Explained: Why Google, Apple Might Be in Trouble With India’s Antitrust Watchdog

Through iOS and Android, Apple and Google control over 95 percent of the app store market share outside of China.

At the center of this is a policy update that Google announced towards the end of 2020.

(Photo: Chetan Bhakuni/TheQuint)

In March, a report was placed before the Competition Commission of India (CCI), the national competition and antitrust watchdog, following an investigation which reportedly found Google Play's payments policy "unfair and discriminatory".

Further hearings on the findings of this report will begin soon and the tech giant will have a chance to present its argument to the regulator, The Economic Times reported.

At the centre of this is a policy update that Google announced towards the end of 2020. This update, which caused immediate outrage, mandated that apps must exclusively use Google's own billing and payment system for certain in-app purchases.

Through iOS and Android, Apple and Google control more than 95 percent of the app store market share outside of China, which gives them immense power over app developers and their earnings.

Regulators are beginning to sit up and take notice.

Here's a breakdown of Google's controversial policy, what the CCI has said, and what it might mean for app stores in the future:

What Is Google's new policy?

In September 2020, Google announced the policy update which made it mandatory for apps to use its billing system for the following in-app purchases:

• Digital items including virtual currencies, extra lives, additional playtime, add-on items, characters, or avatars.

• Subscription services including fitness, game, dating, education, music, video, or other content subscription services.

• App functionality or content including an ad-free version of an app or new features not available in the free version.

• Cloud software and services including data storage services, business productivity software, or financial management software.

The purchase or renting of physical goods, physical services, and bill payments were not included in this.

The problem is, using Google's billing system means giving up a hefty chunk of a developer's in-app earnings to the tech giant. It is trying to create a situation where developers will have no choice in the matter.

Here's what Google takes from developers' in-app earnings if they use GBPS:

• 15 percent for the first $1 million of earnings each year (if the developer is enrolled in a special programme)

• 30 percent for earnings in excess of $1 million each year

Note that the 15 percent wasn't part of the original plan. It was rolled out in March 2021 – seemingly as an appeasement measure – after the policy update had already met with backlash.

It claims that only 3 percent of developers offer a paid app or sell in-app digital goods and 99 percent of those qualify for a service fee of 15 percent or less.

Apple also has two tiers – 15 and 30 percent – and mandates its in-app purchase system (IAP) if you want to unlock features or functionality within your app including subscriptions, access to premium content, or unlocking a full version.

Backlash: India and Worldwide

The policy was supposed to roll out starting September 2021, but industry reaction saw it pushed back to June 2022 worldwide. Google also moved from a 30 percent flat rate to a two tier model.

South Korea's parliament passed a law in 2021 to rein in app stores. It requires Apple and Google to allow alternative in-app billing systems. Both companies agreed to comply and Google even reduced the service fee for such transactions by four percent.

In India, in October of 2021, a 350-member industry body called Alliance of Digital India Foundation (ADIF) moved the CCI seeking interim relief against Google’s upcoming policy changes.

At this point, CCI had received multiple complaints against the policy update and was already probing allegations that Google was abusing its dominant position to push its payment system onto developers, according to ET.

A similar petition had also been lodged against Apple by a non-profit group which argued that Apple's fees hurt competition by raising costs for app developers and customers, Reuters reported.

In the US, Epic Games – which developed the smash hit video game Fortnite – sued Apple and Google in 2020 after it was banned from both app stores for offering its own payments system. Apple countersued.

While the Google case is still in a court, the judgment in Apple's case, pronounced in 2021, allowed apple to continue levying the 30 percent charge but ordered it to let developers direct users to other storefronts to complete purchases.

What did the CCI say?

The report, submitted by the Additional Director General of CCI, said that Google is imposing "unfair and discriminatory conditions" in violation of regulations, according to Bloomberg.

It suggested that Google's policies were denying fair market access to Unified Payments Interface (UPI) apps competing with its own Google Pay.

“Google’s conduct is also resulting in denial of market access to competing UPI apps since the market for UPI enabled digital payment apps is multi-sided, and the network effects will lead to a situation where Google Pay’s competitors will be completely excluded from the market in the long run."

CCI report, Bloomberg

A report by The Economic Times suggests that CCI is serious about tackling this issue. It has clubbed three different orders and complaints together, filed between 2020 and 2021.

It has reportedly taken issue with the following:

• Google is not using its billing and payment system for some of its own apps, but has made it mandatory for other developers.

• Google doesn't provide any other 'additional services' as part of the billing system for it to charge up to 30 percent in commission.

• Google is restricting access to UPI apps for processing in-app purchases, potentially hindering innovation.

• There are allegations that Google used ‘‘search manipulation" to push Google Pay.

CCI is "quite convinced" that the policy will definitely harm developers if implemented, a person "in the know" told the publication.

What Could Happen Next?

Ryan Gerard Wilson, a technology lawyer based in Noida, told The Quint that the CCI will now have to determine if competition law was violated.

The law does not bind the CCI to the report, he said, but regulators don't typically deviate from the findings of a investigative mission led by an internal expert and "the CCI is no different in this regard".

He added that the regulator has the power to impose fines or restrictions on Google, if it finds the company guilty.

"That said, if the CCI rules against Google, Google is expected to appeal the CCI decision and seek a stay on any penalty/fine/restriction imposed, until the appeal is adjudicated."

Ryan Wilson

However, the extent to which an expert's opinion should influence appellate decisions is a matter of "great controversy in the study of regulatory jurisprudence," Wilson said – something that could help Google's case if it appeals a negative decision.

He also suggested that international precedents – such as the South Korean legislation – can have a "significant persuasive" impact on the proceedings.

"This is because when it comes to the tech sector, the pace with which tech business move is so rapid that regulators have little choice but to deploy inductive thinking while analysing for controversies relating to compliance."

Ryan Wilson

The final outcome of this case could have an impact on similar cases in the future, potentially against Apple as well. However, this comes with some caveats.

Apple uses user privacy protocols as a defence to resist any changes to its App Store software architecture.

Unlike Courts, whose decisions are accepted as precedent by virtue of the Constitution, regulatory bodies have no legal obligation to be consistent in their reasoning vis-a-vis their previous decisions.

"In the short term, the CCI may endeavour to be consistent with this line of reasoning. But in the long term, it would ultimately depend on whether the Supreme Court blesses the decision when it adjudicates the appeal against it," said Wilson.

"But, even so, they do their best to try an be as consistent as is practically possible - until a High Court/Supreme Court ruling invalidates their position, and coerces the regulator to pivot," he said.

(With inputs from The Economic Times and Bloomberg)