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EU to charge Apple with anticompetitive behavior this week
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Margrethe Vestager, the EU’s competition chief, will later this week issue charges against Apple stating that its App Store rules break EU law, according to several people with direct knowledge of the situation.

The charges relate to a complaint brought two years ago by Spotify, the music streaming app, that Apple takes 30 percent commission to distribute apps through its iPhone App Store and forbids apps from directing users to pay for subscriptions elsewhere.

Brussels opened an official competition investigation in June, when Vestager said Apple appeared to be a so-called gatekeeper “when it comes to the distribution of apps and content to users of Apple’s popular devices.”

Apple, which has denied any allegations of anticompetitive behavior, did not immediately reply to a request for comment. At the time of Spotify’s initial complaint, Apple said the music app wanted to “keep all the benefits” of its App Store “without making any contributions to that marketplace.”

The case is one of the most high-profile antitrust cases in Europe against a US tech group. The people familiar with the process warned that the timing could still slip.

Brussels is also investigating Apple for allegedly breaking EU laws when it comes to promoting its own ebooks over rivals on the App Store and over concerns that it undermines competition in mobile payments by limiting access to the near-field communication chips in iPhones for rivals to Apple Pay.

If Apple is ultimately found guilty of breaking EU rules, after a long period of potential appeals, the company faces a fine of up to 10 percent of global revenues.

Separately, Brussels is pushing through a new Digital Markets Act that seeks to define when Big Tech companies are behaving in an anti-competitive way so that remedies can be applied faster.

SOPA Images | Getty

Spotify’s complaint against Apple

March 2019: Spotify launches official complaint against Apple in the EU. Spotify CEO Dan Ek warns of rising prices due to App Store’s fees.

May 2019: EU officials say they are preparing an official investigation.

June 2020: The EU begins probes against Apple Music, Apple’s ebook business, and Apple Pay.

March 2021: The EU says it is considering formal charges for Apple over Spotify’s complaint.

© 2021 The Financial Times Ltd. All rights reserved. Not to be redistributed, copied, or modified in any way.

Maybe this textbook is from the Ma Bell era? #ThanksStockGettyImages
Enlarge / Maybe this textbook is from the Ma Bell era? #ThanksStockGettyImages
designer491 / Getty Images

Josh Hawley had some questions about how Apple came up with the money to buy back $58 billion in stock over the past year.

“I just want to focus on one major source of that income,” the Republican senator said to Apple’s lawyer. “It’s not innovation, it’s not research and development. It’s the monopoly rents that you collect out of your app store.”

I suspect you, unlike me, had better things to do last Wednesday than watch the Senate antitrust subcommittee hearing on Apple’s and Google’s mobile app stores. But if you did tune in, and you’re not an economist, you might have been baffled by that exchange. What is a monopoly rent—a term that was mentioned over and over at the hearing—and why is it bad? What does it have to do with app stores?

In economics, the concept of rent refers to money that a business makes in excess of what it would get in an efficient, competitive market. In other words, it’s money that isn’t earned by actually creating value. When corporations lobby government to give them a tax break or a special regulatory favor, they are often accused of “rent seeking.” It’s a pejorative term, and the precise limits of it are up for debate; it can be hard to draw the line between fair profits and unreasonable rents. But the basic premise is that businesses should try to get rich by improving their products and services, not by gaming the system.

Rents are a central concern of antitrust law. One of the most basic reasons why monopolies are bad is that when a company takes over a market, it can raise prices without worrying about being undercut by competitors. A “monopoly rent” is thus the money that a monopolist earns not because it offers the best product or service, but merely because it has the power to charge more. Which is exactly what the subcommittee accused Apple and Google of doing. Each company forces app developers to use their payment systems for digital purchases made within apps downloaded through their stores. And each takes up to a 30 percent cut of those purchases. This state of affairs costs companies like Spotify, which testified at the hearing, a huge amount of money, because Google and Apple control the entire mobile operating system market: Any customer who signs up on their phone, rather than on desktop, has to go through the app store toll booth. (Technically Google allows apps to be “side loaded,” without using its app store, but in practice few people bother to do that.) The commission is also at the heart of the video game developer Epic’s civil antitrust lawsuits against both companies. And, according to the senators who took Apple and Google to task, it leads app developers to pass those higher costs on to consumers.

