Apple loses on Appeal, CMA Investigation into browsers to reopen. This ruling gives the CMA the backing it needs to protect consumers and promote competition in UK. As this judgement clearly states, the previous ruling by the CAT would have had ‘serious consequences’ for the CMA’s ability to investigate potential breaches of the law. We launched this investigation over a year ago in order to make sure that UK consumers get the best services and apps on their mobile phones, and that UK developers can invest in innovative new apps. We stand ready to reopen it when the legal process is complete. Sarah Cardell, Chief Executive of the CMA

In a victory for consumers and developers, London's Court of Appeal has ruled against Apple and in favour of the UK’s Competition and Markets Authority (CMA), allowing the CMA to reopen their Browser and Cloud Gaming Market Investigation Reference.

This is important as, Apple has effectively banned third party browsers via their 2.5.6 rule:

2.5.6 Apps that browse the web must use the appropriate WebKit framework and WebKit Javascript.

We believe that browsers should compete on merit and user choice, not via control of operating systems or other underhanded behaviour. Browser competition is important as it is this competition that pushes browser vendors to secure their products, fix bugs and add new features. Without the constant threat of users potentially moving to another browser, browsers have limited incentive to compete. This threat is entirely absent on iOS, the other browsers on iOS have extremely limited ability to compete as Apple has banned them from editing their core, the browser engine. Instead iOS provides a uneditable Webview whose security, features set and stability is entirely under Apple's control. Under these conditions there is effectively no browser competition on iOS.

As readers may remember the CMA conducted a Market Study into Mobile Ecosystems.

The CMA found in their market investigation that:

As a result of the WebKit restriction, there is no competition in browser engines on iOS and Apple effectively dictates the features that browsers on iOS can offer (to the extent that they are governed by the browser engine as opposed to by the UI)."

Importantly, due to the WebKit restriction, Apple makes decisions on whether to support features not only for its own browser, but for all browsers on iOS. This not only restricts competition (as it materially limits the potential for rival browsers to differentiate themselves from Safari on factors such as speed and functionality) but also limits the capability of all browsers on iOS devices, depriving iOS users of useful innovations they might otherwise benefit from.

The report also ruled against Apple’s security arguments. Apple had claimed that Safari’s engine’s security was better than that of third party browsers. This was alluded to in the CMA’s interim report:

... in Apple's opinion, WebKit offers a better level of security protection than Blink and Gecko.

The CMA rejected this claim stating:

... the evidence that we have seen to date does not suggest that there are material differences in the security performance of WebKit and alternative browser engines.

Overall, the evidence we have received to date does not suggest that Apple's WebKit restriction allows for quicker and more effective response to security threats for dedicated browser apps on iOS

Amusingly Apple dropped their claim that Safari’s security was superior to other major browsers in their response to the final report.

The report also notes that Apple has incentives to inhibit third party browser from competing due to its search deal with Google:

Apple receives significant revenue from Google by setting Google Search as the default search engine on Safari, and therefore benefits financially from high usage of Safari. Safari has a strong advantage on iOS over other browsers because it is pre-installed and set as the default browser. The WebKit restriction may help to entrench this position by limiting the scope for other browsers on iOS to differentiate themselves from Safari (for example being less able to accelerate the speed of page loading and not being able to display videos in formats not supported by WebKit). As a result, it is less likely that users will choose other browsers over Safari, which in turn secures Apple’s revenues from Google.

Apple reportedly receives $18-20 billion USD a year from their Google Search engine deal, accounting for 14-16 percent of Apple's annual operating profits. Apple has not published the annual budget for Safari/Webkit but based on anecdotal evidence it is likely significantly less than 2% of this sum.

The report goes on to note:

Apple generates revenue through its App Store, both by charging developers for access to the App Store and by taking a commission for payments made via Apple IAP. Apple therefore benefits from higher usage of native apps on iOS. By requiring all browsers on iOS to use the WebKit browser engine, Apple is able to exert control over the maximum functionality of all browsers on iOS and, as a consequence, hold up the development and use of web apps. This limits the competitive constraint that web apps pose on native apps, which in turn protects and benefits Apple’s App Store revenues.

