Apple Faces $1 Billion Lawsuit in UK by App Developers

Apple (AAPL) on Tuesday faced a 785 million pound ($1 billion) class action lawsuit by more than 1,500 UK app makers over its App Store fees. Apple's services business, of which the App Store is a part, has grown rapidly in revenue over the past few years and is now about $20 billion per quarter.

Main Points

• Apple faces $1 billion lawsuit in UK by 1,500 App Developers over App Store anti-trust damages
• The lawsuit alleges that Apple is taking advantage of its dominant position to harm app makers by charging a 15% to 30% fee on sales through the App Store.
• It alleges that consumers are also being harmed because that money could have been invested in innovation.

The lawsuit against Apple alleges that it is taking advantage of its dominant position by charging a fee of 15% to 30% on sales from its iOS App Store. The lawsuit states that this fee hurts customers because developers could have used this money to improve the content on the App Store.

Apple has already reported that 85% of creators on the App Store don't pay any commission, and it helps connect developers in Europe to markets and consumers in 175 countries.

Apple claims that it is the support of smaller manufacturers, which account for more than 85% of all manufacturers on its App Store, that connects to more consumers globally than larger manufacturers.

A report to the US Congress in July 2022 suggested that Apple took advantage of its control over iOS and the App Store to undermine competition by imposing barriers to rivals, and that its dominant position hurt competition, and harmed customers. Limited options and hiked prices.

Competition policy professor Sean Ennis, who has held positions at the OECD, the US Department of Justice and the European Commission, is leading the collective litigation on behalf of more than 1,566 UK-resident manufacturers.

I've been researching competition issues for decades - and digital competition much longer. I've written about this in technical economic journals, but also in less technical books. And I do believe that the type of behavior that we're talking about in this case is very, very dangerous. That's why I felt like contributing to getting some help to those whose behavior appears to me to have caused them suffering," he said, sharing with TechCrunch his motivations behind filing the lawsuit - whose UK Litigation funder Harbor is supporting.

The lawsuit is an opt-out class action, which means UK-resident developers do not need to register to share in any potential winnings. If the litigant defeats Apple, the level of damages caused per developer will be determined on the basis of their iOS app business – so compensation could be substantial and reach millions of pounds in some cases.

The main arguments advanced by the plaintiffs are already heard. Companies like Spotify and Epic have for years called Apple's "tax" unjust -- against its App Store procedures and fees -- and have battled competition authorities and courts on both sides of the Atlantic trying to resolve the issue. Trying to solve a problem Elon Musk has also opposed this, calling Apple's fee on in-app sales the de facto international tax on the web.

Apple has consistently denied allegations that it is over-profiting developers, claiming that the fees it charges help it provide an excellent experience to iOS users, noting that the store's management This includes checking apps for security and privacy issues, among other standards (however, fraud). - The first lawsuit related developer lawsuit issue, which Apple resolved last year - still resolved).

Despite this, many manufacturers continue to support the other side: disputing Apple's fee is unfair - it is applied unevenly (as some apps/types of content are charged, while some are not ) and the effect of the amount of the deduction (in 2020 Apple already improved by lowering its fees to 15% for $1 million in income, but typically producers would have included a "normal" 30% deduction if they made more than $1 million) Are).

This UK lawsuit aims to test signals in favor of lawyers seeking compensation against Apple's harmful, anti-competitive acts.

Damien Geradin, a partner at the law firm Geradin Partners that acted on Ennis' behalf, told TechCrunch that Apple's fee is not charged equitably. According to Apple's commission rules, only 16% of apps are under its influence, which suggests that many apps may have fallen off the radar by being cheaper than others. He also pointed to the $99 per year program fee that developers have to pay to Apple, noting that the iPhone maker makes money from its store through multiple channels.

"Apple's fees to app makers are high and are only possible because of its ownership over the proliferation of apps on the iPhone and iPad," Ennis said in a press release.

“These allegations are unjust in themselves and reveal outrageous pricing. They harm app makers and app users as well.” ($1 = 0.7802 pounds)

The App Store's terms and conditions (and their fairness) have been overlooked by a number of competition authorities, including the UK's own Competition and Markets Authority (CMA) – which opened its investigation in March of 2021.

In some markets, including Europe and Asia, we have also seen action by authorities focused on the terms of Apple's App Store payment features, which forced Apple to agree to use potentially cheaper processors with third parties. So that has some (limited) impact on Apple's fee. But it would be fair to say that the company has not faced any major regulatory action on the 30% duty so far.

However, tort suits can change the behavioral situation. However, it can take years for a decision (and any bang for the developers) to come in these types of cases.

The parties to the case hope that by suing now, they can join Dr. Rachael Kent v. Apple, an ongoing lawsuit against the Apple App Store over £1.5 billion ($1.9 billion) damages to UK consumers. has been demanded.

“If you look at the CMA Mobile Ecosystem Market Study that was released a few months ago, you see exactly the same results,” Geradin advised. “You see the profit margins of the App Store are between 75% and 100%. It is actually an ATM. It is a money making machine. And we oppose that. And so we don't talk that they provide a service but are not able to get 30% commission equitably.

Plaintiffs also point to an economic analysis conducted through Compass Lexecon – which indicates Apple's market dominance is profiting "more than simply at the expense of providing value to app makers," as they put it.

A study by a subcommittee of the US House Judiciary Committee on Monopoly, Business and Administrative Law suggested that Apple's net revenue from the App Store alone was expected to be around $15 billion in 2020, rising to $18.8 billion in 2022. . According to the same study, the former lead operator of Apple's App Store review confirms that the App Store operates at less than US$100 million annually," he also said in a media release publishing his lawsuit today. Said.

Geradin said they hope the legal discovery process will produce any pertinent information important, which is important, in the lawsuit, to the United States-based iOS-Soft-processors-facing-them. In the CMA's case against Apple's App Store, after more than two years of investigation, the action has yet to result in any public enforcement.

Recently, several case reports have been received regarding the extension of the review and analysis timelines for the investigation of the information collected. But it is not clear when the regulator might take a decision. There is no statutory time limit for such matters – which means that a complicated investigation can take longer to finish if the CMA thinks more time is needed to complete a robust and in-depth review. (Or, well, for some other reason, it's considered important.)

“There is a lot of parity in losses here because we are talking about 30% commission,” Ennis reasoned.

“So counter this with the loss that you have to pay for the breach of privacy more than anyone else.” 

I'm not going to speculate on the facts of those cases, but here, the level of commission is well-known and common, and it simplifies some aspects of forming a group.