At the hearing, Google’s and Apple’s representatives argued that most developers don’t end up paying the 30 percent rate. But they also insisted that the commission, which the biggest, most revenue-generating apps do have to pay, are competitive and industry standard. The problem is, they are the whole US industry. And no one on the antitrust subcommittee, from either party, seemed persuaded that the tens of billions in annual revenue the companies make via the commission represent anything close to what they would make if they didn’t have such control over the app market. As subcommittee chair Amy Klobuchar put it toward the end of the hearing, summing up the views of her Democratic and Republican colleagues, “I just think there’s something pretty messed up about this.”

The in-app payment commission is not the only app-store-related accusation being lodged against Apple and Google. Among other things, they also stand accused of using their access to competitors’ data to inform their own proprietary apps, and then preferencing those offerings. (In one spicy moment, Senator Richard Blumenthal asked whether the companies maintain a firewall between the teams handling data from the app store and the teams responsible for product design. The answer was not yes.) But the commission looms especially large because it is perhaps the purest distillation of monopoly rents from all the Big Tech antitrust inquiries. This helps explain why the subcommittee was uncommonly, almost eerily on-message—the usual grandstanding and weird off-topic partisan rants were basically absent. The term “monopoly rent” might be jargon, but the concept it describes is intuitive. Don’t underestimate the power of a simple argument. Google’s and Apple’s alleged rent-collecting days might be numbered.

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Sen. Roger Wicker (R-MS) and Sen. Ted Cruz (R-TX) are shown at a 2019 hearing. Both senators harshly criticized big technology companies at the 2021 confirmation hearing for Lina Khan to serve on the Federal Trade Commission.
Enlarge / Sen. Roger Wicker (R-MS) and Sen. Ted Cruz (R-TX) are shown at a 2019 hearing. Both senators harshly criticized big technology companies at the 2021 confirmation hearing for Lina Khan to serve on the Federal Trade Commission.
Drew Angerer/Getty Images

When President Joe Biden chose Lina Khan for one of the Federal Trade Commission’s five seats, it was an ominous sign for the nation’s largest technology companies. While still a law student, Khan made her academic career penning “Amazon’s Antitrust Paradox,” a scholarly 2017 treatise arguing for a tougher approach to regulating the Seattle behemoth.

Prior to law school, Khan worked for Barry Lynn, a scholar who was fired from the centrist New America Foundation over his aggressive criticism of Google, a major New America funder. After law school, Khan worked as the legal director of Lynn’s new organization, the Open Markets Institute.

So if we can expect anyone to push the Federal Trade Commission to enforce antitrust laws more aggressively against big technology companies, it would be Khan. The choice of Khan could also signal that the Biden administration more broadly will take a confrontational posture toward Big Tech.

But the really ominous sign for Big Tech is what happened when Khan had her confirmation hearing before the Senate Commerce Committee on Wednesday.

“I’ve become increasingly concerned”

You might have expected Republicans on the committee to go on the attack against Khan. Senators are usually happy to criticize nominees from the opposite party. And for most of the last 50 years, Republicans tended to favor a hands-off approach to antitrust law.

But only one Republican at Wednesday’s hearing raised any significant objections to the Khan pick—and her concerns weren’t about antitrust policy. Sen. Marsha Blackburn (R-Tenn.) said she worried about Khan’s “background and lack of experience” for such a senior position—Khan is in her early 30s.

Other Republicans seemed downright enthusiastic about Khan’s adversarial stance toward big technology companies and urged Khan to wield the FTC’s regulatory powers aggressively.

“I believe the FTC should be doing much more to rein in the anticompetitive abuses of Big Tech,” Sen. Ted Cruz (R-Texas) said to Khan.

Sen. Roger Wicker (R-Miss.) asked Khan about the portion of “Amazon’s Antitrust Paradox” that discusses treating Amazon as a common carrier. He also approvingly cited a recent concurring opinion by Justice Clarence Thomas suggesting that the law could treat social media giants as common carriers.

“I’ve become increasingly concerned about social media companies that promise to be a free and open marketplace for ideas, but they’re not in my view upholding those promise to their consumers,” said Sen. Jerry Moran (R-Kan.). Moran has introduced legislation allowing the FTC to punish social media companies if they don’t follow their own social media policies.

