Apple comes under broadening antitrust scrutiny at DOJ

03 Apr 2020 12:00 am

Apple is under increasing antitrust scrutiny at the US Department of Justice, with investigators fielding complaints about multiple business practices at the iPhone maker, MLex has learned.

Since at least as far back as September, antitrust division attorneys at the DOJ in San Francisco have discussed with app developers their experiences with Apple's payment system for the App Store, restrictions on location data, and how it favors its own apps over the competition, it is understood.

The investigation appears to be at an early stage, and it remains unclear which strands, if any, the DOJ will home in on. Additionally, non-merger related investigations at both the DOJ and Federal Trade Commission are understood to have slowed in the wake of the Covid-19 pandemic.

App Store payments

One line of inquiry is Apple's long-standing practice of forcing developers to use its own payment system for in-app purchases. Apple takes a 30 percent commission on all apps purchased in its App Store, as well as so-called "in-app" purchases for upgrades to paid versions of an app. For subscriptions, that drops to 15 percent after the first year.

In recent months DOJ officials have asked developers about their experiences with the App Store's payment system. Developers typically can't, for example, take payment from third parties such as PayPal within an app.

This practice has also prompted recent questions from investigators with the European Commission. Music service Spotify filed a formal complaint against Apple with the commission last year addressing this issue.

David Hansson, a co-founder of software developer Basecamp, told the US House antitrust subcommittee in January that Apple penalizes companies that choose to circumvent its App Store for payments. The company's products are available via Apple, but all new account sign-ups and payments are made through its website.

Rather than 30 percent paid to Apple, Hansson said his company pays around 2 percent for its credit card transactions, "and there are countless competitors constantly trying to win our business by offering lower rates. Credit card processing is a competitive market, and the rates show. Mobile application stores are not a competitive market, and the rates show."

Hansson told Congress that Basecamp is not allowed to sign up trial customers in the app because it handles payment processing outside the App Store. "And if we dare to mention that it’s possible to sign up for our service using the open web, Apple's retaliation is swift and brutal," he said. "They will simply ban our app from the App Store, until we comply. We've had this happen to us, and it's happened to countless other software makers as well."

Apple recently began allowing some streaming video services, including Amazon Prime and Altice One, to process their own payments for certain in-app purchases and avoid Apple's 30 percent cut.

The Justice Department declined to comment.

Apple also declined to comment on the DOJ investigation. It referred instead to comments it made to the House subcommittee in February. "The App Store has democratized software development, reduced barriers to entry, and revolutionized distribution — all while protecting customer privacy and data security.

In those comments, Apple said Hansson's assertions are not accurate. The 30 percent fee is not for payment processing, rather it reflects the full value of the App Store, the company said.

Favoritism

A second line of inquiry is whether and how Apple is favoring its own apps and services over those offered by third parties.

Developers have long complained that their products have been disadvantaged when Apple rolls out a competing product. That was the focus of a complaint to the European Commission last year from parental-control apps Kidslox and Qustodio.

The DOJ is understood to be monitoring a private lawsuit filed last year against Apple by Blix, which makes the app Blue Mail. Blix accused Apple of copying a function in its email app that allows users to sign in anonymously to websites and removed it from the App Store last year when Apple rolled out a competing product, Sign in with Apple.

Apple says Blix is trying turn a business dispute into an antitrust violation, and said it removed the app for non-compliance with privacy guidelines. After Blix fixed the issues, the app was reinstated, Apple said.

Blix did not respond to a request for comment.

The DOJ is also understood to be interested in possible restrictions placed on access to location tracking data that can make it more difficult for some apps to operate, especially when Apple competes with those apps.

Last year, Apple made changes to iOS, its mobile operating system. Apps no longer automatically, upon installation, give users the option to continuously share their location data. Users can turn that setting on manually, but that process can be cumbersome.

Last summer a group of developers wrote to Apple CEO Tim Cook to complain about these changes, according to a report in The Information. The developers said that even when a user changes a phone's settings to continuously share location data, they are repeatedly met with prompts asking if they want to limit that sharing. For Apple apps, continuous sharing is the default and it is difficult to change the settings, the companies said.

Signing the letter were Tile, which makes tracking devices for personal items; Life360, an app for family and friends to share locations; dating app Happn; Zenly, a location-sharing app owned by Snap; Zendrive and Allstate-owned Arity, both of which make driver assessment and safety apps; and Twenty, a social networking app for finding nearby friends. The existence of the letter was confirmed by MLex.

For those apps and others, users must continuously share location data for the services to properly work.

Last year, the DOJ is understood to have expressed interest in speaking with companies that signed the letter. The companies did not respond or declined to comment on whether they spoke with the DOJ.

Tile however outlined its grievances against Apple at the same congressional hearing as Hansson. In responses to follow-up questions from the subcommittee published Wednesday, Tile general counsel Kirsten Daru said the problems with Apple have only increased since the January hearing.

Tile said its relationship with Apple was symbiotic until last year when Apple began rolling out a competing service called "FindMy." Apple is nearing a rollout of competing hardware as well. "Apple does not treat FindMy the same as it treats Tile. Nor do the same rules apply to FindMy as they do to Tile. As we have stressed throughout this inquiry, Apple’s disparate treatment of Tile dramatically underscores how, Apple has used the concept of privacy as a shield by making changes in the name of privacy that at the same time give it a competitive advantage," Daru wrote Wednesday.

Apple also has competitively sensitive information that Tile would not ordinarily turn over to a competitor, Daru said. In fact, she told the subcommittee that Apple hired the engineer at Tile that was leading the company's integration with Apple voice assistant Siri.

In comments to the subcommittee Apple said "We believe our users have the right to know when an app uses their location data before they decide to share it indefinitely."

The DOJ's Apple probe is only one many antitrust investigations of large technology companies. Facebook is under investigation at both the DOJ and US Federal Trade Commission, while the DOJ is also investigating Google and the FTC is looking at Amazon. State attorneys general are investigating Google and Facebook, while the House antitrust subcommittee is investigating all four.

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