Defeat for Apple in London: App fees far too high

Apple has abused its monopoly in the App Store for iPhones and iPads and charged far too high fees for years. This is the verdict of the Competition Apeal Tribunal, which is responsible for England and Wales. It prescribes Apple extensive refunds to customers, who in most cases can expect double-digit pounds. But since there are millions of affected customers, hundreds of millions of pounds are at stake. If the court decision becomes final, it will be a more severe defeat for Apple than this amount makes it seem.

This is because the ruling concerns the period from 1 October 2015 to 15 November 2024, more than five years before the UK’s exit from the EU. Accordingly, the three judges also focus on EU law. Their unanimous decision therefore serves as a model not only for Scotland and Northern Ireland, but for the entire EU. In addition, since 2023, a parallel class action lawsuit has been running at the same court on behalf of those app providers who had to handle their software and in-app sales via the same App Store. A verdict in favor of Apple in the parallel proceedings would be a surprise.

The verdict issued on Thursday is based on a class action lawsuit filed in 2021 by the British Dr. Rachael Kent. According to her own statement, she is the first woman ever to file a class action lawsuit in Great Britain. The scientist conducts research in the field of digital culture and society and teaches at King’s College London. As the owner of an iPhone, she was able to obtain apps for her mobile phone exclusively from Apple’s App Store, because Apple has always prohibited alternative distribution channels. This monopoly makes things expensive, because Apple regularly charges 30 percent fees. Kent went to court (Dr. Rachael Kent v Apple Inc and Apple Distribution International LtdAz. 1403/7/7/21).

30 percent fee “excessive and unfair”

According to the reasons for the ruling, Apple has actually abused its monopoly in two markets: (selling) of apps, as well as sales in apps. Apple has ruled out any competition in both markets. Apple argued that this was justified by competition on the merits, after all, iPhones and iPads are a fine thing. “Apple’s behavior cannot be justified as merit competition in this context, as Apple is not in competition at all,” the summary of the almost 400-page copy of the verdict. To make matters worse, Apple also forces the use of its payment processing system for in-app purchases.

With this, Apple has repeatedly violated Article 102 of the Treaty on the Functioning of the European Union as well as against Chapter II of the UK Competition Act infringe. “Apple has abused its market power by charging excessive and unfair prices, in the form of commissions for the distribution of iOS apps and for the payment processing of in-app purchases,” it says in the summary of the judgment farther.

The difference between the fees charged and the costs is significant and permanent. This shows that prices are inflated. The tariff is unfair both in itself and compared to the online shops of Epic Games, Microsoft and Steam.

Apple’s arguments fall flat

Apple tried to justify itself by arguing that the exclusion from competition was necessary and proportionate to achieve legitimate goals. The court rejects both. In addition, Apple said that a single App Store would be more efficient; consumers would benefit from this to a greater extent than they would be burdened by the high prices. The court does not accept this either, after all, Apple excludes any competition in the two markets from the outset.

Instead of 30 percent, a maximum of ten percent for in-app purchases and a maximum of 17.5 percent for app purchases are justified, according to the ruling. However, the difference had not only burdened customers, but also the providers of the apps and app content. The providers had only passed on half of the additional burden to their customers.

The parties to the dispute should agree on the exact modalities of the refund as far as possible and present the result at the next meeting, in November at the earliest. At the same time, Apple can apply for leave to appeal, which the company will certainly do. The court must then decide which parts of the judgment Apple can appeal.