Apple’s ‘screen-time’ functionality (and similar apps released by other developers) have changed the way we engage with our screens, allowing users to monitor how long they spend every day checking emails, messaging and their use of social networking sites. The benefits of such software are becoming increasingly obvious to many consumers and have the potential to impact the degree to which users engage with different apps and online platforms. Given the potential significance of such software, it’s not surprising that steps taken by Apple last year to stop other developers from using or commercialising this functionality caught the attention of the media and were reported to have led to complaints to European regulators.
What’s going on?
A recent New York Times report detailed complaints made by a number of third-party ‘screentime’ app developers (including OurPact, Freedom, Kidslox and Qustodio) claiming Apple had removed their apps from Apple’s App Store. The New York Times’ analysis suggested that last year Apple removed or restricted at least 11 of the 17 most downloaded screen-time and parental-control apps from the App Store. In some cases, at least for a period of time, it allegedly forced developers to remove features from their apps which allowed parents to control their children’s devices while, in other cases, it simply removed them from the App Store without warning.
According to Apple, the competitive apps were removed or restricted because they raised serious privacy concerns and its conduct was unrelated to its introduction of similar tools. In particular, Apple asserted the competitive apps used Mobile Device Management (MDM) tools, which let organisations securely configure Apple devices across their employees, monitor policy compliance and remotely wipe or lock managed devices, leaving them potentially exposed to hackers seeking to gain access for malicious purposes. This usage of MDM tools by the competitive app developers was said to be a breach of App Store policies.
On the surface, Apple’s position appears reasonable, if it is legitimately concerned (as controller of the App Store) about hackers using these apps to access a user’s phone, then it should be able to take reasonable steps to address those concerns – right? However, given its size and dominance, is there a risk that Apple’s conduct if repeated in Australia might breach Australian competition laws (in particular, the prohibition against misuse of market power) and, if so, is Apple’s privacy-oriented explanation a valid defence?
Misuse of market power – a new Australian approach
In November 2017, section 46 of the Competition and Consumer Act 2010 (CCA), which prohibits the misuse of market power, was amended and significantly broadened. Under the new amendments, a business with a substantial degree of power in a market is not allowed to engage in conduct that has the purpose, effect or likely effect of substantially lessening competition in a market. Under the prior regime, the requisite conduct had to have an anti-competitive ‘purpose’ and involve the ‘taking advantage’ of the market power. However, the broadening of the test has dropped these key requirements, potentially capturing a significantly wider range of conduct, including conduct taking place for a pro-competitive or legitimate business purpose. Given these changes, there is a risk for Apple that the ACCC might take an interest in its recent conduct in deleting competitive app.?
The ACCC’s guidelines
Late last year, the ACCC brought its first court proceedings with respect to the new section 46, announcing that proceedings under that section would be one of its key focuses in 2019, as mentioned in our analysis of the ACCC’s 2019 enforcement priories. In August 2018, the ACCC released guidelines on how the ACCC currently proposes to apply section 46. Importantly, the ACCC stated that, when assessing the purpose, effect or likely effect of a firm’s conduct:
‘the ACCC considers the nature and extent of that conduct, including the firm’s commercial rationale. For example, whether the conduct is likely to be profitable for the firm because it improves its customer offer or because it restricts rival firms from improving their customer offers. A firm’s commercial rationale may be relevant to understanding the conduct in question and assessing its purpose and/or effect on competition. However, it will not amount to a defence. Conduct engaged in by a firm with substantial market power may still have the effect or likely effect of substantially lessening competition even where the firm did not have the purpose of substantially lessening competition.’
The guidelines also list the types of conduct that the ACCC presently considers will not raise any concerns, none of which seem to apply to Apple’s recent conduct.
On the information presently available, it appears to us that:
- The relevant ‘market’ is the market for the provision of products with ‘screen-time’ functionality. As merely one business selling ‘screen-time’ products, that on its own is unlikely to give Apple a ‘substantial degree of market power’. However, as the business that also controls the App Store and what is sold in it, Apple likely has a substantial degree of power within that different market – namely, the market for the supply of Apps for use by consumers on Apple devices.
- It is clear under the CCA that a corporation that has a substantial degree of power in a market must not engage in any contravening conduct in that market or, importantly, any other market in which that corporation supplies goods or services. In other words, the fact that Apple is exercising power as the owner and controller of the App Store rather than in the market for the provision of products with ‘screen-time’ functionality, will not of itself excuse Apple from breaching the CCA.
- In terms of purpose, if Apple is to be believed, its conduct is not for the ‘purpose’ of substantially lessening competition in that market. Rather, its conduct is directed towards protecting consumers and their data from hacking – a noble cause. It remains to be seen whether this argument will stack up if scrutinised by a court or regulator.
- The question as to whether the conduct has the effect (or likely effect) of substantially lessening competition in a market obviously requires a detailed review of the market, including barriers to entry, network effects, the relevant market shares of the various participants and the features of the various products on offer (including, in particular, whether Apple’s functionality and the third party Apps are substitutable). Depending on the weight given to those factors, the conduct may not have had any substantial impact on competition in the market for the provision of products with ‘screen-time’ functionality. If there is no relevant impact on competition then obviously Apple will not have any concerns, however the converse would also be true.
The above analysis highlights the potential reach of section 46 and its potential impact of companies with a substantial degree of market power. Corporations with market power now need to be more careful than ever about the effect of their conduct in any marketplace in which they do business. With the new section 46 still untested in the courts (although one proceeding is currently on foot) and the ACCC confirming that this area is one of its enforcement priorities, in our view, we are likely to see increased scrutiny by the ACCC of conduct by some of Australia’s major corporates. We recommend turning off your screen-time monitoring apps to ensure you’re the first know when it happens.