Combating anti-competitive behavior of smartphone software providers

In June 2024, Japan adopted law limiting abuses coming from market dominance of¹ software used in smartphones. The law effectively targets Apple (46.6% of the market) and Google (53.4%) - oligopolists in the market for basic operating systems for smartphones, browsers and app stores. And in the EU, an investigation into Apple's abuse of its dominance² in the app store market initiated in June.

Japan's regulation only applies to providers of 4 types of applications in³ smartphones: basic operating software (operating systems and drivers), app stores, browsers and search engines.

The Japan Fair Trade Commission (antimonopoly body) plans to develop quantitative criteria for determining the dominance of the listed 4 types of software providers, including an assessment of the number of transactions or the provider's market share with respect to each type of software. The Commission will define a specific list of operators (service providers) that have a dominance.

In many ways Japan's law is similar to the EU's Digital Markets Law, but it is sectoral and only targets specific practices of dominance abuse by smartphone software vendors. One reason is the size of the smartphone application market, for example, more than 90% of entertainment content is consumed via⁴ smartphones.

Japan defined and prohibited abusive practices specific to the smartphone software market:

1) Using data accumulated by business users (third-party software vendors, app developers in app stores) to compete with them, as well as transferring this data to subsidiaries or their other services. For example, sales data on third-party applications sold through the dominance of vendor's app store (number of downloads, region, price, etc.).

2) Introduction of technical restrictions. For example, dominant operators of the basic operating software cannot impose restrictions on the installation of third-party application stores or browsers. Apple cannot restrict the ability to install Google Play instead of the App Store.

3) Imposing restrictions on the use of payment services. For example, introducing a condition that the user cannot utilize payment systems of other providers than those recommended or embedded in the payment system of this app store.

4) Prohibition of giving advantages to your own services. For example, when searching in the app store offer your own services first and then those of competitors.

5) Imposing restrictions for displaying prices for services sold in the app store, as well as displaying links to other download sites (e.g., another app store or the software vendor's own site) so that the user can download software through third-party sites.

This practice triggered new EU proceeding against Apple in June 2024. Apple restricted the option for developers distributing apps through the App Store to be able to inform their customers about free alternative, cheaper app purchase options, and to leave links for customers to other purchase channels, such as the developers' own websites, third-party app stores. Developers could leave links not in the App Store, but within the app, but then Apple would charge developers €0.50 - a commission for the fact that the user buys the app not in the App Store, but in another store by clicking on the developer's link.

The Commission has now found a violation of Article 6(4) of the EU Digital Markets Act. The risk of punishment for Apple is a fine of up to 10% of total global turnover, proceedings pending.

In Japan, fines can hit up to 20% of a company's turnover in Japan for violating the listed prohibitions.

It is worth noting that in Japan dominant operators are required to implement practices that will equalize competition:

1) Disclose the data management system. For example, app stores should disclose data about the sale of third-party software, the terms and conditions under which such software is purchased and used.

2) Provide the right to transfer data from one user's device/service to another device/service, for example, to transfer photos or messages from one application to another.

3) Ensure the user's right to change default settings, uninstall the pre-installed software by the dominance of supplier.

The above practices and prohibitions are also used in the EU (analytics is given in the Monitoring No. 3 (March 2024). However, there is a difference - Japan singles out a group of measures related to changing specifications or terms and conditions for a particular software. For example, if the dominant operating system provider changes the software specifications (e.g. requirements for programs that can be installed), if the terms of use of the system or the dominant app store refuses to cooperate with individual software developers, or if a browser refuses to display a web page, such actions must be agreed with the Fair Trade Commission.

Russia’s experience

In Russia, Article 10.1 of the Law on Protection of Competition establishes a ban on monopoly of platforms occupying a dominant position. There is also FAS guidance, however, it does not address practices related to data usage and interoperability, as is the case in Japan or the EU.

However, FAS has initiated investigations like the Apple case in the EU regarding abuses in the software market power including for smartphones.

In 2015, for example, Google was investigated because its Android operating system (over 50% of the market) mandated preinstallation of Google apps, restricting the installation of apps from alternative vendors. In a similar investigation in 2020, Apple (100% of the iOS app store market) was found to have imposed technical restrictions on third-party apps while promoting its own.

The investigations resulted in Google and Apple being recognized as dominance and fined for abuse of market power.

From the monitoring issue No. 6, June 2024. Download the full issue (PDF) · issue page at the Gaidar Institute