about creating a union to negotiate with Apple.

“We need a critical mass to speak for Apple to speak to us as equals,” said Shoemaker, now CEO of Identity.com, a nonprofit organization focused on digital identity verification.

For Hansson, who wrote his first app for the Apple App Store in 2012, the company’s attitude toward developers is ironic considering the value they’ve brought to the iPhone maker.

“Apple has a monopoly on mobile operating systems because independent software developers built for the platform,” said Hansson. “We dug the moat for the gleaming Apple Castle. And now they want us to pay for the shovel.