In October 2024, the Competition Appeal Tribunal (CAT) granted a collective proceedings order (CPO) to Dr Sean Ennis (the proposed class representative or "PCR"), in relation to a standalone claim against Apple alleging that its App Store terms of business constitute an abuse of dominance. This is the second CPO granted against Apple in respect of essentially the same conduct, and adds to existing and prospective regulatory investigations in both the UK and EU.
The claim
The PCR alleges that Apple has a dominant position in the market for the distribution of software applications (apps) for Apple's proprietary mobile operating system, iOS. He further alleges that Apple has abused its dominance by charging prices (in the form of the commission charged on purchases of apps within the iOS App Store or purchases of additional content or subscriptions within those apps) which are:
- excessive and unfair in their own right, due to the level of commission charged (typically 30%); and/or
- unfair and abusive as a system of pricing, given the commission is "effectively inescapable" and fails to recognise the true economic value contributed by app developers, or the value of the service provided by Apple, and given its burden falls disproportionately on certain app developers (only 16% of developers on the App Store pay any commission at all).
The proposed class is comprised of all UK-domiciled iOS app developers that made relevant sales and paid the allegedly abusive commission in the six years prior to the filing of the claim form in July 2023 – an estimated 13,000 app developers of varying sizes. The PCR has estimated that overall damages may be valued at up to £785m.
Contested certification
Since the Supreme Court confirmed in Merricks that the threshold for certifying collective proceedings before the UK courts is a relatively low one, defendants have had limited scope to launch successful early stage attacks on certification1. In this case, Apple put forward the following arguments:
- there were actual and/or potential conflicts of interest between the proposed class members (PCMs);
- there were "radical differences" between the claims of individual class members, such that they were not suitable to be brought collectively; and
- the proposed claims were not suitable to be brought on an opt-out basis.
The CAT's judgment
The CAT rejected Apple's arguments (including, in addition to the above, that the funding arrangements created an unacceptable incentive on the funder not to settle until after trial has started), concluding that the PCR's application for a CPO should be granted on an opt-out basis.
Conflicts of interest
Alleged conflicts between PCMs formed the core of Apple's opposition to the CPO. Apple's arguments in this regard included the following – which, the CAT concluded, failed to establish a relevant conflict of interest or make the claim unsuitable for collective proceedings.
1. Apple argued that the PCR's case implied that a flat rate of commission should have been charged across all the PCMs' App Store transactions – this gave rise to a conflict because some PCMs may in fact have benefitted from commission being payable only on certain transactions.
The CAT held that Apple's arguments in this regard mis-characterised the PCR's claim, and were based on Apple's own interpretation of the claim rather than that actually filed by the PCR. According to the CAT, the counterfactual advanced by the PCR in his claim form sought to maximise the aggregate damages for the PCMs as a whole, by establishing that Apple should have charged all PCMs a commission that was not excessive or unfair. In pursuing a claim based on this counterfactual, the interests of all PCMs were aligned, and any individual variations could, to the extent appropriate, be reflected at the distribution stage. The CAT further noted that even if the PCR's case could lead to recovery for some class members but nothing for others, that would not entail a conflict of interest.
2. Apple argued that developers will have passed the App Store commissions on to app users at different rates, such that any common position on pass-on amongst the PCMs would involve a trade off between different PCMs' interests, thus giving rise to a conflict.3. Apple argued that some PCMs were more exposed than others to its argument that non-UK App Store commissions fell outside the CAT's jurisdiction – this would lead to a potential conflict in the event of a settlement being reached without the arguments on jurisdiction having been determined.
The CAT considered that the scenario on pass-on outlined by Apple was not unusual in the context of these types of proceedings. Further, it was appropriate to adopt an average rate of pass-on for the whole class, given the purpose of an aggregate award of damages is to avoid the need for individual assessments of loss.
3. Apple argued that some PCMs were more exposed than others to its argument that non-UK App Store commissions fell outside the CAT's jurisdiction – this would lead to a potential conflict in the event of a settlement being reached without the arguments on jurisdiction having been determined.
The CAT disagreed, highlighting that it is not unusual for there to be competing views from class members as to how a settlement should be distributed. In any event, the CAT may only approve a settlement if it is satisfied that the terms are just and reasonable.
Differences between class members' claims
The CAT considered that the differences between the claims of individual PCMs identified by Apple (including on points such as pass-on and the most favourable commission structure in the counterfactual) did not make the claim unsuitable for an award of aggregate damages.
In particular, the CAT held that Apple had failed to take sufficient account of the Supreme Court's decision in Merricks, in which it was held that the point of an aggregate award is to provide compensation for the loss suffered by the class as a whole, and that individual claim values do not matter. In addition, the CAT also noted recent case law which found that, where losses suffered by a long tail are only a small proportion of the overall claim, this does not necessarily make a claim unsuitable for an award of aggregate damages.
Opt-in rather than opt-out
In the CAT's view, the fact that the proceedings might – as Apple contended – be financially viable on an opt-in basis (because there were a number of large PCMs with substantial claims) did not overcome the impracticability of opt-in proceedings vis-a-vis the majority of the PCMs with relatively modest claims. As a result, the CAT concluded that an opt-out claim was preferable and, in its view, consistent with the principles set out in O'Higgins FX and Le Patourel.
The broader context
The CAT has already granted a CPO to Dr Rachel Kent in respect of substantially the same allegations of abuse of dominance against Apple. In that claim, however, the class is made up of iOS device users who made purchases through the UK version of the App Store, and the claim rests on the assertion that app developers passed on some, or all, of the excessively high commission to their customers. The trial in the Kent CPO has been listed to start in January 2025.
In addition to private enforcement, the App Store's terms of business have not escaped the attention of competition authorities. Earlier this year, Apple received its first antitrust fine in the EU in the Music Streamingcase2. In that case, the European Commission found that so-called "anti-steering provisions" – which were aimed at preventing app developers from avoiding paying commissions by directing their users to payment options outside the Apple ecosystem – amounted to an imposition of "unfair contract terms", and therefore an abuse of dominance. In this regard, the Commission concluded that the anti-steering provisions caused monetary harm to consumers in the form of significantly higher prices for music subscriptions (given the 30% commission was generally passed on to music streaming app subscribers).
However, the App Store's regulatory challenges do not end there. Apple faces ongoing non-compliance investigations under the Digital Markets Act (DMA), both in relation to the current form of its steering rules, and the App Store fee structure introduced at the start of the year in order to secure compliance with the DMA. And in the UK, whilst the CMA announced in August that it was closing an abuse of dominance investigation into the App Store's terms and conditions for developers, it also indicated that the same conduct is likely to be prioritised for investigation under the CMA's new digital markets regulatory powers, which will shortly take effect.
These challenges to Apple's business model reflect broader public and private enforcement trends in relation to the tech industry, where a number of key battles are yet to be fought. In line with these trends, Google faces an almost parallel set of claims3 and investigations in relation to its Play Store.
Footnotes
1. Although they have had a greater degree of success when attacking certain aspects of the class representative's case at certification, for example as discussed in our previous article on BSV Claims Limited v Bittylicious Limited & Others
2. Read our previous article on this case
3. Including: UK collective proceedings brought by Professor Barry Rodger; likely investigation under the CMA's new digital markets powers; and; an ongoing non-compliance investigation under the DMA.
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