Democrats were equally critical of big tech companies, though they tended to focus on different issues. Sen. Amy Klobuchar (D-Minn.) blasted Google and Facebook for trying to “hold a whole country hostage” during the recent dispute over Australia’s news industry. Klobuchar also blasted Apple for its App Store policies.

The right is learning to love antitrust—at least for Silicon Valley

It would be misleading to suggest that there’s a left–right consensus on the best approach to regulating big technology companies. Republicans’ rising antipathy toward big technology companies is partly a reaction to social media companies’ increasingly aggressive moderation of right-wing content—including several sites banning Donald Trump back in January. Those moderation efforts are obviously popular among Democrats, so we can expect Democratic leaders to block legislative proposals like Moran’s.

But Republicans’ concerns are broader than just the moderation issue. For example, when the Trump administration filed major antitrust lawsuits against Google and Facebook late last year, the case was supported by the attorney general of almost every state, Democrat and Republican. And those lawsuits weren’t focused on content moderation issues. Rather, they focused on traditional antitrust concerns that have long been held by left-leaning legal scholars like Khan.

The tech giants’ best hope of beating back this populist wave rests with the judiciary. Antitrust law is based on a small set of vague century-old statutes that have been interpreted over time by a long sequence of court rulings. Starting in the 1980s, judges became more skeptical of strict antitrust enforcement. Over the last four decades, the Supreme Court handed down a series of rulings that weakened antitrust enforcement. Last year, for example, a federal appeals court rejected the FTC’s case that Qualcomm had abused its monopoly power in the modem chip market.

Antitrust law isn’t as ideologically polarized as some areas of the law, but it’s traditionally had some partisan tilt. Liberal judges usually favoring stricter interpretations of the law than conservatives. For example, in one landmark 2018 ruling, the Supreme Court’s five conservative justices all voted to uphold an appeals court ruling that American Express had not violated antitrust law. The court’s four liberals all signed a dissent by Justice Stephen Breyer arguing that American Express had violated antitrust law.

This matters because Congress has become so polarized and dysfunctional that it’s unlikely to pass an overhaul of antitrust law—even if most members of Congress believe that recent antitrust policy has been too lenient. Hence, as long as the courts—and especially the nine members of the Supreme Court—favor weak enforcement of antitrust law, there may not be much that Khan or other members of the Biden administration can do to rein in big tech companies. It doesn’t matter how many big antitrust lawsuits the FTC or the Justice Department bring if the courts reject them.

At least one conservative justice is worried about Big Tech

And this is why that recent concurrence by Supreme Court Justice Clarence Thomas is so important. The case wasn’t an antitrust case. Rather, it concerned whether Donald Trump violated the First Amendment by blocking users from following him.

But Thomas went out of his way to express alarm about the market dominance of Facebook, Google, and other technology giants. He noted that Google has a 90 percent market share (it’s not clear which market this refers to) and that Facebook has 3 billion users. He warned that such a large market share gives tech giants a lot of control over the public’s communications.

While Justice Thomas didn’t suggest any specific changes to antitrust doctrine, he certainly seemed sympathetic to arguments that the tech giants have been abusing their market share. More generally, this seems like a sign that the changing view of big tech companies among Republican voters and Republican politicians is also affecting at least some conservative members of the judiciary.

It’s impossible to predict how Justice Thomas might rule if the Google or Facebook cases eventually reach the Supreme Court. And with six conservative justices, Thomas might not be a deciding vote even if he sided with the liberals.

But technology giants can’t be happy to face growing hostility across the political spectrum and from all three branches of government. Even if the companies manage to beat back the current wave of antitrust lawsuits, the next Republican president could share Donald Trump’s (and Joe Biden’s) hostility toward big technology companies and their enthusiasm for antitrust activism. And that would mean that sooner or later, the judiciary would turn against them, too.

<em>Fortnite</em> seen in the App Store on an iPhone on May 10, 2018.
Enlarge / Fortnite seen in the App Store on an iPhone on May 10, 2018.

With Epic Games and Apple set to face off before a judge in their high-profile trial in just a few weeks, new court filings from both companies outline the evidence and arguments each intends to make in detail.

Unsurprisingly, each document paints a radically different picture of Apple’s App Store and its role in the gaming and technology industry.

The disagreement between the two companies escalated publicly when Epic attempted to implement its own in-app payments system in Fortnite, one of the most popular games on Apple’s App Store. This set into motion a series of events that led to Apple removing Fortnite from the App Store as Epic ran a social media campaign around the hashtag “#SaveFortnite,” leveraging angry gamers against the tech giant.

