The case is significant because it is the first case to have proceeded as far as trial hearings in the CAT where the unilateral conduct of a 'Big Tech' firm is scrutinised. Tech firms have been the subject of significant attention from competition regulators in the UK and elsewhere in recent years, where the fines for non-compliance can be substantial and specialised regulatory regimes governing the conduct of Big Tech in digital markets have been implemented. The interaction of Big Tech and competition law is now in focus in private litigation and Kent v Apple will be closely watched by those who want to understand how the CAT will determine those issues. That is particularly important given the very large consumer bases of Big Tech products and the continued rise of class actions (collective proceedings) in the CAT, which often pursue considerable awards of damages on behalf of millions of consumers. From that perspective and for the reasons we discuss in this article, the CAT's decision in Kent v Apple is likely to set a precedent that influences the conduct of class actions against Big Tech firms moving forward.
Abuse of dominance and 'Big Tech'
The Competition Act 1998 prohibits certain types of conduct by market participants that affects competition within the UK. The 'Chapter II' prohibition is in respect of an abuse of a dominant position in a market. Abuse of a dominant position may involve 'exploitative' conduct (in that the conduct exploits customers, for example by imposing excessive and unfair prices, or tying/bundling products together) and 'exclusionary' conduct (in that it excludes others from the market, such as predatory pricing or margin squeezing).
So while it is not unlawful to hold a dominant position in a market, certain types of anticompetitive conduct are unlawful once a firm is dominant. If a dominant party infringes the Chapter II prohibition, they run the risk of regulatory action (for example, by the Competition and Markets Authority) through which significant fines can be imposed. A private action for damages by or on behalf of affected consumers can often 'follow-on' from a regulatory decision that competition law has been infringed, where the hurdles to obtaining an award of damages are generally lower, but an action can also be raised on a 'standalone' basis.
The markets that the Big Tech firms occupy are unique in many characteristics, including in how those markets function economically. That prompts complex questions when it comes to the application of competition law principles to the conduct of tech firms. For example, some argue that an unusual characteristic of Big Tech is the ability to leverage dominance in an 'upstream' market into 'downstream' markets while also controlling the competitive conditions in the downstream markets. That can lead to allegations of an abuse of a dominant position. As an example, in Google Shopping the Court of Justice of the European Union upheld the European Commission's €2.42 billion fine against Google for anticompetitive behaviour stemming from Google's prioritisation of its own 'Google Shopping' results (from which Google derived advertising revenue) as top results in Google searches. That is one example of how Big Tech business models have been scrutinised through the prism of competition law, though many more can be referred to.
Kent v Apple
Dr Kent is a lecturer at King's College London. In May 2021 she initiated an action against Apple in the CAT alleging that Apple engaged in exploitative and exclusionary practices, amounting to an abuse of a dominant position contrary to the Chapter II prohibition. The CAT allowed the case to proceed as "opt-out" collective proceedings, meaning that consumers falling within the class definition would not have to take any action to be included as part of the class.
Apple manufactures devices including the iPhone and iPad. Those devices can only use Apple's proprietary operating software, iOS, and Apple's proprietary App Store to download or buy access to applications on the devices. Apple is said to have a dominant position in the market for distributing apps on Apple devices because it operates a closed system - apps can only be distributed for use on Apple products via the App Store. In addition to that, Apple customers can only use Apple's associated payment processing system when they purchase access to, or subscribe to, an app on an iPhone or iPad or during in-app purchases. Apple charges a commission when those payments are made (alleged by Dr Kent's expert economists to be in the region of 30%).
Generally, Dr Kent alleges that Apple's conduct amounts to an abuse of a dominant position in three respects:
- Firstly, Apple only allowed apps to be distributed on Apple devices through its App Store, and developers were required to use Apple's payment processing system. The restriction to accessing the ecosystem on Apple hardware is alleged to be a form of imposing "exclusive dealing" obligations with the effect of foreclosing competition.
- Secondly, Apple required payments on the App Store being made by device users to developers (such as in-app purchases) to be processed through Apple's payment processing services. That is alleged to be a form of "tying", whereby a party supplying a good or service makes that supply conditional on the purchase of a second, tied, product.
- Thirdly, Apple is alleged to have charged excessive and unfair purchase or selling prices by taking a commission when a purchase is made (as above, said to be in the region of 30%). It is well-established that it is an infringement of competition law to charge excessive and unfair prices. The matter of whether a price is excessive is different to the question of whether a price is "unfair", which can be more complex. The distinction between those two separate conditions, which both need to be satisfied by a claimant/pursuer in order to be successful, was reasserted by the CAT in its judgment in Le Patourel v BT Group in December (the first competition class action to proceed to a trial in the CAT). The CAT ruled that while the prices in question were excessive, they were not unfair.
There will therefore be a variety of legal, factual and economic issues that require determination.
Ramifications of Kent v Apple
The case will be decided with specific reference to its own facts and circumstances. However, as we have noted, Kent v Apple will be closely monitored given the potentially important ramifications of the case.
At the very least it will be contextually important to the other active Big Tech litigation in the CAT. A separate class action has been raised against Apple by Dr Sean Ennis concerning the same conduct. Dr Ennis also alleges that Apple charged excessive and unfair commission fees in relation to its app store, amounting to an abuse of its dominant position in iOS app distribution and causing loss to around 1,500 app developers. Elsewhere, the comparable business model that Google uses to govern access to applications on Google devices is the subject of collective proceedings in the CAT. More broadly, it seems likely that the CAT's approach in Kent v Apple will have important consequences when it comes to the application of competition law to the conduct and business models of Big Tech firms, and the prospects of high-value class actions moving forward.
