Antitrust Tides Have Turned: South Korea Passes First-of-Its-Kind Law Regulating App Stores

By Carson Jones

One of the most debated topics in regulating large technology corporations is how much influence these companies should have over their own app stores. Countries like the United States and the European Union have frequently debated different regulations that they can use to “rein in big tech.” [1] In August of 2021, however, South Korea became the first country to pass legislation that requires companies to give up control over payment method requirements in their app stores.[2]

 The two largest app stores are the Google Play Store, found on Google’s Android operating system, and Apple’s App Store, found on iPhones running Apple’s iOS operating system. Google and Apple both have a large number of requirements for companies to offer their apps on their respective app stores. These restrictions range from design requirements to content restrictions.[3] One of the most controversial requirements involves the use of in-app purchases. Many applications allow users to purchase items within the app itself; these purchases can be for in-game items, in-game currencies, and removing advertisements from the app. Both companies require that purchases made within apps that are hosted on that company’s app store be completed through the company’s in-app payment system. However, when these purchases are made through the app store’s in-app payment system, both Apple and Google take a thirty percent cut of the payment.[4]

 These requirements have raised antitrust concerns globally.[5] There is an inherent problem with companies forcing app developers to only use the payment system that benefits the company that uses the app. Both Apple and Google argue that the thirty-percent cut is necessary for them to support and maintain their app stores.[6] Regardless of what the companies argue, governments have heard the concerns of those in the video game and app industries, and South Korea has become the first to take action.

 On August 31, 2021, the National Assembly of South Korea passed an amendment to its Telecommunications Business Act that could represent the first fundamental change in how the companies operate their app stores.[7] After being signed into law by President Moon Jae-in, large app store operators like Apple and Google will be required to allow app developers from South Korea to use payment systems outside of either the App Store or Google Play Store, respectively.[8] If the companies were to choose not to comply with the new law, they would face fines of up to three percent of their South Korean revenue from the Korea Communications Commission.[9] In addition, the bill also contains a clause that further prohibits companies operating app stores from unreasonably delaying the release of new apps or updates that comply with the new law, a measure designed to help the measure be enforced and preventing the companies from retaliating against South Korean developers that choose to take advantage of the new regulatory scheme.[10]

 As the new law applies only to South Korean App developers, the overall financial impact is not expected to be significant against two multi-trillion dollar companies.[11] However, the law is most notable for being the first of its kind to be passed by a legislature and regulates how private companies control their own app stores. As other legislatures from other countries weigh whether to pass their own restrictions, they can use South Korea’s new law as a foundation to implementing their own restrictions. The amendment passed by the legislature is simple in scope but will have profound impacts on the way both Apple and Google conduct business in South Korea, even if they do not have to worry about the rest of the world yet. Giving app developers the ability to choose whether to use the simpler and more convenient in-store purchase system offered by the companies or to go with a third-party payment system that will allow the developer to keep a larger share of the profits made from their apps is fundamental to preventing the companies from wielding their influence in a way that restricts the business of app developers. While the law may seem invasive into how private businesses operates, it could have gone much further by prohibiting the companies from taking such large shares of the profit from their own in-store purchase systems or by taking more action on antitrust concerns such as requiring the companies to allow other app stores.[12]

 However, the arguments made by the two companies should not be summarily dismissed, as they do raise important concerns that should at least be taken into account by regulators. For example, one of Apple’s primary arguments against regulations like the one passed in South Korea is that its in-store purchase method provides additional layers of security and convenience that are not available from third party payment methods.[13] Apple argues that it affects the level of consumer confidence in the company’s ability to provide secure services to its users and that the company’s reputation could be harmed by any potential abuse of the new payment method system.[14]

 Overall, the new law from South Korea likely reflects the beginning of a wave of regulation against large app store operators like Apple and Google. There are both benefits and concerns for how future legislation will impact the relationship between app developers and the companies that host the apps, but countries like South Korea appear determined to restrict potentially anti-competitive behavior from app store operators.

[1] See Marcy Gordon, Break them up? 5 ways Congress is trying to rein in Big Tech, AP News (June 25, 2021), https://apnews.com/article/amazoncom-inc-technology-business-government-and-politics-5929d1293a67e7336471429e91cbab83; Ryan Browne, Europe tries to set the global narrative on regulating Big Tech, CNBC (Dec. 16, 2020), https://www.cnbc.com/2020/12/16/europe-tries-to-set-the-global-narrative-on-regulating-big-tech.html.

[2] S. Korea looks set for legislation to curb Google, Apple's in-app billing system, Yonhap News Agency (Aug. 25, 2021), https://en.yna.co.kr/view/AEN20210824010651320.

[3] See App Review, Apple, https://developer.apple.com/app-store/review/ (last visited Sep. 5, 2021).

[4] Jiyoung Sohn, Google, Apple Hit by First Law Threatening Dominance Over App-Store Payments, Wall St. J. (Aug. 31, 2021), https://www.wsj.com/articles/google-apple-hit-in-south-korea-by-worlds-first-law-ending-their-dominance-over-app-store-payments-11630403335.

[5] How Apple Can Resolve Global Antitrust Concerns And Grow iPhone Market Share By Up To 26%, Seeking Alpha (Jun. 4, 2021), https://seekingalpha.com/article/4433062-apple-resolve-global-antitrust-concerns-grow-iphone-market-share.

[6] Jack Nicas, How Apple’s 30% App Store Cut Became a Boon and a Headache, N.Y. Times (Aug. 14, 2020), https://www.nytimes.com/2020/08/14/technology/apple-app-store-epic-games-fortnite.html.

[7] Sohn, supra note 4.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] See John D. McKinnon, App Store Competition Targeted by Bipartisan Senate Bill, Wall St. J. (Aug. 11, 2021), https://www.wsj.com/articles/app-store-competition-targeted-by-bipartisan-senate-bill-11628704834.

[13] Daniel Cooper, Apple defends the App Store ahead of antitrust debates, Engadget (June 23, 2021), https://www.engadget.com/apple-letter-trusted-ecosystem-why-app-store-remain-closed-121242946.html.

[14] Id.