Epic then went to court against Apple, alleging that the latter’s iOS App Store is a monopoly and its policy that app developers publishing to iOS must use Apple’s own payment system (among other restrictions in Apple’s review process) is anticompetitive.

Both Apple and Epic were required to file “Findings of Fact and Conclusions of Law” in the lead-up to the trial. The documents are lengthy and detailed, but find some key arguments summarized below.

Apple’s argument

The top-level gist of Apple’s argument (key aspects of which we already covered in some detail previously) is that developers have the option to develop and publish games for numerous other competing devices and platforms, including storefronts from companies like Sony or Nintendo that enforce similar rules and fees. Developers can also publish for the web, where experiences would still be available to iPhone users even if developers choose not to abide by the rules of the App Store and publish there.

Because Apple is just one of many players in a broader competitive market for video game transactions, and it does not control that entire market, it does not have a monopoly, the company argues. Here’s a snippet from Apple’s filing:

Apple has no monopoly or market power in the relevant product market for game app transactions. And there is no claim that it had any such power when the restrictions at issue were imposed around the launch of the App Store.


Apple has no obligation to license its intellectual property, and aside from a limited exception not applicable here, businesses are free to choose the parties with whom they will deal, as well as the prices, terms and conditions of that dealing.

Apple says its 30 percent commission charged to developers who earn over $1 million per year on its app marketplace is an industry-standard rate that does not represent an anticompetitive strategy.

The filing contends that a cut like that is reasonable because Apple has spent billions building out and maintaining infrastructure that makes developers’ success on the platform possible, from the App Store itself to various APIs and other software development tools. Apple discloses that Epic earned $700 million on the iOS platform in just two years of Fortnite being available on iPhones and iPads.

Also key to Apple’s argument is the assertion that the particular Epic update to Fortnite which led to the game’s removal from the App Store was planned months or even years in advance with the specific intent to wage a broad public relations battle to make Apple look bad. If the judge agrees with that interpretation of Epic’s actions, that may weaken Epic’s case that Apple unfairly removed Fortnite from the App Store after Epic submitted the game for approval in good faith.

Epic’s argument

The major distinction at play in Epic’s own argument is that iOS is an entire market unto itself and not just one of many competing products in a larger marketplace of video game transactions. If the judge agrees with this classification, Apple may be more likely to be seen as monopolistic.

Another key part of Epic’s argument involves comparing and contrasting iOS with macOS. Apple claims that its strict rules about what apps can and can’t do on the iOS App Store are driven at least in part by concerns about security and privacy for users, but Epic points out that Apple claims macOS is secure and private without placing all the same restrictions on the Mac operating system.

This is key to Epic’s case that Apple has enforced its rules for the iOS App Store for business reasons, rather than user-centric ones like security or privacy, which could undermine part of Apple’s case.

Epic asserts that Apple’s controversial App Review process “does little to keep iOS devices secure,” and alleges that Apple has on multiple occasions screened apps “primarily for non-security issues—including specifically for anti competitive purposes.”

It singles out Apple’s policy that apps must use Apple’s own payment system (and thus provide Apple a 15 percent of 30 percent cut of the revenue) as one that has no security benefits. The filing says:

There were no widespread or significant security issues regarding payment with the App Store prior to the introductions of IAP or the requirement that apps selling subscriptions use IAP rather than alternate payment solutions, nor evidence that IAP is far superior to third-party payment alternatives with respect to security.

As a side note we thought worthy of mentioning, Epic says in its filing that its own currently PC-based game marketplace will become profitable in 2023. The company spent considerably on marketing, user acquisition, and exclusives to grow its install base in the early years, leading to expected losses in the first few years of operation.

The Rorschach test

The decision of the judge could have far-reaching consequences for not just Apple and Epic, but many other companies that trade in digital software, from platforms to individual developers.

Both Apple and Epic themselves have immense stakes in the outcome of this case. If the judge fully embraces Epic’s arguments, Apple will face an existential threat to a core part of its product development philosophy and business strategy going back many years, and the consequences of a ruling fully in Epic’s favor would be wide-reaching for the future of Apple.

