Digital Markets, Competition and Consumers Bill

Written evidence submitted by Apple Inc. (DMCCB51)

Apple Inc. submits these comments in response to the House of Commons Public Bill Committee’s call for evidence related to its scrutiny of the Digital Markets, Consumer and Competition Bill ("DMCC").

Apple’s business model is simple: make great products that enrich people’s lives. For over forty years, Apple has done that with products like the Mac, iPod, iPhone, and Apple Watch. From our earliest days to today, these unique products reflect our conviction that sophisticated technology can be safe, secure, and easy to use when it is designed to integrate hardware, software, and services to work together seamlessly. Millions of customers across the UK have chosen Apple’s products because we offer a streamlined user experience with the highest levels of privacy protection and digital security.

At the same time, our products have helped unleash innovation and revolutionize software development and distribution. By providing developers with tools and resources to build applications, and a safe and trusted marketplace to distribute them, Apple has helped even the smallest software developers reach millions of customers around the world. UK software developers have taken advantage of this economic opportunity, earning tens of billions of pounds annually.

Apple supports the goal of a level playing field for digital markets that provides opportunities for innovation, and greater choices and benefits to consumers. We believe the record demonstrates clearly that Apple’s approach advances that goal. We embrace competition because we know that a competitive market spurs innovation and, with it, more and better choices for customers. That is exactly why we opened our products to third-party developers while still maintaining the unparalleled privacy, security, and user experience customers want and deserve.

Apple appreciates this opportunity to provide our views on the DMCC. In this submission we (A) discuss Apple’s unique position within the competitive digital markets that the DMCC seeks to regulate, and (B) provide a summary of Apple’s views on the DMCC itself.

- A -

1. Apple is unique among the technology companies whose operations the DMCC would purport to regulate. The vast majority of Apple’s revenue comes from selling devices (for example, iPhones, iPads, and Macs). Apple does not operate a social media network, nor do we sell consumers’ personal information to advertisers or anyone else. At Apple, we believe that privacy is a fundamental human right, and it is embedded in all that we do, including designing all of our products and services to keep our customers’ information private and secure.

2. Apple faces direct and relentless competition in every market in which it competes. We embrace that competition. It forces us to innovate constantly. Consumers have many options from which to choose, and they evaluate their options in the marketplace based on a number of factors, including price, design, and performance.

3. Apple differentiates itself in the marketplace by offering tightly integrated hardware, software, and services that provide a high-quality, safe, and seamless user experience. We design our products and services to work together for maximum security and privacy and to provide a unique user experience that delivers on Apple’s promise to make its products work right out of the box. Apple’s privacy and security protections are core elements of Apple’s integrated product offerings, and they present consumers in the UK with an important choice in the market. Regulation should not restrict a consumer’s ability to choose a more integrated and secure digital platform.

4. Apple’s ability to offer consumers unparalleled privacy, safety, and security is as important as ever in a rapidly evolving digital environment where threats are becoming more sophisticated and more prevalent. Apple’s integrated ecosystem provides the safest, most secure, most trusted, most privacy-enabled, and highest quality suite of products on the market. Nokia’s Threat Intelligence Report confirms that the iPhone is the most secure mobile device on the market. [1] We designed the App Store to provide a reliable and secure platform for users and developers. Indeed, Apple blocked a record $2 billion in fraudulent transactions on the App Store in 2022 alone. [2] We believe the results and benefits of our multi-layered security model are worth preserving for UK customers.

5. UK customers choose Apple’s products and services because Apple is the industry leader on privacy. While other companies track customers’ activities, sell their data, and treat users as products, Apple builds in privacy by design. For example, we recently established rules that require App Store developers to disclose whether they track customers and empower customers to opt out. We also require developers to provide information to users on the data collected when their app is used. Our data collection disclosure requirements and embedded privacy protections would be seriously undermined, if not eviscerated, if legislative reforms or regulatory intervention allowed app developers to bypass these and related requirements when offering apps to consumers.

