The judgment of the Competition Appeal Tribunal (CAT) in the case of Kent v Apple in October was rightfully seen as a significant moment in the market for mobile apps on iOS. However, the judgment potentially has far broader implications for the wider digital marketplace, most importantly for the advertising ecosystem.
What did Kent argue?
The case saw Academic Dr Rachel Kent win her case against Apple claiming that the company had been overcharging users for app sales and in-app payments. It was able to do this, Kent argued, due to the tight restrictions that Apple places on iOS apps, with all sales having to be run through Apple’s app-store under a set of closely defined rules. As a result of these rules, the company had monopoly power in the iOS app marketplace and has used this power to exclude competitors and charge excessive prices. Apple had justified these restrictions on the grounds of privacy and security, claiming that they were necessary to keep consumers safe from the threat of bad actors.
What did the CAT rule?
The CAT found in favour of Kent’s claims. Apple was dominant in the iOS app sales and in-app payments market, it had engaged in exclusionary behaviour towards its competitors and it did charge excessive or unfair prices in those markets.
Most importantly for the wider market, the CAT found that Apple’s privacy and security justifications for the restrictions that it placed on iOS apps were not necessary or proportionate to deliver the benefits claimed. The CAT found that there was a ‘near complete absence of any internal Apple documents making a connection between the need for the restrictions and the benefits they are said to deliver’ (Para 797(1)) and that even without the restrictions that Apple had in place, ‘there would still be significant protections afforded by Apple’s defence in depth system, which included the hardware sandbox protections, software protections and some degree of app review’ (Para 780(1)). Even if there was evidence that showed the need to protect privacy and security in this way, the CAT found that the blanket restrictions were in any case, disproportionate.
This point is vital. Apple’s restrictions on the app marketplace facilitated its monopoly. It allowed them to charge excessive prices to app publishers (including its notorious 30% sales commission) which resulted in higher prices for users. Apple has for years claimed that the restrictions were essential to protect consumers, but the CAT found that there was no justification for this claim.
What does Kent mean for the advertising industry?
Why this matters is that apps are not the only area where Apple has been making spurious privacy claims to justify restrictions that facilitate its monopoly, the most obvious being the ATT and ITP frameworks. These restrict the ability of Apple’s competitors to use data about app and website users whilst allowing Apple to collect and use this data freely. Apple has justified these restrictions on privacy grounds, calling any use of data by third parties ‘tracking’ whilst continuing to use this data itself for a range of purposes, including its own multi-billion-dollar advertising business.
These restrictions give Apple an effective monopoly over targeted advertising on its Safari browser and in iOS apps at the cost of independent publishers and advertisers. These costs are – inevitably – passed on to consumers in the form of increased product prices to cover higher advertising costs. As with the Kent case, Apple has never presented hard evidence as to the security or privacy benefits of these restrictions, preferring instead to rely on vague claims around ‘tracking’ whilst burying its own data usage deep in its terms and conditions.
The implications of Kent potentially go further than just Apple. Other tech giants have used privacy as a justification for anti-competitive acts – most notably Google in its failed Privacy Sandbox project. Any restrictions put in place by the platforms that are justified on privacy grounds should now undergo the most serious scrutiny.
Why should ATT and ITP be blocked?
If the logic of Kent v Apple is applied to ITP and ATT, it’s clear that these frameworks are anticompetitive and should be rescinded. ATT has already been judged to be anticompetitive by the French competition regulator and its German equivalent is investigating the same issue. Apple’s dominance is being sustained by unjustified technical restrictions that exist only to strengthen its own position. Kent was an important judgment for the app industry, it could be even more consequential for the digital advertising marketplace.