Battle of giants: The European Commission against Apple

Over the most recent years, fighting the abuse of dominance by technology giants has become an increasingly more prominent issue. It is no secret that the world of technology is dominated by a small number of huge companies willing to maintain their positions, which quite often means that those positions are used to keep new players out of the market.

Legislators all over the world have paid considerable attention to this issue in an effort to address the monopolistic problems of the market and strengthen competition. The European Union (EU) is to be considered a leader in this area. The European Commission (EC) launched official investigations into technology giants like Microsoft, Meta Platforms (owner of Facebook, Instagram social networks), Google and Amazon in recent years. These investigations have resulted in record-high fines relating to both anti-competitive practices and violations of data privacy and protection rules.

This time, the EC's spotlight has fallen on Apple. Apple is often accused of having an ecosystem which is largely closed to outside market players and of being unwilling to share access to its technologies and standards. Why is that important? Let's look at it from the perspective of applications on Apple smart devices. Apple allows users of its smart devices to install new applications only via its in-house App Store. At the same time, for app developers to put their applications on App Store, they have to agree to a set of criteria imposed by Apple.

One of the criteria that caused headaches for developers in the past was that all in-app purchases on an Apple smart device had to be made by using only the Apple Store payment system – Apple Pay. As a result, Apple charged a certain commission on each purchase, and alternative payment methods were not allowed. Currently, Apple has opened the door for developers to allow other payment options, but Apple continues its practice of charging a certain commission for every such purchase. This way, Apple is involved in every process that takes place in the system it has developed. Such an approach is definitely not unique to the Apple ecosystem, but it is one of the examples how technology companies use their strong market positions to their advantage. 

The EC launched an official investigation on 16 June 2020 to evaluate whether Apple's practices are compliant with the EU's competition rules. On 2 May 2022, the EC informed Apple of its preliminary view that Apple's dominant position in markets for digital wallets and denying third-party access to its NFC technology restricts competition, leading to less innovation and less choice of services for consumers. Currently, the investigation is still ongoing, but if the EC's preliminary conclusions are confirmed, it will be a violation of Article 102 of the Treaty on the Functioning of the EU prohibiting abuse of a dominant position within a market.

As a result of the pressure from the EC's investigation and criticism from EU market players, at the beginning of the year, Apple submitted a proposal to the EC to open access to its NFC technology to third parties. The technology giant has offered five commitment areas in order to promote the development of new solutions on Apple devices, based on its NFC technology.

Among other things, Apple offers to allow third-party mobile wallets and payment service providers to access the NFC technology indirectly through a set of Application Programming Interfaces (APIs), without having to use Apple Pay or Apple Wallet and the so-called secure element built into Apple smart devices. This means that third parties would be able to offer payments to their customers on Apple smart devices by using the Host Card Emulation (HCE), a technology emulating a physical NFC payment card at a software level. The Apple Pay solution uses a combination of both those technologies. In addition to that, Apple offers to allow third-party service providers to use their biometric authentication solutions (FaceID and TouchID), which people are already quite familiar with. Moreover, the users would be able to select third-party solutions as their default preferred payment application if willing to do so.

Historically, Apple has also been accused of insufficient transparency with regard to providing access to its in-house App Store. Therefore, Apple's commitment to develop clear, transparent, and non-discriminatory eligibility criteria for third party access to its payment technologies is also a positive development. This would mean that, in cases when Apple denies access to developers, a neutral and independent dispute resolution mechanism allowing to assess the validity of the denial would be used.

Apple's proposal would apply to service providers across the European Economic Area (EEA) and all users that have registered their AppleID accounts in the EEA countries, but the privilege would not be extended to non-EEA companies. This suggests that specifically the actions taken by the EC served as an important incentive for Apple to take this step.

The concessions proposed by Apple are, of course, positive news, but at the same time there are also some reservations.

Currently, the commitments offered by the company do not cover other aspects related to the use of the NFC technologies and their potential to improve people's daily lives. For example, one of them relates to loyalty programme applications. At present, there are no plans to grant them access to the NFC technology.

What does this mean in everyday life? Android users will still be able to authorise their loyalty cards by swiping the loyalty card stored virtually on their phone at a POS terminal using the NFC technology, while the users of Apple's smart devices will have to open the loyalty app and use a QR code before making a payment. A small thing, but a bit of a nuisance.

On 19 January 2024, the EC invited all the interested parties to provide comments and proposals on the commitments offered by Apple. Currently, the EC is reviewing the feedback and the final outcome is yet unknown, but there is a strong hope that access to Apple's NFC technologies will be soon granted to a wider range of companies.

If the EC approves Apple's commitments, their implementation would be monitored by a monitoring trustee. If Apple does not honour its commitments, the EC will be entitled to impose a fine of up to 10% of the company's worldwide turnover, without having to prove an infringement of the EU antitrust rules.

Historical experience shows that the EC has been successful in achieving a favourable outcome for Europeans even against major global companies like Apple, as companies are unwilling to pay huge fines or lose business in the attractive European market.

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