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Apple’s court win over UK market probe is a chastening episode for digital regulators
14 April 2023 10:05 by Simon Zekaria
Apple’s successful appeal of the UK antitrust regulator's decision to probe its mobile browser and cloud-gaming services did more than just give a fillip to a tech giant facing regulatory headwinds. It put a spanner into the workings of the watchdog’s high-profile digital markets enforcement drive.
What will particularly hurt for the Competition and Markets Authority is that the UK's specialized antitrust court faulted it essentially for the most prosaic of reasons: missing deadlines.
That might make it appear to be a case of an administrative misstep, but the context matters hugely. During the timeline of its inquiries last year, the CMA was — and still is — anticipating the arrival of landscape-changing legislation that would greatly beef up its powers to tackle suspected infringements by major tech companies.
For the watchdog, the prospect of this was, unsurprisingly, tempting enough for it to adopt a "wait for the cavalry" mindset for taking big steps in dealing with concerns over some of the practices of Apple and rival Google in the mobile markets.
But last month's Competition Appeal Tribunal ruling in favor of Apple was a sharp reminder that whatever its motives, the regulator can’t escape statutory obligations over procedure.
Those procedural obligations kicked in as a consequence of the CMA opening a "market study" in June 2021 to scrutinize both Apple's and Google’s mobile ecosystems.
In December 2021, the regulator reported some negative preliminary findings, but chose not to open a more intensive "market investigation" to probe these in more detail and, if necessary, take remedial action.
In the background, the CMA was busy setting up a bespoke new arm, the Digital Markets Unit, in preparation for a sharper regulatory regime proposed in April 2021 that would require legislation. At the time, the government committed to consulting on its proposals, and said it would present draft legislation to lawmakers when parliamentary time allowed.
In that context, the CMA cautioned in its interim report that its decision could not be interpreted as it having found “no concerns in the sector,” and that it might revisit the decision if the expected new legislation failed to materialize. In fact, the legislation still hasn't been laid before Parliament.
In June last year, the CMA issued a final report in its market study outlining “substantial concerns” about Apple and Google, saying it found they have an "effective duopoly on mobile ecosystems that allows them to exercise a stranglehold over operating systems, app stores and web browsers on mobile devices."
The watchdog then said it would now propose a market investigation into Apple's and Google’s market power in mobile browsers, and Apple’s restrictions on cloud gaming through its App Store — areas where it saw the potential for "immediate targeted action." Its referral for a market investigation was confirmed last November.
Apple fought back at this. Citing time limits in the UK's 2002 Enterprise Act, it argued that the CMA had effectively performed a U-turn, and in doing so, failed to respect legal deadlines on making a referral from a market study. This meant that the agency exceeded its authority and the market investigation referral voided, Apple said.
At the case's heart is the connection, or not, between the 2021 and 2022 events, with the CMA arguing there was a separation. But the CAT disagreed and endorsed Apple’s view that there was a clear link — and thereby a breach of duty.
It said that the decision last November to open a market probe, far from being "self-standing," was an "express revisiting" of matters raised in the previous year. “The CMA did not have the option to decide not to make a reference at all with a reservation entitling it to revisit that decision at its discretion at a later date,” the CAT said.
The CAT even said this matter could have been avoided if the CMA had, instead, decided to open a market investigation from the outset but also retained flexibility by clearly caveating the ongoing "uncertainties of parliamentary action."
The court's ruling has both an immediate and a longer-term impact on the regulator.
The immediate impact concerns its ongoing enforcement of Apple. The watchdog has been long concerned that its restrictions on third-party browser engines on iOS devices, and its limits on cloud gaming services — such as blocking apps and steering payments — hurt rival browsers, app developers and consumer choice. Last month, the CMA stressed that cloud gaming was an “important sector” with “very disruptive” potential.
Meanwhile, it has had a separate investigation running since early 2021 into Apple’s terms and conditions governing app developers’ access to the App Store.
One of these two linked strands of inquiry into Apple's power in digital markets has now been cut — although the CAT, importantly, did signal a possible way out for the CMA in the medium term: It could decide to open a new market study and then that could lead to a fresh market investigation reference. The CAT suggested that such a decision could be feasible, even if it would be open to legal challenge.
But, notwithstanding that peril, the CMA will know that such a course of action is fraught with difficulty. With the tech sector moving so swiftly, any of the agency's previous investigatory work could be rendered out of date or even redundant.
The longer-term impact of the ruling for the CMA is the broader reminder of the need to follow procedure in its market probes.
While weighing up whether to seek permission to appeal the ruling, the CMA warned that it would mean “material constraints” on the regulator's ability to propose and conduct market investigations — “substantially” undermining the agency's ability to address competitive harms.
Its comments can be seen as a pushback on the CAT's ruling, which curtly noted that the CMA "failed to consider the importance of a proposed market investigation reference," and stressed that it could not forget its statutory duties. The regulator "must consider the proper exercise of its powers, and must exercise those powers accordingly," it said.
For now, that ruling is law, and even if challenged, it will force the CMA to exercise greater caution in its enforcement actions on digital giants.
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