Apple is today seeking permission to appeal the result of a billion-dollar lawsuit filed by UK app developers accusing the company of abusive commission levels.
The company last month lost the case and a hearing today will now decide how the damages are calculated. If the ruling stands, it is expected to end up costing Apple anywhere between £1B and £2B ($1.3B to $2.6B) – but Apple is expected to counter this with four arguments …
A quick recap
The lawsuit was filed back in 2023 on behalf of more than 1,500 app developers. It accused Apple of charging “abusive” commission levels on app sales and subscriptions. It argued that the company’s monopoly on the sale and distribution of iOS apps means that it is able to set its own commission levels, and that developers have no choice but to accept it.
The UK’s Competition Appeal Tribunal (CAT) last month ruled in favour of the developers. It also found that iPhone users had been harmed, as the excessive commissions were passed on to consumers in the form of higher app prices.
One interesting note in the case is that the tribunal cited Steve Jobs saying in 2008 that Apple didn’t intend to make money from the App Store, but merely wanted a commission sufficient to cover its costs.
The next step in the case is for the tribunal to decide on a method for calculating the amount of damages due to developers and consumers.
If all of this sounds very familiar, it’s because Apple is fighting a similar battle in the EU and yesterday announced the results of a study funded by the company which it said proved that commission rates have little impact on app pricing.
CAT to decide damages, but Apple wants to appeal
The job of the tribunal today is not to put a dollar figure on the damages owing, but instead to come up with a method for calculating them. The actual sum due won’t be decided until some time next year.
However, Apple will be taking the opportunity to request permission to appeal the ruling. The UK’s legal system is slightly odd in that the losing party in a case must request permission to appeal its finding. However, if permission is denied, the losing party can instead appeal that denial.
Apple’s four arguments
Based on both prior arguments made by the company in this and other cases, and the findings of the study published yesterday, Apple is likely to use four arguments to support its view that the CAT reached the wrong decision.
The definition of the marketplace
Core to Apple’s position is the usual dispute over the definition of the competitive market. The Cupertino company argues that it does not have a dominant position, as it considers the relevant market to be “mobile apps.” Since the company holds a minority share of the smartphone market in most of the countries in which it operates, it believes it cannot be considered to have a dominant position.
Legislators, regulators and courts have generally decided that the relevant market is iPhone apps, and here Apple has a 100% monopoly on their sale and distribution. Edge cases aside, there is no way for a developer to bring an iOS app to market without selling it through the App Store.
Apple also typically points to games console commission rates as a comparator, and makes the point that the 30% headline rate is misleading because most developers don’t pay that much.
Privacy and security
The CAT agreed with Apple that both the privacy and security provided by the App Store are important, but found this was insufficient reason to block competition in the sale of iPhone apps as there are other ways of achieving the same aims. In the EU, for example, Apple still has to review and notarize apps before they can be sold through third-party app stores.
Apple, however, argues that the same privacy and security standards cannot be met outside of the official App Store.
The value of Apple’s IP
Apple argues that part of the value it provides to developers is the use of its intellectual property, which of course includes Xcode. The company thinks it should be entitled to recoup its investment, while the CAT appears to expect the iPhone maker to make these tools available without seeing any return.
No evidence that consumers are harmed
Finally, given the results of the Apple-funded study published yesterday, the iPhone maker will for sure argue that consumers were not harmed because app prices would be largely unchanged with lower commissions.
What happens next?
There are three possible responses to Apple’s request for permission to appeal the ruling: the CAT may agree immediately (unlikely), reserve judgement (more likely), or refuse (somewhat likely).
Should the tribunal refuse, then Apple will ask the Court of Appeal to overturn that refusal. That seems extremely likely because this is effectively an important test case that really needs to be taken right the way through the UK’s legal system.
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