Korea launches probe into Apple over potential overcharging of in-app payment

An exterior view of the Apple Myeongdong store located in the center of Seoul. [Photo by Lee Chung-woo]

South Korea has launched a probe into Apple Inc. over suspicions that the U.S. tech giant has overcharged local app developers substantial amounts in in-app purchase fees.

Maeil Business Newspaper has learned on Sunday that Korean prosecutors have launched a probe into a case involving Apple after the Korea Mobile Game Association filed a suit against the U.S. company for violating the country’s telecommunications business act and the fair trade act.

The Korea Communications Commission (KCC) is also investigating whether the case constitutes a breach of the telecommunications business act.

The legal battle comes after Apple adjusted its fee structure following a report by Maeil Business Newspaper last year but it maintained the stance of not accepting liability for the previously collected 350 billion won ($263 million), which prompted further legal action by the damaged companies.

The core issue revolves around the in-app payment fees developers selling services on Apple’s App Store must pay.

Despite Apple’s contractual terms stipulating a fee of 30 percent, the company has reportedly been charging a 33 percent fee in practice. The combined estimated damage to Korean retailers amounts to about 350 billion won.

Apple asserts that it has abided by the terms of the agreement while calculating the fees, thereby not breaking any laws. However, the dispute has intensified due to Apple’s refusal to compensate for overcharged in-app payment fees before the revised terms.

Industry insiders noted that the stance is possibly rooted in Apple’s belief that Korean regulatory bodies may not identify any wrongdoing in the fee structure. Also, Apple may be concerned that providing compensation in Korea could trigger similar claims in other countries, escalating the controversy and potentially leading to significant compensation claims.

Apple’s stance, however, may change depending on how the investigation by the Fair Trade Commission broadens.

The commission’s investigation has been on fair trade while prosecutors and the KCC on the unfair impact suffered by local app developers due to Apple‘s differential treatment of overseas developers.

The Korea Mobile Game Association has lodged a complaint with prosecutors, contending that Apple’s actions violated the telecommunications business act. The legal framework prohibits the “unfair discrimination of specific users based on fees and terms of telecommunications services.”

The crux of the complaint is that Apple allegedly violated this law by applying distinct in-app payment fees to local and foreign app developers. While local app developers were unfairly subjected to a 33 percent fee, international developers were charged 30 percent.

For Apple’s fee discrimination to be deemed a restraint of competition, affected developers must demonstrate that the unequal treatment reached a point where it forced them out of the market.

Given the extensive number of affected entities, numerous firms have achieved prominence based on their product competitiveness despite facing the fee disadvantage. Industry insiders noted that companies may face challenges when trying to prove substantial harm.

The telecommunications business act, in the meantime, is designed to safeguard users of affiliated services and advance public welfare. Sources note that local app developers, who constitute Apple’s App Store users, may be judged as victims of unjust harm and unfair treatment.