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Monday, August 14, 2017

Antitrust complaint filed against Apple in China

Just months after calling upon Chinese app developers to join in a proposed class-action lawsuit, Beijing-based Dare & Sure Law Firm, representing 28 app developers, filed a complaint with China's National Development and Reform Commission and the State Administration for Industry and Commerce. The Aug. 8, 2017, grievance report accuses Apple of monopolistic behavior related to how it manages its mobile App Store in China.

Among the issues cited, delisting from the App Store without adequate justification appeared to be a major point of contention. Under increased scrutiny by the Cyberspace Administration of China, Apple delisted about 60 popular virtual private network services on July 29, and in June, removed tens of thousands of apps from its Chinese App Store as part of a planned global purge, announced by Apple in 2016, of outdated or low-quality offerings.

Also cited in the complaint were restriction of access by Apple to third-party payment providers in its App Store, the 30 percent commission it levies on in-app purchases and the perception that Apple imposes a higher standard on Chinese developers with regard to copyright infringement. At the moment, gift cards, online banking accounts, China UnionPay and Alipay are listed as payment options in the App Store in China.

While it could take months for the case to move forward, if permitted, proving the merits could be a challenge. "Litigation is extremely burdensome and difficult in China," said Jonathan Rubin, Partner at MoginRubin LLP, an expert in antitrust and competition law based in Washington, D.C. "This kind of complaint is an ecosystem complaint. What's happening here is coming to grips with a phenomenon known as a dominant platform."

He said that, by definition, the platform creates opportunities for complementary markets. With an innovator like Apple, which created the platform, the platform dominates because of the network effects of tipping of the market. "They're suing a company that created an ecosystem – they created the market – for being anticompetitive in that market," he said, noting that filing a lawsuit can often be a bargaining tactic.

Uncharted territory for China

The case, if heard, could be a monumental one for not just Apple, but other businesses that wish to compete in China. The Anti-Monopoly Law of the People's Republic of China, enacted in 2008, is a latecomer to international law. As a point of reference, the U.S. Sherman Antitrust Act of 1890 preceded China's law by 118 years.

"There are so few cases decided that the story lies just as much in how China handles this kind of a complaint as it does in the complaint itself, because it's such a new law," Rubin said. "The first hurdle is dominance, and Apple will certainly argue that it's an outsider and it's trying to move in, and attack the case on dominance grounds."

He said the more important consideration is the criteria for judging the policies of platform operators, whether said policies are reasonable and neutral and give equal opportunity or in some way intentionally distort the playing field and can't be justified.

Many view the Apple complaint as indicative of how industry is changing and pushing the law. "It pushed the law first in the United States when the FTC looked at Google and found Google's access policies were reasonable," Rubin said. By contrast, the European Commission determined that Google abused its dominant position by giving itself unfair advantages relative to others and fined Google $2.7 billion in June 2017.

"And now we have a private lawsuit by app developers against Apple for exactly the same type of thing," Rubin said, which in this case may eventually exert pressure on Apple to reconsider its policies in order to continue to compete in China, he added.

In the past, monopolistic behavior often resulted in higher prices and less choice, but Apple and others have had an opposite effect on markets. "This is not the result that we're used to associating with dominance," Rubin said. "Usually it would capture surplus. Here it's creating it."

Regardless of the outcome, Apple stockholders will likely monitor the case as it unfolds. Last year, for the first time, sales on the App Store in China exceeded those in the United States. end of article

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