Apple finds the water is warming up in App Store legal battle

Apple has found itself in court once again, but Qualcomm is no-where to be seen. Instead, a few of its loyal iLifers are challenging the firm over whether the App Store is an illegal monopoly.

The case itself dates back to 2012 and will aim to understand whether Apple is operating an unjustified monopoly through the App Store. Right now the case is in front of the Supreme Court, where the nine judges will decide whether or not to allow the antitrust case to be heard by a District Court. The permission from five of the nine judges are needed for the case to proceed, and currently, it looks like only Chief Justice John Roberts is siding with the iGiant.

For Apple, this case could be a disaster. Permission to take the case to one of the District Courts, likely to be in one of the thirty states where the Attorney General is backing the iPhone users’ antitrust claims, and the door could be opened. Essentially anyone who has purchased an app from the App Store could claim grievances against Apple.

The case itself is relatively simple on the surface. As the App Store is the only place to download apps without breaking rules, should the 30% commission charged by Apple be viewed as the company unjustly profiting from a monopoly? One could argue prices are inflated due to the commission received by Apple, though its own counter-argument is based on legal precedent which dictates only those who have a direct billing relationship with a company can sue the firm.

In the Supreme Court’s 1977 decision in Illinois Brick Co. v. Illinois, the court stated only consumers who are direct purchasers of a product can bring a lawsuit seeking damages available for violations of federal antitrust laws. As customer purchase apps from developers, who in turn pay Apple the commission, Apple has argued there is no legal basis for iPhone users to sue the company, with the developers being the only ones who could make such claims. Chief Justice Roberts believes this argument, though spectators of the case have stated five of the judges are leaning the other direction. This could well develop into a very serious headache before too long.

On the other side of the aisle, the iPhone users, led by chief plaintiff Robert Pepper, argue prices would be lower if there were greater choices of app stores. This is a perfectly logical conclusion, though the developers might not like it. As it stands they have a captive audience with all iPhone users in one marketplace. Yes, they do have to pay Apple a premium, but this might well be a pill worth swallowing compared to the complications of working with multiple partners and a disaggregated audience.

As with many lawsuits in the digital economy, this is the first time such arguments are being considered by the courts. Precedent will be set which is what makes this case particularly interesting. Should the courts side with the iPhone users, the doors could be opened for lawsuits against other eCommerce giants such as Amazon or Facebook. Anyone who takes a commission based on a percentage could be viewed as falsely inflating prices in the pursuit of profit, or so the argument would be.

Apple has argued opening this door could stifle the growth of the burgeoning eCommerce sector, which is a negative consequence of course, but not an adequate reason for the case to be dismissed. Just because there is significant consequence does not mean unjust activities should be allowed to continue.

The App Store has started to generate some considerable income for Apple. On the financial side of things, over the last three months the services division, which include the App Store, produced revenues of $9.9 billion, up 17% year-on-year. With smartphone growth slowing globally, and the iPhone not proving the success some might have hoped in emerging markets, the services segment will become ever more important to the iChief.

A decision on whether the case can be heard by one of the District Courts will be made in the near future, though there will be quite a few eye balls on this one. The splash could be quite considerable for Apple, though the ripples through the rest of the digital ecosystem will be just as concerning.

Where is the line in the sand for zero rating?

It’s a trend which has been growing steadily in the UK, but the line has not been found yet; when are zero rating offerings going to irk the bureaucrats of the telco world?

Vodafone has just unveiled VOXI, a young-orientated mobile service which provides zero rating on Facebook, Facebook Messenger, Instagram, WhatsApp, Pinterest, Snapchat, Twitter and Viber. Three has Go Binge, which offers free streaming on Netflix, SoundCloud, Dave and other channels. EE offers Apple Music streaming for free. Virgin Media offers zero rating for Twitter, Facebook Messenger and WhatsApp. It’s become endemic.

But when will competition authorities decide the practise is not fair? Over in the US, AT&T and Verizon have been bickering with the FCC over the legalities of zero rating offers, but such arguments don’t seem to have crossed the pond in any substantial manner to date. This in itself seems odd; usually the European Commission usually can’t wait to get it’s hands on a competition challenge, but it doesn’t seem to be bothered yet.

Maybe it is preoccupied, maybe it’s because its holiday time, or maybe the telcos haven’t crossed the invisible line yet. As regulation usually lags behind technological developments, there is often a testing of the boundaries. Like toddlers, the tech giants will push the limits until they upset the overseers and get sent to the naughty step.

That seems to be where the zero rating offers are at the moment. The line hasn’t been found and the lumbering giant in Brussels remains snoozing, working off a gluttony of lunch time chocolate smothered waffles. But this does seem to right in the Brussels ballpark, after all, zero rating offers do nudge users towards preferential services.

Data is a precious commodity for millennials; you wouldn’t want to run out in the middle of a cat video. Therefore, users will naturally lean towards applications which don’t run down the data allocation. It’s irrelevant as to whether most of these applications (excluding the video ones) use marginal amounts of data, when you are told something is free the natural inclination is to use it.

In this light it discourages competition. The operators are favouring the established and larger scale platforms, making it much more difficult for competitors to break into the space. It doesn’t matter that there is unlikely to be a Facebook usurper, with zero rating offerings favouring Zuckerberg and his cronies, user preferences will naturally lean that way.

Of course, operators will state they are open to new partners, but there has to be something in return. The operators will be sending a steady flow of users towards the platform, so there will naturally have to be some sort of reward; these are businesses not charities after all. The financials behind the zero rating offers have not been unveiled, but you can imagine there will be a kick back.

Maybe there is some sort of discount on Facebook advertising or free promotional activity on Twitter? These are platforms which have millions (if not billions) of users, there is an incentive for the cash-conscious operators. But what is the leverage for the challenger businesses? It will be unlikely they have the user base or the footprint to attract interest. So it is an uneven playing field which is growing steeper.

On the other side of the coin, some might argue this is just sensible business. It is a contra agreement between two organizations who are making best use of the assets which they have. It’s a relationship which benefits both, which possibly does not involve any cash transactions. In this light, it might be sensible to say fair enough, but this hasn’t usually stopped boresome bureaucrats in the past.

The European Commission is currently in an antitrust battle with Google over its Android software, though this is a different slant; Google is being accused of favouring its own services. That is seen as a no-no, but with the operators favouring the big boys and not getting involved with any challengers, you can just imagine this is the sort of competition debate the beer-swilling Belgium’s usually love.

Maybe zero rating is okay, maybe it will be viewed as a fair business exchange or maybe the operators will start looking for smaller fish to fry. Or maybe when the lethargic legislators are awoken from the summertime slumber in September, there will a new round of antitrust arguments.