[Ed Note: The following is the second part of a two-part post authored by Mohini Parghi, a third year student of NALSAR University of Law. This post has been authored as part of the TLF Editorial Board Test 2019-20. Part I can be found here.]
In the previous post, we saw how once the relevant market is defined, Apple could be found to hold a dominant position. This post will highlight the different abuses under Article 102 of TFEU that Apple could be guilty of, and the tests to be fulfilled for each. It is important to note that the offences listed under Article 102 are not exhaustive, and allegations against Apple may give rise to new categories of harm.
Spotify’s grievances relate to two categories: commission fees and access to users. It has alleged that the 30% fees for using the in-app purchase feature is discriminatory, since Apple Music does not have to pay it. Apple also does not allow Spotify complete integration into Apple devices, routinely tightens its app guidelines and rejects updates for the Spotify app. ACM’s market study identified problematic practices such as favoring of own apps by Apple and Google, lack of transparency and unequal treatment. It would be interesting to assess where these allegations Spotify and by the ACM figure in the existing categories of abuse. Furthermore, competition law also recognizes certain efficiency justifications for anticompetitive conduct which would have to be addressed.
II. Types of Abuse
These allegations stem from the fact Apple is vertically integrated in the app store market, that is, it is present at two stages—it controls where apps are downloaded from, while also making the apps. In Spotify’s words, Apple acts as “both referee and player”. Therefore, Apple’s conduct would fall under those anticompetitive practices which involve these two different markets. For the 30% fees, Apple could be liable for discrimination and margin squeeze; for other practices, it could be liable for refusal to deal and tying.
Drawing from the Google Shopping case, Apple’s conduct with respect to third-party app developers could be discriminatory. In Google, it was held that Google was using its market power in the search engine market to give its own shopping service a prominent place and demoting rival shopping services in its search results. Essentially, Google gave differential treatment to its own downstream service and tried to drive out its competitors, using its upstream market power. This can be analogically applied to Apple’s conduct.
Spotify and Apple Music are direct competitors, but only Spotify is made to pay the 30% commission on subscriptions. While Apple Music can freely communicate with its users, Spotify isn’t allowed to the same or at least do it as effectively as Apple Music. Thus, Apple treats Spotify less favorably than Apple Music. The Dutch Competition Authority’s decision to investigate Apple also reveals that such discriminatory practices extend beyond the music streaming market. The investigation will first focus on Dutch apps for news media offered on the App Store; here as well, Apple plays a dual role as it recently started a news service called Apple News Plus. This could also be the reason Scandinavian news publishers have supported Spotify’s battle against Apple.
B) Margin Squeeze
In the past, the concept of margin squeeze has been applied in the telecommunications in cases like Deutsche Telekom and TeliaSonera. However, the theory of margin squeeze can be extended to online platforms as well. A margin squeeze can occur when a firm is dominant in an upstream market and supplies a key input to its competitors in a downstream market. As explained previously, this is the situation with Apple and its dominance in the upstream app store market. By charging the 30% commission from Spotify and other music streaming apps, it can be said that Apple leaves a narrow margin for Spotify to make profits in the downstream market.
The constitutive elements of margin squeeze theory are dominance in the upstream market, the as-efficient-competitor test and the requirement of anti-competitive effect. The first element has already been explained. The pivotal question that would then have to be answered is whether Spotify is an ‘as efficient competitor’. Traditionally, the test is whether the vertically integrated undertaking could compete profitably in the downstream market if it were made to pay its own upstream prices. However, as pointed out here, this test may not be applicable since neither app is profitable to begin with. As a result, the two would have to be compared on parameters such as comparing their losses. Nonetheless, the test may be applied and Spotify could be deemed an as-efficient competitors. Even then, the potential anticompetitive effects of margin squeeze would have to be checked. Although Apple’s practices do not force its competitors to exit the market, reduction of innovation and increased prices could constitute anticompetitive effects.
C) Refusal to Supply
In some circumstances, refusal by a dominant firm to supply goods or services can amount to an abuse of dominant position. Most refusal to supply cases in EU law concern a vertically integrated undertaking that is dominant in an upstream market and which refuses to supply an existing or new customer in a downstream market on which the dominant firm is also present. The refusal to deal can be constructive, i.e. where supply is offered on unreasonable terms. Thus, if Apple does not allow its downstream competitors like Spotify access to the App Store, it could be liable for refusal to supply.
Currently, the standard to be met in refusal to supply cases is strict. The first condition to be satisfied is that the product to which access is sought should be indispensable to downstream competitors. This is also known as the ‘essential facilities doctrine’. Therefore, app developers would first have to prove that the App Store is indispensable for them to reach consumers. It is not sufficient that it would be convenient or useful for app developers to have access to the app store; access must be essential. The market study shed some light on this by finding that no realistic alternatives to the App Store and the Play Store exist and therefore, the App Store forms a bottleneck for app providers to reach iOS users. This concept of the bottleneck would be helpful in ascertaining Apple’s liability. Another requirement is that the refusal should lead to ‘elimination of effective competition’, which would require more information about the market.
Tying is the practice of a supplier of one product, the tying product, requiring a buyer to also buy a second product, the tied product. The dominance needs to be proved in the tying market, which in our case is the market for app stores. The dominant firm must be guilty of tying two distinct products, and this is where difficulties arise since it is necessary for the two products to be distinct. In Apple’s case, Spotify would be hard-pressed to prove that Apple is guilty of tying iOS and Apple Music.
However, there is also the question of coercing app developers to use Apple’s in-app payment feature. Apps that deal in digital goods must use Apple’s IAP service and pay the 30% commission. If they decide to bypass this, Apple allegedly imposes unfair conditions on them by, inter alia, restricting their access to the users. Therefore, an argument for tying could be made with respect to the IAP.
III. Are there any ‘Objective Justifications’?
Finally, a balancing act between harm and efficiency would have to be carried out. If Apple can show that its practices ultimately enhance efficiency, it could escape liability. In its response to Spotify’s allegations, Apple pointed out that after using the App Store to expand its business, Spotify seemed to want to enjoy the benefits of the App Store without paying for it. This is like the free-rider criticism of the essential facilities doctrine; imposing an obligation on dominant firms to supply to their competitors would lead to ‘free-riders’ taking advantage of investments made by the dominant firm. The downstream firm could also be dis-incentivized from making similar investments. Other factors such as consumer welfare would also need to be investigated; Apple’s entire business model is based on safety, security and privacy of its users, and not allowing Apple to regulate its own App Store could ultimately be detrimental to consumers.
In conclusion, there appears to be a strong case to be made against Apple for using the App Store to tilt competition in its favor, as evidenced by at least 3 different jurisdictions deciding to investigate Apple’s conduct. However, once the allegations are tested against existing legal doctrine and case law, several issues are yet to be resolved and traditional concepts need to be evolved further. For these reasons, Spotify’s case, Apple v. Pepper and the ACM’s investigation will be followed closely across the world for they mark a new era in the interplay between technology and competition law.
To go back to Part I, click here.
 R Whish & D Bailey, Competition Law, 754 (7th Ed., 2012).
 R Whish & D Bailey, Competition Law, 698 (7th Ed., 2012).
 Ibid at 701.
 Ibid at 703.
 Ibid at 707.
 Ibid at 689.
 Ibid at 692.
 Supra note 2 at 697.