Tech & Competition

South Korea passes law to curb app store & payment system monopolies

South Korea has passed a law prohibiting large app store operators from compelling software developers to utilize their platforms’ payment systems. The Telecommunications Business Act, also known as the “Anti-Google Law” was passed by 180 in favor out of 188. Despite growing global criticism for forcing the use of payment systems that impose commissions of up to 30%, this is the first major bill approved by a major economy against Apple and Google.

Mandate under new law

The law prohibits app store owners from requiring developers to use the store’s in-app payment mechanisms. Both Google and Apple currently require apps purchased from their respective stores to employ in-app payment systems for every sale of digital products or services made through the app. Further, some commission is also there on each sale. 

From a developer’s point of view, the new regulation permits them to use their preferred payment mechanisms, thereby allowing them to dodge hefty commissions. Further, since developers will no longer have to account for commissions, this could result in lower prices for users.

Impact on Google and Apple

The decision will have a significant impact on the revenues generated by these two platforms’ app marketplaces. Although neither company discloses exact data for its app stores, they account for a large chunk of their revenue, particularly in-app commissions.

Apple’s $274.5 billion revenue came from services like the App Store, and Google’s $182.5 billion revenue came from “other” revenue sources like Google Play store sales, which accounted for $21.7 billion of Google’s $182.5 billion revenue, MediaNama reported.

Powers given to the South Korean government

The new rules empower the South Korean government to investigate app market operators and settle disputes over payment, cancellations, and refunds. Companies that fail to comply with the new guidelines might face fines of up to 3% of their total revenue earned in South Korea. 

No unusual delay in approval

Companies that run app marketplaces now can’t delay the approval of apps or remove them from the store without any reasonable cause.  The rule will restrain app stores from retaliating against developers who employ other in-app payment mechanisms.

How did developers react?

The Coalition for App Fairness, called the new law a “significant development in the global fight to bring fairness to the digital economy”. Epic is also a part of the coalition that has filed various complaints against Apple in multiple jurisdictions over its app store. In a tweet, it appreciated South Korea and Moon Jae-in for holding app store gatekeepers accountable for their anti-competitive and damaging behavior.

Recently, Apple announced modifications to its App Store as part of a $100 million settlement with app developers in the United States who sued the corporation for claimed unfair practices. Developers will now be able to notify users about in-app payments by email or other methods outside of the App Store, although they will still be unable to do so inside the app.

Similar legislation in the US?

Earlier this month a group of bipartisan US senators introduced legislation to promote competition and increase consumer protection in the app industry as part of a campaign to limit big tech’s dominance through antitrust laws. The bill assets asserted that Google and Apple have “gatekeeper control” over the two most popular mobile operating systems. Such control allows their app stores to define the conditions of the app market unilaterally.

How tech giants are reacting?

Speaking to IT Pro, a Google spokesperson said, “We’ll think about how to comply with the law while still retaining a model that supports a high-quality operating system and app store, and we’ll offer additional information in the coming weeks.”

On a similar footing, Apple said that the Act will put consumers who buy digital goods from other sources at risk of fraud and weaken their privacy rights. It further added that the law will make it more difficult to control their transactions, besides making features like “Ask to Buy” and “Parental Controls” less effective.

Key Developments in India

Indian firms have also raised their discontent with the dominant behavior of the tech giants (especially Google). Analogous to western startups, Indian startups have also complained of Google’s “monopolistic” grasp on India. They accuse Google of unfair and inconsistent implementation of Play Store guidelines in the country.

The accusation is not completely unfounded, as was demonstrated by the Play Store temporarily removing the Paytm app without any notice, citing policy violations. The discontent escalated after Google announced that starting next year, developers with an app on Google Play Store must give the company a cut of as much as 30% out of several app-related payments.

Following a backlash, on March 16, Google retracted the decision announcing it will reduce its Play Store platform commission for in-app purchases of digital goods and services for developers around the world to 15% from the current 30% starting July this year. However, this cut in fees will only apply to the first $1 Mn in revenue earned by a developer. Rival tech giant, Apple also dropped its platform commission from 30% to 15% last year for app developers who earn less than $1 Mn in revenue.

However, Google failed to enthuse the Indian market players. Indian startup players have united to explore an alliance and alternative to the Play Store. The government also introduced the Mobile Seva App Store, where soon business players will be able to list their applications, free of cost.

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Pukhraj Biala

I am an undergraduate student at Symbiosis Law school, NOIDA, pursuing B.A.LL.B. I am a problem solver who believes in reaching to a conclusion by weighing all the options and identifying the best possible one. I find Technology Laws quite fascinating and I continue to follow and learn the subject.

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