Apple Faces Explosive $1BN+ Lawsuit for Crushing UK Developers in App Store: Are Changes Imminent?

A class action lawsuit for damages is being filed against Apple on behalf of the UK-based developers. The lawsuit, seeking a compensation payment that could reach as much as 800 million British pounds (more than $1 billion), accuses the tech giant of abusing a dominant position by charging an “anti-competitive” fee of 30% on in-app sales made by app creators on its iOS App Store. He also argues that UK consumers are missing out as developers are deprived of money that could be spent on R&D to drive app innovation.

Sean Ennis, a professor of competition policy at the University of East Anglia who has held positions at the OECD, the US Department of Justice and the European Commission, is bringing the class action on behalf of more than 1,500 UK-based developers.

“I have been studying competition issues for decades, and digital competition for quite some time. I have written about this in technical economic articles, but also in less technical works. And I’m really convinced that the kind of behavior we’re talking about in this case is deeply problematic. So I was interested in taking a role in helping to get some redress for those who I feel have been harmed by the behaviour,” he told TechCrunch, discussing his motivations for filing the lawsuit, which is being funded by UK litigation funder. Port.

The lawsuit is an opt-out class action, meaning UK-based developers don’t have to register to be included in potential winnings. If the litigants win against Apple, the level of damages owed per developer would be calculated based on their iOS app business, so payouts could vary widely and even run into the millions of pounds in some cases.

The central argument of the litigants is familiar. Companies like Spotify and Epic have protested for years against Apple’s unfair “tax,” as they put it, filing their own high-profile complaints against its App Store policies and fees with regulators and courts on both sides of the Atlantic, with varying degrees of success. Even Elon Musk has called out Apple’s commission on in-app purchases a de facto global tax on the internet.

Apple routinely rejects accusations that it is taking advantage of developer spending by arguing that the fees it charges allow it to provide iOS users with a superior experience, noting that store management includes reviewing apps for security and privacy concerns, among other quality checks (although they are scams, the subject of a previous App Store-related article). developer lawsuit Apple settled last year – they still slide through).

However, many developers continue to push the other side: Arguing that Apple’s fee is unfair, both because of the non-uniform way it is applied (as some apps/content types are charged while others are not) and as a result of the size of the cut taken (in 2020 Apple lowered its fee to 15% for the first million dollars in revenue generated, but after earning that amount, developers still typically go to their “standard” cut of 30%.

This UK lawsuit aims to test the arguments in an attempt to obtain compensation for developers for what the litigants argue is abusive and anti-competitive behavior by Apple.

The law firm supporting Ennis to file the lawsuit is Geradin Partners. Discussing the argument they intend to make on behalf of developers in an interview with TechCrunch, partner Damien Geradin highlighted a couple of items he suggested will be focus points for the lawsuit: First, he pointed out that Apple’s fee is not evenly applied, with only 16% of apps subject to it as a result of how Apple (inconsistently) enforces its rule charging the fee on apps that provide digital content, with apps like games, news, and streaming services tending to bear the brunt of the hit. charge, while other apps slip under the radar

He also pointed to the fact that Apple also charges developers an annual program fee ($99). And he suggested that developers need to pay more and more to Apple to buy search ads for the chance of iOS users discovering their software. The point is that Apple has a variety of routes to monetize the store.

“Another element that is critical is that even if the fee was zero, you would still have the same App Store because Apple couldn’t sell a single device without valuable apps like Tinder, Spotify, Netflix, news apps, gaming apps and the like,” he also suggested. “It is only because they have created a distribution monopoly for themselves that they can charge this extraordinary commission.”

The details (and fairness) of the App Store terms and conditions they are being chewed for number of competition regulatorsincluding the UK Competition and Markets Authority (CMA), which opened its investigation in March 2021.

In some markets, including Europe and Asia, we’ve also seen enforcement actions by regulators focused on Apple’s App Store payment services terms that forced it to allow third parties to use alternative payment processors, with some (limited) impact on the fees you charge.

But it’s fair to say the company has yet to face a major regulatory reckoning over the 30% charge.

