Apple moved the Delhi High Court this week, challenging certain provisions of India’s competition law that empower the Competition Commission of India (CCI) to potentially levy fines of up to $38 billion against the tech giant.
The iPhone maker’s standoff with the country’s antitrust body revolves around the issue of whether the CCI should take a firm’s global turnover into account when calculating penalties for violating India’s competition law. Apple has strongly argued against the legality of this provision, calling it “unconstitutional, grossly disproportionate, unjust”, according to a report by Reuters.
Apple’s case marks the first legal challenge against India’s antitrust penalty law, which was amended last year. The dispute also comes at a time when Apple is looking to diversify its iPhone manufacturing supply chains away from China to India.
But what is the antitrust probe at the centre of this clash between Apple and the CCI? How are antitrust fines determined under India’s current regulatory framework? Why has Apple called it unfair? And how have regulators in other countries dealt with similar cases? Let’s take a closer look.
What is the CCI probe against Apple about?
In 2022, the CCI ordered an investigation into Apple’s App Store practices based on separate complaints filed by Tinder-owner Match Group and a little-known, non-profit group called Together We Fight Society (TWFS), both of which argued that Apple’s fee of up to 30 per cent on in-app purchases hurt competition by raising costs for app developers and customers. The probe also focused on whether Apple had abused its dominant position in the apps market by forcing developers to use its proprietary in-app purchase system.
Two years later, the CCI’s investigation unit found that Apple had exploited its dominant position in the apps market. In a confidential report on June 24, 2024, the CCI unit said, “Apple App Store is an unavoidable trading partner for app developers, and resultantly, app developers have no choice but to adhere to Apple’s unfair terms, including the mandatory use of Apple’s proprietary billing and payment system.”
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“App stores are OS (operating system) specific and Apple’s App store is the sole App store available for reaching iOS users. The payment policy of Apple adversely affects the app developers, users and other payment processors,” the report further said, as per Reuters.
Why is Apple facing fines of up to $38 billion?
Apple’s legal challenge concerns two key pieces of legislation: Section 27 of the Competition Act, 2002, and the CCI’s Determination of Monetary Penalty Guidelines, 2024.
Firstly, as per Section 27, the competition regulator is empowered to pass orders in cases where it finds that an enterprise entered into an anti-competitive agreement or abused its dominant position. Under Section 27(b), the CCI may further impose a monetary penalty of up to 10 per cent of the enterprise’s average turnover over the last three financial years.
The term ‘turnover’ was previously interpreted by the Supreme Court as turnover linked directly to the product or service that formed part of the anti-competitive conduct. As a result, the CCI could not take into account the offending enterprise’s global revenue streams when calculating average turnover.
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However, in 2023, the definition of turnover under Section 27(b) was amended by Parliament to be interpreted as “global turnover derived from all products and services”.
Additionally, the CCI notified its Monetary Penalty Guidelines in March last year. These new guidelines laid out the methodology to be used by the regulator for calculating penalties based on the amended definition of turnover. Notably, it states that when the CCI is unable to feasibly determine relevant turnover of an enterprise, it is allowed to use global turnover to calculate the penalty. The regulator is also allowed to increase the penalty if it believes that the final amount is insufficient to create deterrence.
Based on Apple’s average global turnover derived from all of its services globally for three fiscal years up to 2024, the tech giant’s “maximum penalty exposure” at the rate of 10 per cent would be around $38 billion, as per its submission in court.
How has Apple made its case in court?
Apple has, so far, denied all charges made by the CCI’s investigation unit in the ongoing antitrust probe. The company has maintained it is a small player compared to Google’s Android, which is the dominant player in the Indian market. To note, Apple’s smartphone base has grown four times larger in the last five years in India, according to Counterpoint Research.
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On the possibility of facing a global turnover-based penalty, Apple has urged the court to declare the 2023 amendment and 2024 penalty guidelines as illegal.
It cited another case, where the CCI had on November 10, retrospectively applied the new rules to a violation that the offending company had committed ten years ago. Apple has “no choice but to bring this constitutional challenge now to avoid retrospective imposition of penalty against them,” the company reportedly said in its filing.
Instead of considering global turnover, Apple has argued that the CCI should only impose penalties based on Indian revenue generated by the specific unit of the enterprise that was found to violate antitrust law.
Illustrating this point with an example of a toy seller running a stationery business, Apple reportedly pointed out that it would be arbitrary and disproportionate to levy a penalty on the stationery business’s total turnover of 20,000 rupees, when the contravention is only in relation to the toy business that earns 100 rupees.
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Apple’s case is scheduled to be heard by a High Court bench comprising Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela on December 3. The CCI’s final verdict in the antitrust probe against Apple is still pending.
What about antitrust penalties in other countries?
In the European Union, companies risk fines of as much as 10 per cent of their global turnover for antitrust violations. Apple’s App Store practices have come under immense scrutiny in the EU, with antitrust regulators stating that the tech giant had violated provisions of the Digital Markets Act (DMA) in June this year.
The EU is also considering whether Apple Ads and Apple Maps should be subject to the requirements of the DMA, after both services hit key criteria, with the tech giant arguing that they should be exempted.
Earlier this year, a federal judge in the United States held that Apple had violated an existing court order that required the company to allow greater competition for app downloads and payment methods in its App Store. The ruling also said that Apple had failed to comply with the judge’s prior injunction order and would be referred to federal prosecutors for a criminal contempt investigation.