That is Apple appears to also have incentives to inhibit the capabilities of the Web on iOS Safari. Apple collected $85 billion USD in App Store fees in 2022, of which it keeps approximately 30%. Were Web Apps to have a comparable features set, stability and visibility as Native Apps this revenue would be threatened.

While it has not published the costs of App Store review, payment processing, refund handling etc, it has been estimated that the iOS App Store has a nearly 80% profit margin. Industries with healthy competition feature leading firms with profit margins between 5 and 20 percent. This imbalance strongly implies that Apple’s removal of functional competition in the App Store and beyond have broken the mobile phone market for software and services for more than half of the UK’s consumers.

Based on the findings of their Market Study, the CMA decided to launch a Market Investigation Reference into Browser and Cloud Gaming.

In their reference decision they listed the following potential remedies:

  • removing Apple’s restrictions on competing browser engines on iOS devices;
  • mandating access to certain functionality for browsers (including supporting web apps);
  • requiring Apple and Google to provide equal access to functionality through APIs for rival browsers;
  • requirements that make it more straightforward for users to change the default browser within their device settings;
  • choice screens to overcome the distortive effects of pre-installation; and
  • requiring Apple to remove its App Store restrictions on cloud gaming services.

Unfortunately, they delayed starting the investigation while waiting to see if the UK government was going to pass new laws granting them stronger powers to deal with anti-competitive behaviour by tech giants. These laws are currently working their way through parliament and are currently expected to be passed into law in 2024.

Due to this Apple managed to successfully get the MIR dismissed not by arguing before the tribunal that the CMA was substantially wrong about any of its anti-competitive behaviour but on the legal technicality based around the timing of the opening of the investigation.

The CMA appealed this decision and today the London's Court of Appeal has overruled the Competition Appeal Tribunal's decision and stated that the MIR can be reopened.

It is worth noting that Apple has the right to seek permission to appeal this decision and that the investigation is on hold pending this. Apple is almost certain to appeal to the supreme court. Even if they end up losing, each month browser competition on iOS is delayed is arguably worth billions to them.

Apple reportedly has a legal budget of over $1 billion dollars a year and adopts an exceptionally aggressive stance. If you want to understand Apple’s approach to legal, Bruce Sewell, Apple’s former general counsel discusses it in a talk where discussing Apple's legal strategy he says:

work out how to get closer to a particular risk but be prepared to manage it if it does go nuclear, … steer the ship as close as you can to that line because that's where the competitive advantage occurs. … Apple had to pay a large fine, Tim [Cook]'s reaction was that's the right choice, don't let that scare you, I don't want you to stop pushing the envelope. Bruce Sewell, Apple’s former General Counsel

This gives some clear insight into Apple’s mindset, and explains a lot of their behaviour.

Despite that, this court victory is a huge step towards restoring browser competition, ending Apple's effective ban of third party browsers and ensuring Web Apps have the ability to compete.

Right now, if competition was restored, 90% of the apps on your phone could be written as a Web App and would be indistinguishable, significantly cheaper and often BETTER than Native Apps. Native Apps will still have a lead in cutting edge graphics and gaming technology but if companies see the web platform as viable this gap will decrease over time.

It is for this reason that allowing browser competition on iOS is critical. Apple’s effective browser ban prevents the emergence of such an open and free universal platform for mobile apps. Unlike desktop, developers cannot build their application once and have it work across all consumer devices. Instead, these policies combine with Apple’s trailing and feature-poor engine to force companies to create separate applications for iOS, significantly raising the cost and complexity of development and maintenance. This severely undermines any interoperability advantages Web Apps have between iOS and Android. A single prominent OS holding back the Web is enough to undermine its entire value proposition as a frictionless, capable and secure distribution mechanism for Web Apps.

The fight to allow browser and Web App competition on iOS is not over. We would like to thank everyone for their support over the last 3 years and ask that consumers, developers and businesses write in and engage with the market investigation reference to arm them with all the data and information they need to successfully restore competition to a broken mobile ecosystem.

Stay tuned as we will be posting about its progress as more information becomes available.