The new EU law – which could be completed as of this month – is set to direct Apple to allow software downloads outside of its cash-generating App Store and limit that. How companies implement their payment systems on apps, according to people involved in talks. Failure to comply will result in fines of up to tens of billions of dollars.
For the past two years, the iPhone maker has battled lawmakers, regulators and rivals around the world to act as a gate keeper for more than a billion users of its devices.
Critics accused Apple of hurting competition by forcing app developers to use its store and payment tools, from which it takes out commissions of up to 30% for in-app purchases. Apple has countered that it is giving consumers the option of a digital platform that has proven popular with customers and that the proposed change would open users up to security and privacy threats, and undermine the overall iPhone experience.
Rivals and critics of Apple’s power expect the EU law to serve as a catalyst for other jurisdictions, such as those in the US, where similar legislation is pending before Congress.
“Apple Is Playing 5D Chess Right Now,” Cowen & Co. Paul Gallant, a policy analyst at the U.S., said, “It will struggle to explain why government changes will fundamentally change the iPhone when Google already does it and will struggle to explain why it can’ Don’t do it in the United States when it may soon do it in Europe.”
As the language is finalized behind closed doors, most tech companies and their lobbyists are resigned to passing the so-called Digital Markets Act. Other Provisions in the DMA Amazon.com Inc. and Google parent Alphabet Inc.
DMA’s most existential threat to Apple comes with a provision allowing software makers to access the iPhone through so-called sideloading outside of Apple’s App Store rules and payment plan. A recent draft of the DMA, which was heavily approved by a 642-8 European Parliament vote in December, included sideloading.
Apple said in a statement that the DMA would undermine its security and allow malicious actors to take advantage of sideloading. “Governments and international agencies around the world have explicitly advised against sideloading requirements, which would cripple the privacy and security protections that users expect,” Apple said in the statement.
The full impact of the sideloading provision is not yet clear as lawmakers work on a final language defining the security exceptions Apple can waive to limit the scope of sideloading.
The bill is expected to be officially approved by both bodies in the coming months, after the text was agreed upon by parliament and negotiators for member states earlier this month. Based on that timeline, it will take effect early next year.
Apple has pushed back on orders to loosen its grip on the app economy, as have a US federal judge, legislators in South Korea and antitrust enforcers in the Netherlands. Apple has responded to those orders with appeals or narrow policy changes, avoiding major changes that could cut billions from App Store commissions.
The EU’s antitrust chief, a leading proponent of the DMA, has pointed to Apple’s recent moves and cautioned that the bloc should give itself enforcement power at law to enforce its provisions.
“Apple prefers to pay periodic fines rather than essentially complying with a decision by the Dutch Competition Authority,” said Margaret Vestager, the top digital policy and competition officer in the EU executive branch, in a speech last month. “Effective enforcement, including that the Commission has sufficient resources to do so, will be critical to ensuring compliance.”
In a preliminary draft, failure to comply with the DMA would be punishable with fines of up to 10% of the company’s annual global revenue, which would currently amount to $37 billion for Apple, but some legislators have pushed for a higher limit. .
Court filings have suggested that approximately 20% of Apple’s annual operating income comes from App Store revenue. Apple has said the estimate is too high, but has not disclosed an alternative amount.
The figure underscores why some of the App Store’s biggest revenue generators are aggressively pushing for changes. Spotify Technology SA and Match Group Inc., according to people familiar with the matter, have been successful in lobbying to include language in the act, which would allow Apple to allow developers to use competing in-app payment systems.
Andreas Schwab, a German member of the European Parliament, said, “It is very easy to say that companies like Spotify or Match Group make their case because it is a clear case.” Keepers have more difficulties explaining their business practices so clearly,” he said.
According to analysts and those involved in the talks, if the DMA goes through as expected, Apple could attempt to challenge law enforcement through litigation and enforce it to comply with the App Store policy change.
The biggest change to Apple’s App Store was ordered in September by a federal judge in California overseeing an antitrust lawsuit by “Fortnite” maker Epic Games Inc. While Apple won most of the cases, the judge ordered Apple to stop app developers from being able to. To send users inside their app for cheaper alternative payment methods outside the app. But that change is on hold while Apple has appealed the decision.
When an antitrust regulator in the Netherlands ordered Apple to allow alternative payments in dating apps in that country, Apple responded by charging apps still a fee, 27% of revenue instead of 30%. The changes have not satisfied the Dutch, who are fining Apple more than $5 million a week.
“Apple believes that its solution is fully compliant with Dutch law,” Apple Chief Compliance Officer Kyle Ander said in a letter to the regulator last month. Having said that the issue may eventually be resolved in court.
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