6. Apple’s unique approach to seamless integration is time tested. From our earliest days to our newest products, Apple has offered customers a tightly integrated offering of hardware, software, and services. For example, just last month, Apple announced the release of the Apple Vision Pro-a product that tightly integrates Apple’s hardware, software, and services offerings, while also establishing a platform for developers to reach consumers in new and exciting ways. Apple also recently announced new privacy and security innovations like Check-In (which uses location services and end-to-end encryption to let approved contacts know when users have reached their destination safely). [3]

7. Launched fifteen years ago, the App Store has revolutionized software distribution, providing opportunity for hundreds of thousands of software developers to innovate, create, and bring their software to consumers in the UK and around the globe. Software developers once faced massive barriers to entry-putting software on discs and distributing them through limited shelf space at retail stores. The App Store offers a marketplace where even the smallest developers can build, test, and distribute software to millions of customers in 175 countries and over 40 languages around the world.

8. The App Store has created once unimaginable opportunities for both UK developers and UK consumers. The UK is the largest contributor to the App Store ecosystem in Europe. There are currently 1.6 million registered UK developers, with 600,000 new developers joining our Developer Program over the last four years. In the last year alone, UK developers generated more than £38 billion in total earnings. [4]

9. Apple’s integrated ecosystem fosters innovation by providing a trusted platform. By offering an integrated ecosystem that consumers want and trust, Apple not only differentiates itself from competitors, it also supports developers. Consumers are willing to download new apps from new developers because they have confidence when using Apple products to do so. Were the ecosystem less trusted by consumers, it would be less rewarding, dynamic, and diverse for developers, especially small ones. A less trusted platform would only benefit the largest, most entrenched developers and prevent new developers from growing new businesses and benefiting from the digital economy in the same way that established developers have.

10. Apple supports developers by providing tools, resources, and services to develop applications. For example, Apple created the Swift coding language to make it easy for anyone-from the student at home to the independent entrepreneur to the small business-to create great apps. Apple has also created thousands of APIs, giving access to Apple’s innovations, that are available to all developers regardless of whether their apps compete with Apple’s.

11. The App Store is a dynamic marketplace that has enabled tremendous economic growth for developers. The success of Apple’s products depends on fostering competition so that customers have access to a wide variety of third-party apps [5] -which enhances the overall customer experience and increases the desirability of Apple’s products. And 85% of apps on the App Store pay nothing to Apple. When opening the App Store to third-party developers, Apple intentionally gave consumers more options by offering third-party apps that compete against Apple’s own apps. Today, many of the most popular apps compete against, and are even more successful than, Apple’s own services. Our approach has worked: Globally, App Store developers generated $1.1 trillion in total billings and sales in the App Store ecosystem in 2022-a 29% increase over the prior year. More than 90% of billings and sales accrued solely to developers, without any commission paid to Apple. [6] The App Store has more than 123 times as many apps today than in 2008. There are now approximately 1.8 million apps available worldwide. Consumer choice has proliferated and prices for consumers have plummeted.

- B -

12. We appreciate that the DMCC Bill reflects an understanding of the importance of digital markets to the future of the UK economy. Apple strongly supports the Government’s intention to promote pro-consumer competition in digital markets, to create a good environment for businesses and consumers, and to foster innovation and investment in the UK.

13. To achieve these goals, the Government must ensure a predictable regulatory environment and maintain a strong court system. That is why the DMCC Bill must include effective safeguards alongside new Competition and Markets Authority ("CMA") powers and procedures, including sufficient checks and balances to ensure adequate legal protections. Such guardrails are particularly important in the context of a highly novel regulatory regime that will have a direct impact on economic activity, competition, and consumer welfare. Below we highlight some specific concerns with the current text of the DMCC Bill as introduced on 25 April 2023.

14. The current Bill grants the CMA sweeping, subjective authority without sufficient guardrails to cabin its discretion or prevent abuse and will therefore create significant business uncertainty and harm innovation. Under the current draft of the DMCC, the CMA has wide discretion to identify undertakings as having strategic market status ("SMS") (clause 2), dictate the requirements that each designated undertaking must follow, including through its expansive power to develop individualized conduct requirements for each undertaking (clause 19), and introduce pro-competitive interventions ("PCIs") which can amount to significant structural and behavioural remedies (clause 44).