However, lawsuits for damages could move the needle on behavior. However, it could take years, plural, for cases like this to deliver a verdict (and any blockbuster payouts to developers).

By starting their legal action now, the litigants say they hope their lawsuit can join an existing lawsuit (focusing on consumer damages) from the App Store, aka Dr. Rachael Kent vs. Apple – which was filed in 2021 and is seeking £1.5bn in damages on behalf of UK consumers. That claim has been certified and is pending trial in the Competition Appeals Tribunal.

Pressed about the timing of their lawsuit, and specifically why they did not decide to wait for the CMA’s app store investigation to run its course before litigating, they suggested they need not wait for competition regulators to provide more evidence of harm, pointing to scrutiny work already done in some jurisdictions (including a major study of the mobile market ecosystem recently concluded by the CMA).

“If you look at CMA’s mobile ecosystem market study, published a few months ago, you’ll see exactly the same findings,” Geradin argued. “You see that the profitability of the App Store is between 75% and 100%. It is literally an ATM. It is a money printing machine. And we disagree with that. Therefore, we do not dispute that they provide a service, but not to the tune of 30% commission collected in a discriminatory manner.”

The litigants also point to economic analysis they commissioned from Compass Lexecon, which they suggest shows that Apple’s market dominance has given it “extraordinary and excessive profits at the expense of the value provided by app developers,” as they put it.

“A report by the US House Judiciary Committee’s Subcommittee on Antitrust, Business, and Administrative Law states that Apple’s net revenue from the App Store alone was estimated to be approximately $15 billion in 2020, increasing to $18.8 billion in 2022. According to the same report, Apple’s former senior director of app store review confirmed that the costs of running the App Store were less than $$ 100 million a year,” they also wrote in a press release announcing their lawsuit today.

Geradin added that they hope the legal discovery process will provide any other relevant data needed to bring their claim home to UK-based iOS developers.

In the case of the CMA against the Apple App Store, despite more than two years of investigation, the procedure has not yet led to any public application. There have recently been a number of case notifications about extensions to their review and review timelines for reviewing collected information. But it is not clear when the regulator can make a decision. There are no statutory deadlines for such cases, which means that a complex investigation can drag on if the CMA feels more time is needed to ensure a robust and thorough review. (Or, well, for whatever other reason you deem important.)

“You never know with the competition authorities,” Geradin commented, further explaining why they are not waiting for the CMA to deliver a verdict. “I spent my life waiting for them to take action. So maybe something will happen next week, or maybe something will happen next year. So it’s always a bit tricky to wait for what they’ll do, considering you never know when they’ll take action and what the action will cover.”

He also stressed that the suit is seeking compensatory damages on behalf of the developers for what they allege are anticompetitive mistakes Apple has already made. While competition authorities focus on correcting abusive behavior in the future.

“They [the CMA] you can ask Apple to change the behavior, but it doesn’t do anything for the past. Whereas a claim for damages is for the past, and we believe that app developers have been taking advantage and should be compensated for past actions. So these are complementary tools,” he said. “But also, we don’t know what the scope of the CMA investigation is about — the CMA has been very quiet and somewhat low-key about what they’re seeing.”

In recent years, a number of class action lawsuits have been brought unsuccessfully in the UK against major technology companies seeking damages for breaches of privacy law, typically failing over challenges relating to the establishment of a class (for example, a recent health data claim against Google DeepMindor the Safari Tracking Lawsuit Against Google). However, privacy lawsuits may not offer much guidance on how competing class actions would fare.

When asked about this, the litigants expressed confidence in establishing common ground, as “all of our developers who sell digital content are treated the same,” Geradin said.

They also suggested that proving harm related to antitrust abuse should be easier than in privacy cases where arguments about damages and impacts may be more subjective.

“There’s a lot in common with damage here because we’re talking about a 30% commission,” Ennis suggested. “So compare that to the damage you suffer from a privacy breach compared to someone else. . . I’m not going to speculate on the facts of those cases, but here the level of commission is just known and common, and that makes some aspects of class formation easier.”