Apple’s App Store to face scrutiny in Germany as FCO opens ‘market power’ proceeding

Discussing the key new provision to the Competition Act (aka, the GWB Digitalisation Act and specifically Section 19a) — in a panel discussion last week, the FCO’s president, Andreas Mundt, explained that the competition law update had been influenced by its experience with a long running (and pioneering) case against Facebook’s superprofiling of Internet users.

The upshot is that German competition law now has a theory of harm which entwines competition law and data protection — albeit, in the case of Apple, its tech empire is typically associated with defence (rather than abuse) of user privacy.

But the comprehensive amendments to German antitrust law are broadly targeted at Big Tech, with the goal of keeping markets open, fostering innovation and putting a stop to any abusive behavior, via provisions the FCO will be able to order — such an banning or restricting self-preferencing and bundling; or stopping giants tying products together to try to muscle into adjacent markets; or preventing them blocking interoperability and data access to try to lock out rivals, to name a few.

A mix of provisions are likely to be deployed, as tech giants are designated as addressable under the law, depending on the specifics of each case and the particular ecosystem business. So how it will operate in practice remains to be seen. So far the FCO is still in the process of determining (in each case) whether it can apply the law against GAFA.

For the Apple proceeding, Mundt said in a statement today that its operation of the App Store will be a “main focus” for the investigation because he said it “enables Apple in many ways to influence the business activities of third parties”.

“We will now examine whether with its proprietary operating system iOS, Apple has created a digital ecosystem around its iPhone that extends across several markets,” he added. “Apple produces tablets, computers and wearables and provides a host of device-related services. In addition to manufacturing various hardware products, the tech company also offers the App Store, iCloud, AppleCare, Apple Music, Apple Arcade, Apple TV+ as well as other services as part of its services business. Besides assessing the company’s position in these areas, we will, among other aspects, examine its extensive integration across several market levels, the magnitude of its technological and financial resources and its access to data.”

The FCO also noted that it has received a number of complaints against Apple “relating to potentially anti-competitive practices” — such as one from the advertising and media industry against Apple restricting user tracking with the introduction of its iOS 14.5 operating system; and a complaint against the exclusive pre-installation of the company’s own applications as a possible type of self-preferencing prohibited under Section 19a GWB.

“App developers also criticise the mandatory use of Apple’s own in-app purchase system (IAP) and the 30% commission rate associated with this,” it added in a press release. “In this context, the marketing restrictions for app developers in Apple’s App Store are also addressed. The latter complaint has much in common with the European Commission’s ongoing proceeding against Apple for imposing restrictions on the streaming service Spotify and accordingly preferencing its own services. Where necessary, the Bundeskartellamt will establish contact with the European Commission and other competition authorities in this regard. So far, no decision on initiating a further proceeding has been taken.”

Apple was contacted for comment on the FCO’s proceeding and it sent us this statement, attributed to a spokesperson:

“Apple is proud to be an engine for innovation and job creation, with more than 250,000 jobs supported by the iOS app economy in Germany. The App Store’s economic growth and activity have given German developers of all sizes the same opportunity to share their passion and creativity with users around the world while creating a secure and trusted place for customers to download the apps they love with the privacy protections they expect. Germany is also home to Apple’s largest engineering hub in Europe, and a new €1BN investment in our European Silicon Design Center in Munich. We look forward to discussing our approach with the FCO and having an open dialogue about any of their concerns.”

Once issued by the FCO, a ‘paramount significance’ finding lasts for five years — while any legal challenges to orders made under Section 19a are intentionally expedited, with appeals going direct to Germany’s Federal Court of Justice (which is given exclusive competence). The goal being to avoid long drawn out litigations, as has occurred in the FCO’s case against Facebook’s superprofiling — which had legal questions referred to the CJEU back in March, some five years after the Bundeskartellamt began looking into Facebook’s data practices.

The coming months and years could be highly significant to how GAFA is able to operate in Europe’s largest economy — and, likely by extension, further afield in Europe and beyond as a number of jurisdictions are now paying active attention to how to regulate Big Tech.

Back in March, for example, the UK’s Competition and Markets Authority opened its own probe into Apple’s App Store. Simultaneously it’s working on reforming national law to create a ‘pro-competition’ for regulating tech giants.

While, last December, European Union lawmakers proposed the Digital Markets Act — also aiming to tackle the power market of so-called ‘gatekeeper’ platforms.

The FTC appointing Lina Khan as chair also appears to signify a change of direction on tech antitrust over in the US.