Apple In-App Subscription Conflict Raises Antitrust Ghosts

Apple's current controversy over its new in-app subscription policy recalls antitrust whispers that greeted the company's past adventures in rule-setting.

Apple's in-app subscription plan could encounter resistance from a source much bigger than streaming-music companies or book publishers: the U.S. government.

According to a Feb. 18 Reuters report, Department of Justice regulators "have kicked off an early-stage inquiry into Apple's change of policy." The European Commission is apparently pursuing a similar course, with a spokesperson telling the wire service: "We are monitoring market developments carefully."

Apple's in-app subscription policy comes with certain requirements. "Our philosophy is simple-when Apple brings a new subscriber to the app, Apple earns a 30 percent share," Apple CEO Steve Jobs wrote in a Feb. 15 statement announcing the model. "When the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing."

Apple's policy comes with an additional caveat, according to Jobs: "All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one click right in the app."

The Department of Justice, along with the Federal Trade Commission, is reportedly interested in whether those terms violate antitrust regulations by forcing publishers to play Apple's game-or risk banishment from one of the world's most popular device ecosystems. But regulators may have to drill deeper into Apple's practices before they can launch a full-on investigation.

"What's less clear to me is: a.) Is Apple unfairly leveraging its strengths in its hardware or software business to improve its competitive posture in the publisher aggregation business?" Eric Goldman, an associate professor at Santa Clara University School of Law, wrote in an e-mail to eWEEK Feb. 18. Secondly, are "Apple's efforts to control behavior outside of its App Store (such as through its requirements that publishers give App Store customers the best deal) impossibly skewing competition?"

Nonetheless, some companies are already crying foul.

"Our philosophy is simple too-an Apple-imposed arrangement that requires us to pay 30 percent of our revenue to Apple, in addition to content fees that we pay to the music labels, publishers and artists, is economically untenable," Jon Irwin, president of streaming-music company Rhapsody, wrote in a Feb. 15 statement circulated widely around the Web. "The bottom line is, we would not be able to offer our service through the iTunes store if subjected to Apple's 30 percent monthly fee vs. a typical 2.5 percent credit card fee."

Apple's historic insistence on keeping its devices and services a "walled garden," with tight regulations over third-party developers and other vendors, has threatened to lead the company into antitrust problems before.

In May 2010, federal regulators reportedly debated whether to launch an investigation into Apple's revised mobile-applications policy, which forbade the use of third-party development tools in the creation of applications for Apple's App Store. A clause in the developer agreement for the then-new iPhone OS 4 stipulated "applications may only use Documented APIs in the manner prescribed by Apple and must not use or call any private APIs," and that "applications must be originally written in Objective-C, C, C++, or JavaScript as executed by the iPhone OS WebKit engine, and only code written in C, C++, and Objective-C may compile and directly link against the Documented APIs."

That excluded applications built with tools such as Adobe Flash CS5, potentially forcing developers to choose between building applications exclusively for Apple or for a smartphone ecosystem supporting those tools. However, a public investigation never materialized.

Around the same time, other reports indicated the FTC had "taken an interest" in iAd, Apple's mobile-app advertising platform, in the context of potentially unfair competitive practices. Those queries never manifested into an actual investigation, either.

Apple is likely hoping history will repeat itself with this latest bit of antitrust whispers.