Epic doesn’t have quite as much to lose in terms of its status quo position, arguably, but it has a tremendous amount to gain should it come out ahead. If it defeats Apple on this battlefield, the flood gates may open for Epic to launch its own store on iOS—and perhaps, after the precedent is set, on other gaming platforms like those owned by Nintendo, Sony, or Microsoft.

The two arguments characterize the nature of Apple’s App Store completely differently, and it’s clear that the App Store has become something of a Rorschach test for onlookers.

There are many dimensions to the case that may end up being critical to the judge’s conclusions, like the question of whether Apple’s app review process actually provides security or privacy benefits to users, whether Epic pushed the app review policy-offending Fortnite update in faith, and more.

Wait until May

But it may come down primarily to this question: does Apple’s App Store—despite a minority install base in the mobile space (Google’s competing Android platform has more than 70 percent market share) and the presence of numerous strong competitors in the video game industry—constitute its own marketplace over which the company can hold a monopoly?

Or is the App Store just one one of many digital marketplaces in a vast and healthy competitive games industry, on a minority-market-position platform—with the implication that Apple is not truly limiting developers’ access to the marketplace in an anticompetitive way, because Apple does not have that kind of power over the larger marketplace?

We’ll see the arguments move forward when the trial begins on May 3 in Oakland, California, provided there are no delays.

Facebook CEO Mark Zuckerberg.
Enlarge / Facebook CEO Mark Zuckerberg.
Chip Somodevilla/Getty Images

The Federal Trade Commission on Wednesday urged a federal judge in DC to reject Facebook’s request to dismiss the FTC’s high-stakes antitrust lawsuit. In a 56-page legal brief, the FTC reiterated its arguments that Facebook’s profits have come from years of anticompetitive conduct.

“Facebook is one of the largest and most profitable companies in the history of the world,” the FTC wrote. “Facebook reaps massive profits from its [social networking] monopoly, not by offering a superior or more innovative product because it has, for nearly a decade, taken anticompetitive actions to neutralize, hinder, or deter would-be competitors.”

The FTC’s case against Facebook focuses on two blockbuster acquisitions that Facebook made early in the last decade. In 2012, Facebook paid $1 billion for the fast-growing startup Instagram. While Instagram the company was still tiny—it had only about a dozen employees at the time of the acquisition—it had millions of users and was growing rapidly. Mark Zuckerberg realized it could grow into a serious rival for Facebook, and the FTC alleges Zuckerberg bought the company to prevent that from happening.

The story is the same for WhatsApp, the FTC says. “Facebook’s own messaging app, Facebook Messenger, was launched in 2011, but was already too far behind WhatsApp to prevent WhatsApp from gaining scale,” the FTC writes. “In 2014, Facebook acquired WhatsApp for $19 billion. The acquisition neutralized WhatsApp as a nascent threat and thereby deprived, and continues to deprive, users of the benefits of competition from an independent WhatsApp.

Finally, the FTC argues that Facebook attached anticompetitive conditions to companies that joined Facebook Platform, a set of APIs that allowed third-party apps to obtain data about Facebook users.

“Between 2011 and 2018, Facebook made Facebook Platform available to developers only on the condition that their apps neither competed with Facebook nor promoted its competitors,” the FTC writes. “Facebook punished apps that violated these conditions by terminating their access to the Find Friends API and other APIs.”

The motion to dismiss is the first major step in the litigation process. It allows defendants to quickly dispose of lawsuits that are frivolous or based on invalid legal theories. At this stage in the litigation, the court is supposed to assume that the plaintiff’s allegations are true and dismiss the lawsuit if the plaintiff would lose the case anyway.

But the FTC argues that most of Facebook’s motion to dismiss quibbles with facts in the FTC’s complaint—such as the FTC’s claim that Facebook has market dominance—rather than arguing that the FTC’s case is legally groundless. Facebook will have a chance to dispute the FTC’s factual claims, of course. But it will have to wait until later phases of the litigation process to do that, the FTC said.

The FTC filed its lawsuit during the Trump administration, but we shouldn’t expect the agency to be any more sympathetic to Facebook under President Joe Biden. Biden recently nominated Lina Khan, an antitrust crusader whose scholarship has focused on tech giants like Amazon, to a seat on the five-member FTC. If she is confirmed, we can expect her to be an advocate for vigorous pursuit of the FTC’s Google and Facebook cases—and perhaps launch new cases against other tech giants as well.