14.1. The Bill provides the CMA with unbounded discretion in setting governing requirements for businesses. The CMA has broad discretion to impose conduct requirements for loosely defined "permitted objectives" and "permitted purposes", with the only real constraint appearing to be that the requirements meet one of the three broad, subjective "objectives" outlined in clause 19: (i) fair dealing; (ii) open choices; and (iii) trust and transparency. This list is both far too vague-giving the CMA almost limitless discretion regarding how to achieve those goals-and is far too limited, failing to require the CMA to take into account other customer and developer benefits such as security, privacy, and innovation. The CMA does not have to consider the countervailing benefits of particular business practices when promulgating conduct requirements, which would help to ensure proscribed conduct requirements remain within the scope of the Bill’s objectives and do not have the unintended effect of harming consumers or competition. This novel delegation of authority to an agency to develop specified conduct requirements for individual businesses departs from standard legal process in which Parliament enacts regulatory requirements that are proportionate and tethered to the underlying goal of the legislation.

14.2. The Bill risks market interventions that harm innovation and limit consumer choice, the antithesis of the Bill’s objectives. As currently written, the CMA would be granted nearly unfettered power to impose specific conduct requirements and PCIs on businesses. This could limit innovation and, in turn, consumer choice, which is at the very heart of competition. Apple is deeply dedicated to fostering innovative digital markets and agrees with the UK’s desire to enhance opportunities for innovation. For example, Apple makes significant investments to create new technologies that it shares with developers, enabling third-party developer invention and success. We believe the Bill’s failure to specify protections for intellectual property would undermine incentives to innovate. At a minimum, the DMCC should require the CMA to consider the potential impact of its decisions on intellectual property and innovation.

14.3. The Bill fails to protect and promote consumer privacy, safety, and security. The Bill fails to sufficiently account for the critical policy considerations of privacy, safety, and security, which, among other things, are not in any way accounted for in Clause 19’s "objectives" or Clause 20’s "purpose[s]". Part of the genuine choice that Apple currently gives UK consumers is the choice to use an integrated platform, where users find greater privacy, safety, and security, as opposed to an open digital ecosystem. Ignoring these important-and pro-competitive-policy considerations will undermine consumer choice and, ultimately, undermine competition. We believe it is important for the UK to affirm its commitment to user security by explicitly including digital security as an important policy objective in the DMCC and more clearly defining consumer benefit to include privacy, safety, and security.

14.4. The Bill allows for the imposition of behavioural and structural remedies on significantly abbreviated timelines, risking market interventions without complete consideration of complex issues. We are concerned that the PCI provisions allow the CMA to impose any remedy the CMA currently can impose following a market investigation on a significantly abbreviated timeline. The CMA has been given broad discretion to make a PCI following an investigation running for a maximum of only 9 months (extendable once by up to 3 months) (clauses 48, 102). By contrast, the CMA’s market investigations, including those that build on market studies, may take place over 18 to 36 months. Allowing for a drastically shortened timeframe to impose remedies could result in the CMA making material market interventions without having before it all of the evidence and arguments, and without sufficient time for the impacted company to fully participate in the consultation. Inadequately considered market interventions are particularly concerning for cases involving complex issues, such as those typically present in digital markets investigations. Further, the Bill does not set any minimum statutory time period for consultation to ensure both (1) that the affected entity as well as other stakeholders can be heard and (2) that the CMA has accurate and complete information prior to issuing what under the Bill can be significant behavioural and structural remedies up to and through structural separation and change of ownership.

14.5. The Bill creates an unpredictable regulatory regime limiting businesses’ ability to plan for future operations, make investment decisions, and innovate. As described above, the nearly unfettered discretion granted to the CMA itself leads to regulatory uncertainty as (1) the CMA has significant freedom to pick and choose which undertakings to designate as having "SMS" and thus are subject to the new legal regime, (2) if designated, SMS firms lack robust statutory consultation protections before conduct requirements can be imposed, and (3) it is impossible for SMS firms to predict whether future products or product enhancements may run afoul of the open-ended statutory objectives or purposes that may guide any variance of conduct requirements by the CMA, which in turn impedes investment and innovation. Further, without any check on the CMA’s authority, as we describe below, there is no robust mechanism to reverse outlier CMA decisions that cause significant harm to consumers and/or competition in the market. These conditions create an extremely volatile regulatory environment, risking significant disruption to the UK economy, including by chilling investment. There are other specific provisions of the Bill that magnify the level of uncertainty that would result. The Bill allows the CMA to impose trial remedies (clause 49(3)), which in its current form could interfere with day-to-day business operations, present significant costs for temporary compliance measures (both for companies and consumers), and impair a company’s ability to conduct future business planning for the UK market. Similarly, the current Bill empowers the CMA to open and close SMS investigations whenever it chooses; for example, it could open a new investigation immediately after the prior one has closed (clauses 9–12). Such regulatory actions could subject regulated entities to constant, disruptive, and never-ending regulatory investigations that make it difficult for companies to plan future operations.

