Big Apple, Big Rules: The Abuse Of Dominance Dilemma

Inside Apple's App Store: Control, Controversy, and Compliance

On 4 March 2024, the European Commission (EC) fined Apple more than €1.8 billion for breaching EU competition laws through its App Store practices. The EC found that Apple's dominant position in the market for distributing music streaming apps on iOS devices was exploited by implementing restrictions that prevented app developers from informing users about alternative, less costly subscription options available outside the App Store.

These restrictions, known as anti-steering provisions, specifically prohibited developers from guiding users within their apps to cheaper subscriptions or from including links to their own websites where such subscriptions could be purchased. Developers were also restricted from contacting newly acquired users about alternative pricing options, effectively hindering consumer access to potentially more favourable offers.

The EC argued that these practices resulted in unfair trading conditions, contravening Article 102 of the Treaty on the Functioning of the European Union (TFEU). It was determined that the anti-steering provisions were disproportionate and unnecessary for protecting Apple's commercial interests regarding its App Store on mobile devices. The restrictions not only potentially led to higher prices for consumers due to Apple's commission fees, which developers might pass on to users, but also degraded the user experience by making it difficult for users to find or compare alternative subscription offers.¹

The EC's decision includes a directive for Apple to cease the anti-steering practices and avoid similar future violations. The EC imposed the third-largest fine in EU competition law history- augmenting beyond the base amount of €40 million to a total exceeding €1.8 billion- by applying a significant penalty increase under its fining guidelines. The adjustment, a lump sum added to address non-monetary harm to consumers and to ensure deterrence, increased the base penalty by more than 40 times. This action might raise concerns among digital firms about the practices of competition authorities in quantifying non-monetary harm.

In response to the ruling, Apple announced its intention to appeal, contending that the Commission's decision overlooked the lack of tangible consumer harm and failed to recognize the competitiveness and growth of the market.

From EU to USA: Apple's Global Antitrust Ordeal

Apple's legal challenges are not confined to Europe; they stretch across the Atlantic to the USA, where it also faces significant scrutiny under U.S. antitrust (competition) laws. The U.S. government has filed a lawsuit accusing Apple of using its market power to maintain a monopolistic grip over its device ecosystem. The lawsuit alleges that Apple's business strategies go beyond mere competition to practices that breach U.S antitrust regulations.

The lawsuit specifically points to Apple's practices of restricting access to essential device features for competing products, blocking apps that facilitate switching from iOS to other platforms, excluding certain cross-platform messaging apps, and placing barriers that disadvantage app developers and rival hardware makers.² These practices, if confirmed by the courts, could result in severe legal consequences for Apple.

Ripple Effects: Global Implications for Tech Platforms

Abuse of dominance investigations are typically complex and prolonged, often leading to appeals, as demonstrated by Apple's intention to challenge the EC's recent decision. These complexities and delays in ex post EU antitrust investigations and enforcement contributed to the development of the EU's Digital Markets Act (DMA), which incorporates and codifies EU competition law specifically for the digital sector. However, the broader competition rules under the Treaty on the Functioning of the European Union (TFEU) remain fully applicable.

The DMA, effective from 7 March 2024, introduces ex ante competition rules that specifically prohibit "gatekeepers" from enforcing anti-steering provisions on their designated core platform services. Apple, recognized as one of six gatekeepers under the DMA in early September 2023, is now subject to these substantive conduct obligations.

The enforcement of the DMA rules aligns with a broader trend of heightened scrutiny on tech platforms, a key element of the EU's Digital Single Market strategy. Similarly, the Digital Services Act (DSA), another key component of this strategy, has progressively come into effect, starting with the largest online platforms on 25 August 2023, followed by other online intermediaries on 17 February 2024.

The Nigerian Perspective: Market Dominance and FCCPA

As the Apple case unfolds globally, it is relevant to examine market dominance in Nigeria through the lens of the Federal Competition and Consumer Protection Act (FCCPA), 2018, and the Abuse of Dominance Regulations, 2022. The FCCPA defines dominance as a company's—or a consortium of companies'—substantial market power or economic strength that allows it to operate relatively independently of competitive forces and consumer choices.

The Abuse of Dominance Regulations specify criteria for establishing dominance:

Single Dominance: A company with a market share of 40% or more in a relevant market is presumed dominant, indicating significant independence from market forces.
• Collective Dominance: Three or fewer companies holding a combined market share of 50% or more may be presumed to have collective dominance. Similarly, five or fewer companies with a combined market share of two-thirds or more are considered to demonstrate collective dominance, pointing to a significant reduction in competition.

In assessing market dominance, several factors are considered:

Market share and financial power of the entities.
• Access to supplies and markets.
• Links with other undertakings.
• Legal or factual barriers to market entry.
• Actual or potential competition, both domestic and international.
• Flexibility to shift supply or demand to other products.
• The market's ability to find alternative suppliers or buyers.

Persistent high market shares suggest ongoing dominance, meriting continued regulatory scrutiny due to the potential long-term impact on competition and consumer choice.

