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Apple targeted in App Store antitrust damages suit that’s seeking $1BN+ for UK developers
July 27, 2023

Apple targeted in App Store antitrust damages suit that’s seeking $1BN+ for UK developers

Reading Time: 6 minutes

A class-action damages claim is being brought against Apple on behalf of U.K.-based developers. The suit, which is seeking a compensation payout that could be as high as £800 million (over $1 billion), accuses the tech giant of abusing a dominant position by charging an ‘anticompetitive’ 30% fee on in-app sales made by app makers on its iOS App Store. It also argues U.K. consumers are missing out as developers are being deprived of money that could be spent on R&D to drive forward app innovation.

Sean Ennis, a professor of competition policy at the University of East Anglia who has held positions at the OECD, U.S. Department of Justice and European Commission, is bringing the class action on behalf of over 1,500 U.K.-based developers.

The lawsuit is an opt-out class action, which means U.K.-based developers don’t have to register to be included in any potential winnings. If the litigants prevail against Apple, the level of damages due per developer would be calculated based on their iOS app business — so payouts could range widely and even be millions of pounds in some cases.

The core argument the litigants are making is a familiar one. The likes of Spotify and Epic have railed for years against Apple’s unfair ‘tax,’ as they couch it — filing their own high-profile complaints against its App Store polices and fees with regulators and courts on both sides of the Atlantic, with varying degrees of success. Even Elon Musk has dubbed Apple’s commission on in-app purchases a de facto global tax on the internet.

Apple routinely rejects accusations it’s profiteering at developers’ expenses by arguing the fees it charges enable it to provide iOS users with a premium experience, noting its administration of the store includes reviewing apps for security and privacy concerns, among other quality controls (albeit, scams — the subject of an earlier App Store related developer lawsuit that Apple settled last year — do still slip through).

Nonetheless, plenty of developers continue to press the flip side: Arguing Apple’s fee is unfair — both in the non-uniform way it’s applied (since some apps/types of content are charged, while others aren’t) and as a result of the size of the cut taken (in 2020 Apple did drop its fee to 15% for the first $1 million in revenue generated but after earning that much developers are still typically moved onto its ‘standard’ 30% cut).

This U.K. suit aims to test the arguments in a bid to get developers compensation for what the litigants argue is abusive, anticompetitive behavior by Apple.

He also flagged the fact that Apple also charges developers an annual ($99) program fee. And suggested developers increasingly need to pay Apple to buy search ads in order to have a chance of their software being discovered by iOS users. Point being, Apple has a variety of routes to monetize the store.

‘Another element that is critical is that even if the fee was zero, you would still have the same App Store because Apple could not sell a single device without valuable apps such as Tinder, Spotify, Netflix, news apps, game apps and the like,’ he also suggested. ‘It’s only because they have created a monopoly of distribution for themselves that they’re able to collect this extraordinary commission.’

The details (and fairness) of App Store T&Cs are being chewed over by a number of competition regulators, including the U.K.’s own Competition and Markets Authority (CMA) — which opened its probe back in March 2021.

In some markets, including Europe and Asia, we’ve also seen enforcement action by regulators focused on Apple’s App Store payment services terms that’s forced it to let third parties use alternative payment processors, with some (limited) impact on the fees it charges.

But it’s fair to say the company hasn’t yet faced a major regulatory reckoning over the 30% charge.

Damages lawsuits might move the behavioral needle, though. Albeit, it could take years, plural, for cases like this one to deliver a verdict (and any blockbuster payouts for developers).

By launching their legal action now, the litigants say they’re hoping their suit can be joined with an existing (consumer damages-focused) App Store suit — aka Dr. Rachael Kent v. Apple — which was filed back in 2021, and is seeking £1.5 billion in damages on behalf of U.K. consumers. That suit has been certified and is awaiting trial at the Competition Appeal Tribunal.

Pressed on the timing of their suit, and specifically why they didn’t decide to wait for the CMA’s App Store investigation to run its course before litigating, they suggested they don’t need to wait for competition regulators to provide further proof of harm — pointing to scrutiny work already undertaken in some jurisdictions (including a major mobile market ecosystem study recently concluded by the CMA).

‘If you look at the CMA mobile ecosystem market study, released a few months ago, you’ll see exactly the same findings,’ argued Geradin. ‘You see that the profitability of the App Store is between 75% and 100%. It’s literally an ATM. It’s a money printing machine. And we take issue with that. And so we don’t discuss that they provide a service but not to the tune of 30% commission collected in a discriminatory manner.’

The litigants also point to economic analysis they’ve commissioned by Compass Lexecon — which they suggest shows Apple’s market dominance has given it ‘extraordinary and excessive profits at the expense of the value provided by app developers,’ as they put it.

‘A report to the US House Judiciary Committee’s Subcommittee on Antitrust, Commercial and Administrative Law states that Apple’s net revenue from the App Store alone was estimated to have been about $15BN in 2020, rising to $18.8BN in 2022. According to the same report, Apple’s former Senior Director of App Store Review confirmed running costs for the App Store were less than USD $100M a year,’ they also wrote in a press release announcing their suit today.

Geradin added that they expect the legal discovery process to deliver any other relevant data needed to bring their claim home for U.K.-based iOS developers.

In the CMA’s case against Apple’s App Store, despite well over two years of investigation, the proceeding hasn’t led to any public enforcement yet. Recently there’s been a string of case notifications about extensions to its review and analysis timelines for examining gathered intel. But it remains unclear when the regulator may make a decision. There are no statutory deadlines for such cases — which means a complex investigation can keep being extended if the CMA deems more time is needed to ensure a robust and thorough review. (Or, well, for any other reason it considers important.)

‘You never know with competition authorities,’ Geradin also remarked, further fleshing out why they’re not waiting around for the CMA to deliver a verdict. ‘I spent my life waiting for them to take action. So maybe something will happen next week, or maybe something will happen next year. So it’s always a bit delicate to wait for what they will do — considering you never know when they will take action and what the action will cover.’

He also emphasized the suit is seeking compensatory damages on developers’ behalf for what they allege are anti-competitive wrongs Apple has already wrought. Whereas competition authorities focus on correcting abusive behaviors going forward.

‘They [the CMA] may request Apple to change behaviour but it does nothing for the past. Whereas a damages claim is for the past, and we think that the app developers have been taking advantage of and they should be compensated for past actions. So these are complementary tools,’ he said. ‘But also, we don’t know what the scope of the CMA investigation is about — the CMA has been very quiet and sort of discreet about what they’re looking at.’

In recent years, a number of U.K. class-action style suits have been brought unsuccessfully against major tech firms seeking damages for breaches of privacy law — typically foundering over challenges related to establishing a class (e.g., a recent health data claim against Google DeepMind, or the Safari tracking lawsuit against Google). However, privacy suits may not offer much of a steer on how competition class actions might fare.

Asked about this, the litigants expressed confidence vis-à-vis establishing commonality — since ‘all our developers that sell digital content are treated in the same way,’ Geradin said.

They also suggested proving harm linked to antitrust abuse should be more straightforward than in privacy cases where arguments about harms and impacts may be more subjective.

‘There’s a lot of commonality to the damage here because we’re talking about a 30% commission,’ suggested Ennis. ‘So compare that to the harm that you suffer from a privacy violation compared to someone else . . . I’m not going to speculate about the facts of those cases but, here, the commission level is just known and common, and that makes some aspects of forming a class easier.’


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