15. The Bill’s current appeal standard does not allow for review of CMA decisions on the merits and is an ill fit for a novel legal regime that affords the CMA significant discretion in regulating a complex market. The potential problems stemming from the broad delegation of authority to the CMA are compounded by the fact that the CMA’s substantial power will go unchecked by merits review, conducted by courts, under the Bill. A balance must be struck such that decisions can be made and implemented on a reasonable timeframe, while at the same time helping to reach the optimal answers, generating sensible legal precedent that parties can rely upon, and ensuring that no individual or body has its rights curtailed without a full and independent assessment of its alleged wrongdoing or the problems in the market. The Bill falls short of these goals in allowing for review of CMA decisions only on a judicial review ("JR") standard, and not a merits standard (clause 101). The regulatory regime created by the DMCC is novel, and digital markets are often complex and difficult to predict. However diligent the CMA is, and however high-quality its staff and their decisions are, the wide discretion and extensive powers afforded to the CMA under the DMCC warrant a higher standard of review-i.e., merits.

15.1. Under the JR standard, courts lack the ability to address even material deficiencies with the CMA’s substantive analysis. For example, in a 2020 merger case, the Competition Appeal Tribunal upheld the CMA’s decision despite finding that the CMA’s analysis effectively glossed over key differences in the impact of the merger on different types of customers because the CMA was not shown to have acted irrationally. [7] Given the CMA’s far broader powers under the DMCC, the significant constraint on appellate review could leave admittedly weak CMA decisions in place with resulting negative consequences for UK customers.

15.2. The lack of merits review would also make the UK a regulatory outlier in undermining access to courts in its digital markets regulatory regime. Under the EU’s Digital Markets Act, decisions made by the European Commission are subject to review by the General Court of the EU on a merits basis, providing for an independent check on the Commission’s decisions. In contrast to the CMA’s authority under the DMCC, other UK regulatory regimes that are subject to the JR standard involve authorities with decades of expertise in regulating the relevant industries and/or have a significantly narrower remit.

***

We thank the Committee for the opportunity to offer our views on the DMCC Bill. Apple is proud of our contributions to the UK economy and cares deeply about our UK customers. Our focus is always on delivering what consumers expect from Apple: a phenomenal and seamless user experience that maximizes security and privacy.

July 2023


[1] Nokia, Threat Intelligence Report 2021 (Nov. 2021), https://onestore.nokia.com/asset/210870.

[2] App Store Stopped More Than $2 Billion in Fraudulent Transactions in 2022, Apple Newsroom (May 16, 2023), App Store stopped more than $2 billion in fraudulent transactions in 2022 - Apple.

[3] iOS 17 Makes iPhone More Personal and Intuitive, Apple Newsroom (June 5, 2023), https://www.apple.com/newsroom/2023/06/ios-17-makes-iphone-more-personal-and-intuitive/.

[4] Juliette Caminade and Jonathan Borck, The Continued Growth and Resilience of Apple’s App Store Ecosystem, Analysis Group (June 2023) at 9, https://www.apple.com/newsroom/pdfs/the-continued-growth-and-resilience-of-apples-app-store-ecosystem.pdf.

[5] Apple does offer a small number of its own apps on its devices, but this limited number of apps, introduced over 15 years, represents only a small fraction of the millions of apps that are available to Apple consumer s .

[6] Supra note 4 at 1.

[7] See Ecolab Inc. v CMA [2020] CAT 12, Ecolab (relying on Stagecoach Group PLC v Competition Commission [2010] CAT 14). Under the JR standard, when considering the rationality of the regulator’s decision, courts only "evaluate whether the Decision is so unreasonable as to be a decision which no Commission properly instructed and taking account of all, but only, relevant considerations could arrive at." Stagecoach Group PLC v Competition Commission [2010] CAT 14.

 

Prepared 11th July 2023