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Epic Games v. Apple on App Store Payment Systems in South Korea

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By: Inyoung Cheong

Why Did Epic Games’ CEO Claim to be South Korean?

As a South Korean, it felt surreal to see Oli London, a British YouTube influencer, claiming to be Korean following multiple plastic surgeries. Although Korean culture has been well-promoted by the band BTS (and more recently by the Netflix show, Squid Game), I never imagined that a non-Korean would ever want to be Korean. Soon after, more astonishing news came out. Tim Sweeney, the CEO of Epic Games, one of the most influential video game companies in the world, tweeted “I am a Korean!” Why is this high-profile figure so thrilled about my home country? 

How Epic Games Was Treated in the U.S.

Epic has been involved in a serious dispute with Apple since 2015 when Tim Sweeny questioned the necessity of digital marketplaces, like Apple’s App Store for iOS devices and Google Play, taking 30% of app-generated revenue. To avoid the 30% charge, Epic released an installer in mid-2020 for its massively popular video game, Fortnite “Season 4,” with a feature, codenamed “Project Liberty,” that offered a 20% discount for in-game money when users chose to directly purchase the game from Epic. Apple took down the app Fortnite for violating its App Store’s terms of service within hours, leaving iOS and macOS users unable to update their video game. Apple has claimed that in-app purchase policies “ensure that iOS apps meet Apple’s high standards for privacy, security, content, and quality.” However, app developers view this system as monopolistic and exploitative, one that allows companies like Google and Apple to make a quick profit without providing value to developers or consumers. 

Interview with Tim Cook on Sway, April 5 2021

In the United States, the U.S. District Court for Northern California did not fully agree with antitrust claims brought by Epic Games against Apple regarding this issue. While Judge Yvonne Gonzalez Rogers issued a permanent injunction in this case in September 2021 that requires Apple to allow app developers to communicate with users about alternative payment systems, Epic Games suffered a pyrrhic victory. Judge Rogers rejected the allegation that Apple’s App Store is a monopoly and ordered Epic Games to pay Apple 30% of all revenue collected through the system since it was implemented for breach of contract. This award amounts to a sum of more than $3.5 million. On Twitter, Tim Sweeney expressed his disappointment, saying “[t]oday’s ruling isn’t a win for developers or for consumers.” 

It’s important to also note that while the lawsuit was still ongoing, Apple lowered its commission from 30% to 15% for developers that make under one million U.S. dollars per year. 

The World’s First Law Directly Regulating In-App Purchase Systems 

In contrast to the United States District Court for the Northern District of California, South Korean lawmakers turned out to be more empathetic to app developers. In an exceptional move, South Korean lawmakers made the practice of forcing app purchases through particular virtual storefronts illegal. In August 2021, South Korea’s National Assembly enacted amendments to the country’s Telecommunications Business Act that commits the Korea Communications Commission (KCC) to preventing online platforms from requiring certain payment methods, unfairly delaying the review of mobile content, and unfairly deleting mobile content from the app market. In Apple’s case, an app-developer whose app was removed from Apple’s App Store can simply file a complaint with the KCC and seek an administrative penalty against the App Store instead of bringing a time-consuming lawsuit. Currently, it appears that South Korea is the only country on the planet to enforce this type of legislation, hence Time Sweeney’s jubilant cry, “I am a Korean!”

Debates Over the New Law in the South Korea’s National Assembly 

Predictably, both Google and Apple recently worked with local major law firms in appealing to the legislature to block passage of the bill. Global business organizations including the American Chamber of Commerce in Korea, NetChoice, Asian Trade Center, and Asia Internet Coalition also filed objections to the bill. All of these groups argued that compliance with in-app purchase policies contributes to creating safe, secure, and credible digital platforms that have enabled developers to sell their products abroad. 

Affected tech companies even turned to the U.S. government and accused the bill of being a non-tariff trade barrier in violation of a joint trade agreement, but the Biden administration did not take official action other than briefly mentioning the issue in the U.S. Trade Representative National Trade Estimate Report in March 2021. According to the New York Times, this inaction reflects the Biden administration’s critical attitude towards these tech giants’ incredible power over commerce.

In addition, legislative documents demonstrate disagreement between various Korean government agencies. The Korea Fair Trade Commission (Korea FTC) initially opposed this bill because “forcing payment systems” could be regulated by antitrust authorities as predatory conduct without introducing new telecommunication regulations. In the end however, Korea FTC reluctantly agreed to the KCC’s jurisdiction into this area after weathering President Moon and lawmakers’ relentless concerns and rebuke concerning the current disparity in app markets. 

Google and Apple Took Different Approaches 

Just after the enactment of the new law, Epic Games requested that Apple restore Fortnite to operational condition in South Korea, but Apple declined. Apple said, “we would welcome Epic’s return to the App Store if they agree to play by the same rules as everyone else.” The KCC then requested that Apple and Google submit compliance plans by October 2021. Both companies’ initial plans were, however, turned down by the KCC. 

Before submitting a new plan, Wilson L. White, Google’s public policy and government relations senior counsel, had a conference with a KCC chairman on November 4th. White committed to giving developers “the option to add an alternative in-app billing system alongside Google Play’s billing system for their users in Korea.” 

In contrast to Google’s move, Apple remains resistant. Apple is holding its ground, stating that its current policy is already compliant with the law, even though a KCC official made it clear that Apple’s position “goes against the law.” The South Korean local newspaper ETNEWS reported that Apple CEO Tim Cook ordered “we should not step back in South Korea.” It was also announced that Apple’s Korea unit chief Brandon Yoon resigned from his position. A South Korean lawmaker, Jo Seung-rae, opined that neither Apple nor Google are doing enough to comply with South Korea’s new law and called Apple’s claim that it complied with the law “nonsensical.”