Crossing the Line: How Market Power Can Turn Abusive

Dominance in the market itself is not illegal, but abusing this dominance crosses a legal boundary as outlined by the FCCPA and the Abuse of Dominance Regulations. Here is a concise look at various forms of abuse:

1. Charging Excessive Prices: A dominant company might exploit its position by significantly raising prices beyond reasonable levels, capitalizing on the lack of competitive alternatives.
2. Denying Access to Essential Facilities: A firm could abuse its dominance by controlling a critical resource or facility — such as the only bridge in a town — and preventing competitors from accessing it, thereby limiting their ability to compete.
3. Exclusionary Practices: This includes actions where a dominant company may threaten or coerce partners or suppliers to avoid dealing with competitors, effectively isolating the competitor and weakening market competition.
4. Refusing to Supply Scarce Resources: If a dominant firm withholds a scarce but essential resource, it can severely restrict competitors' abilities to challenge the market, stifling competition.
5. Tying and Bundling: This practice involves forcing consumers to purchase an unwanted product as a prerequisite to obtaining a desired product, thereby using dominance in one area to gain or maintain dominance in another.
6. Predatory Pricing: This strategy involves pricing products below cost to drive competitors out of the market, with the intent to raise prices once competition has been diminished.

These practices highlight how dominant firms can potentially manipulate market conditions to their advantage, to the detriment of competition and consumer choice.

Linking EC's Fine on Apple to Nigeria's Consumer Protection Laws

The EC's decision to fine Apple for anti-steering practices in the App Store has implications that resonate with Section 127 of Nigeria's FCCPA, which aims to protect consumers from unfair, unreasonable, or unjust terms in goods and services provision. While the FCCPA's dominance provisions parallel Article 102 of the TFEU, the EC's decision also highlights the potential for such frameworks to reinforce consumer protection measures in abuse of dominance cases.

Key similarities between the EC's decision and FCCPA's provisions include:

1. Prevention of Unfair Practices: Both the EC's ruling and the FCCPA aim to curb business practices that disadvantage consumers. The EC identified that Apple's anti-steering rules restricted competition and choice, potentially leading to higher consumer costs for services like music streaming, mirroring the FCCPA's prohibition of unfair terms in service provision.
2. Equitable Terms for Consumers: The EC noted Apple's practices as excessively one-sided, benefiting the company at the expense of consumers and competitors, akin to Section 127(2)(a)'s concern with overly biased transactions.
3. Consumer Awareness and Transparency: The EC criticized Apple for not allowing developers to inform users about cheaper alternatives, reflecting Section 127(2)(d)'s emphasis on the importance of clear communication about terms and conditions to ensure fairness.
4. Consumer Reliance on Misleading Practices: Although not directly addressed, the nature of Apple's rules could mislead consumers into believing there were no alternatives outside the App Store, similar to FCCPA's focus on protecting consumers from misleading practices under Section 127(2)(c).

There is a potential trend where competition authorities, such as Nigeria's Federal Competition and Consumer Protection Commission (FCCPC), might increasingly utilize consumer protection provisions in abuse of dominance investigations. This approach could significantly enhance enforcement capabilities to safeguard consumers' rights to make informed choices.

Learning from the Apple Case: Navigating Market Dominance in Nigeria

The Apple case serves as a reminder of the risks associated with market dominance and the legal challenges that can ensue. It highlights the importance of balancing market power with fair business practices. For businesses in Nigeria with significant market shares, here are key strategies to avoid similar legal pitfalls:

1. Understand and Apply FCCPA and Competition Regulations: Gain a thorough understanding of the FCCPA and related competition regulations to ensure compliance is at the core of business operations.
2. Promote Fair Competition: Continuously review and adjust business practices to encourage healthy competition and deliver fair value to consumers.
3. Ethical Innovation: Innovate in a manner that benefits consumers and the market without undermining competition. Leverage market position responsibly to avoid practices that may restrict consumer choices or disadvantage competitors.
4. Implement Robust Compliance Programs: Establish and sustain compliance programs that are in line with FCCPA requirements and are integrated into everyday business activities.
5. Conduct Regular Audits: Perform regular audits to monitor compliance, identify risks promptly, and take corrective measures to prevent minor issues from developing into major legal challenges.

By following these guidelines, businesses can effectively manage competition risks, ensure operational integrity, and uphold a strong ethical reputation in the market.

Staying Ahead

At SimmonsCooper Partners, we understand the complexities and challenges businesses face within the ever-changing landscape of competition law. To help companies navigate these complexities and stay compliant, we offer the "SCP Competition Bootcamp." This complimentary service is designed to assist businesses in understanding and managing the intricacies of competition law, ensuring they remain ahead of legal risks.

For more details on the SCP Competition Bootcamp, or to discuss specific competition compliance strategies, please contact Oluwadara Omoyele.

Footnotes

1. 'Commission fines Apple over €1.8 billion over abusive App store rules for music streaming providers' (March 4, 2024) - https://ec.europa.eu/commission/presscorner/detail/en/ip_24_1161 (accessed March 18, 2024)

2. 'Justice Department Sues Apple for Monopolizing Smartphone Markets' (March 21, 2024) - https://www.justice.gov/opa/media/1344546/dl?inline (Accessed March 25, 2024)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Ms Oluwadara Omoyele
SimmonsCooper Partners
9th Floor,Fortune Towers 27/29,
Adeyemo Alakija Street,
Victoria Island,
Lagos
NIGERIA
Tel: [phone]
E-mail: [e-mail]
URL: scp-law.com/

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