Apple execs head to London to fight for the App Store

On the day the UK government confirms an AI future for the country (we’ll see how that goes), Apple’s App Store pricing model has gone on trial in London.

Apple is accused of overcharging consumers for software sold via the App Store in a £1.5 billion class-action lawsuit bought by Rachael Kent-Aitken on behalf of 20 million UK consumers. (That equates to about $1.8 billion in US dollars.)

She’s chasing down Cupertino, claiming it is abusing its market dominance by levying up to a 30% fee on download sales, calling the levy “excessive and unfair.”

The trial began today before the UK Competition Appeal Tribunal. The lawyers at Hausfeld represent Kent-Aitken in the case, the costs of which appear to be underwritten (if that’s the appropriate word) by Vannin Capital.

What is Apple accused of?

The accusation is that Apple abused its dominant position by:

Imposing restrictive terms that require app developers to distribute exclusively via the App Store using Apple’s payments system.

Charging excessive and unfair prices in the form of commission payments, which are ultimately paid by the device users.

Apple, of course, calls the claims “meritless,” pointing to the fact that the vast majority of developers do not pay a 30% levy on software sales, that those who offer apps at no charge (around 80% of all available apps) pay no levy at all, and that the fee is intended to see the costs of running the store borne by those who generate the most cash from selling software through it. 

In related news, the European Commission has begun fresh scrutiny of the core technology fee Apple charges some developers in Europe in response to the Digital Markets Act.

Senior Apple leaders head to court

Apple appears ready to field an all-star cast of witnesses during the trial with around three days of witness time booked. What is known is that Apple will field some witnesses who will travel from the US, with both Apple Fellow and App Store leader Phil Schiller and Apple Senior Vice President for Software Craig Federighi named in a pre-trial note (pages 24/25). Apple’s newly-appointed Chief Financial Officer Kevan Parekh will also be forced to give evidence.

The company will also be told to share unredacted versions of some documents used during the European Commission trial against it; there are three days in which Apple has secured witness time for the case, according to one document, though it is not known if that is definite at this stage. Apple witness statements should begin Wednesday afternoon, though it is not known if the witnesses Apple plans to bring will remain the same. 

Apple has previously said: “We believe this lawsuit is meritless and welcome the opportunity to discuss with the court our unwavering commitment to consumers and the many benefits the App Store has delivered to the UK’s innovation economy.” 

It’s worth noting that Apple CEO Tim Cook visited the UK in December. While there he met with Prime Minister Keir Starmer and hosted an event at Apple’s Battersea HQ with King Charles.

Apple now supports 550,000 UK jobs through direct employment, its supply chain, and the iOS app economy. 

Is it all about legality — or profitability?

In the end, and as I’ve pointed out before, even some of the company’s critics levy similar fees on sales through their platforms, which means it isn’t a matter of fee/no fee, but a question of how much fee is legitimate for Apple’s storefront, or any storefront, to charge. Even big brick-and-mortar grocery stores charge for shelf placement, after all. 

“The commissions charged by the App Store are very much in the mainstream of those charged by all other digital marketplaces,” Apple said when the case began. “In fact, 85% of apps on the App Store are free and developers pay Apple nothing. And for the vast majority of developers who do pay Apple a commission because they are selling a digital good or service, they are eligible for a commission rate of 15%.”

What happens next?

The litigant at one point claimed Apple made $15 billion in App Store sales on costs of around $100 million, though those costs seem to ignore research and development, OS development, security, payments, and associated investments Apple makes in its ecosystem.

Kent’s lawyer, Hausfeld partner Lesley Hannah, at one point said: “Apple has created a captive market where people who own Apple devices are reliant on it for the provision of both apps and payment processing services for digital purchases.”

Apple will likely argue that the market is larger than just iOS apps (think online services and other mobile platforms) and observe that it is not dominant in the device market. That matters, because it means consumers do have choice and most consumers choose different platforms. (Kent is also involved in similar action against Google.)

Right or wrong, it’s hard to avoid that in general the direction of travel when it comes to App Store encounters in court means the current business model now seems tarnished. Perhaps Apple could introduce a different model in time?

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