Apple, Google’s smartphone practices questioned as possibly anticompetitive by Japan ministry report

15th September 2016. By Sashiko Sakamaki

Some of Apple and Google’s smartphone practices may be hampering competition and innovation, according to a report released today by a panel under Japan’s trade ministry.

The report is based on a joint survey of digital businesses conducted earlier this year by the Ministry of Economy, Trade and Industry, or METI, and the Japan Fair Trade Commission, or JFTC.  The way the two dominant market players collect fees and restrict the use of virtual currencies within applications by the same app providers are among the concerns raised by the panel’s report.

The report also highlights hurdles in promoting the use of personal data and the importance of balancing use of that data with the demand for privacy, as well as the need to protect intellectual property rights.

Fair competition is important for innovation and economic growth, but so-called “platformers” such as Google, Apple, Facebook and Amazon may be gaining controlling market positions, and this could eliminate competition and hamper innovation, the report said.

Citing Apple iOS’s market share of 67 percent and the 32-percent market share held by Google’s Android in 2015, the report said that these OS operators collect app fees through their respective app stores – the App Store and Google Play – charging app providers a fee of 30 percent. When a consumer cancels an app service, the app provider does not receive a fee refund nor does it hear why the consumer cancelled its service. Also, a virtual currency used within an app is limited to use only within that particular app, the report said, hindering a game app provider, for example, from retaining a customer even after he or she gets tired of one game by offering to transfer that virtual currency to another game by the same app provider.

Among other findings, some venture companies told officials that they are treated as if they were “subcontractors,” because they have no idea why consumers cancelled their services, how OS operators determine which apps to adopt, and why certain apps are listed high on search results, according to a METI official at a media briefing today.

“There is a possibility that the antimonopoly law may be violated, and the JFTC will properly enforce it if there’s a violation,” said Naritaka Nakanishi, deputy director-general at METI’s economic and social policy bureau. “We will work together hand in hand” with the JFTC, he added.

He said in conducting the survey, officials at METI and the JFTC had a hard time gathering information in voluntary hearings with companies, because many of them had contracts with OS providers that required them to keep certain information confidential. The regulators interviewed about 20 companies, but officials suggested that they didn’t talk to Apple or Google.

Some members of the panel called on the JFTC to demand reports and information from companies using clause’s in Japan’s antimonopoly law, which stipulates penalties for refusing to provide information.

A JFTC official said the commission is studying the results of the survey, but isn’t currently planning to demand information based on the antimonopoly law’s provisions.

Regarding the promotion of personal information data, the panel found that companies are hesitant to use such data because clear standards for anonymizing data are not available and because legal rights over data transfer have not been clarified.

Japan’s personal information protection law, to be implemented by next year, allows personal data to be used by businesses if they are anonymized through a de-identification process. Although METI issued a manual in August showing examples of the anonymizing process, personal information specialists are concerned that its standards are too vague.

METI is planning to issue more sector-specific guidelines, METI’s IP policy office director, Yuichi Moronaga, told reporters.

Balancing the use of data assets and protecting intellectual property are important, the report also said. In the era of the digitalization of things from automobiles to factory machines, Japan must come up with measures to respond to attempts by Western companies to gather information stored at manufacturing facilities and in machines. In addition, measures need to be adopted for dealing with non-practicing entities, or so-called patent trolls, which are active in the US and may come to Japan, the report said.

	Eliot Gao

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