Tim Sweeney’s Push and KCC’s Remaining Tasks 

Tim Sweeny gave a speech in South Korea on November, 15, 2021, saying “Apple is ignoring laws passed by Korea’s democracy. Apple must be stopped.” He also expressed his strong support for South Korea’s anti-monopoly push during a video conference with the Korea Communications Commission’s Chair, Han Sang-hyuk, on November 17. Chair Han said, “[f]or a platform ecosystem where everyone coexists, not only the government, but also platform companies, content producers, creators, and users need to participate in making changes.”

Last month, the KCC initiated notice-and-comment rulemaking procedures. The KCC notified the public about the implementation of an ordinance that allows the KCC to impose monetary penalties of up to two percent of a company’s revenues on companies that do not comply, although the precise definition of “revenues” has not been settled and it remains to be seen whether “revenues” applies to South Korea alone or the global market. While there are still shortcomings in the law and complexities to iron out, it is undeniable that this new Korean law has ignited meaningful policy discussions over mobile app market practices around the world.

Inyoung Cheong is a Ph.D. Candidate at the University of Washington School of Law and former Deputy Director of the Korea Communications Commission. 

Sharing Is Not Always Easy – An Analysis of Sharing Data Between the Public and Private Sectors

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Picture1By Isaac Prevost

Traffic data plays an important role for public agencies concerned with traffic management and infrastructure. We’re seeing private companies collect more and more of this data, occasionally resulting in partnerships between governments and those private companies. However, whether these partnerships will stave off an increased interest in regulatory requirements of private data disclosure remains to be seen.

Federal, state, and local governments collect significant traffic data about traffic patterns and use of roadway system. The collection methods used by governmental entities range from interconnected sensors along the road to government employees manually tallying vehicle occupancies. This information is then used to analyze infrastructure needs, improve public transportation routes, and provide real-time traffic information to the public. In recent years however, there has also been a substantial uptick in the amount of traffic data collected by private companies. This is occurring with the prevalence of ride-sharing companies, increasingly-automated cars, and mapping applications such as Google Maps.

So, just how are public transportation agencies utilizing these new sources of data? Waze, a GPS navigation software owned by Google, launched the Connected Citizens Program in 2014 that shares traffic and road information with public entities for free. Agencies that partner with them participate in a two-way exchange of traffic data, giving Waze information on road closures and incidents. This private data supplements the government’s data, providing better information on functions such as the timing of traffic signals or the dispatch of emergency vehicles.

An alternative example of these partnerships can be found between Strava Metro and public agencies, where the agency pays for access to the data. Strava, a popular application for runners and cyclists, gives the public entities access to the their users’ running and cycling routes.  The Oregon Department of Transportation pays $20,000 per year for access to the data. Information from Strava Metro was a factor in the decision to restrict cars from Portland’s Tilikum Crossing bridge. These types of collaborations are just a small sample of how private data is increasingly being used in public planning.

However, even though the voluntary sharing of private data with public entities has become more common, it has not happened without its hurdles. While governments may be eager to use the data that companies like Waze or Strava are willing to share or sell, tensions have arisen when a company like Uber is reluctant to turn over data or withholds certain customer information. A partnership between Uber and the City of Boston in 2015 resulted in underwhelming results because Uber only disclosed the zip codes for the start and end location of an Uber user’s ride. A city official explained that the location information was not specific enough to be useful for urban planning.

Instead of pursuing partnerships, some cities have required data information from ridesharing companies in exchange for their license to operate in the area. In January 2017, the New York City Taxi and Limousine Commission requested all passenger pick-up and drop-off information from ride-sharing companies such as Uber and Lyft. Uber publicly objected to the proposal, citing the privacy of their drivers, but the Commission kept the requirement. The City expressed interest in the value of Uber’s data for traffic planning and analysis, as well as a tool for preventing drivers from working beyond their permitted total of work.

Possibly in an effort to appease regulators, Uber launched Uber Movement this year, which aggregates and anonymizes Uber’s ride data to show the traffic flows of various cities. In their FAQs section, Uber Movement states that the launch of the site was partially due to feedback from government agencies that “aggregated data will inform decisions about how to adapt existing infrastructure and invest in future solutions to make our cities more efficient.” One of their pilot reports tracked how a metro shutdown in Washington D.C. affected travel times in the city. The New York Times labeled this website “an olive branch to local governments.”

Uber Movement formally launched in August. As it gains more and more data on various cities, it could provide an interesting case study: what amount and type of private traffic data are governmental entities hoping to access? Will the availability of this data stave off further local and state regulations? Partnerships between governments and private companies are becoming more and more common, but the success or failure of Uber Movement may provide some insight into what lies ahead for these types of partnerships.

 

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EU Antitrust Policy: Favoring Innovation over the Googles’ of the World

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Picture1By Amela Zukic

As many of us have heard, the European Commission recently slapped Google with a 2.7-billon dollar antitrust fine for allegedly favoring its own comparison-shopping service, an illegal practice in the EU. Google now has 90 days to cease this practice or it could face a fine of up to 5% of the average daily worldwide turnover of its parent company, Alphabet. While many in the U.S. may reject this decision, the EU’s ruling reflects its underlying goal of fostering innovation and should not be quickly dismissed. Continue reading →

Regulatory Landscape Remains Unclear for Mobile Health App Developers

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8585047526_37a5bed3ff_bBy Mariko Kageyama

The digital health field has been growing exponentially and is now expanding rapidly into emerging markets. As a result, mobile health apps, or “mHealth apps,” have exploded in popularity. If you search for “health” on online app stores such as Apple’s App Store or Google Play, you will have no problem finding countless apps with various health-related purposes. One survey reports that nearly 260,000 mHealth apps were available worldwide by 2016.

However, what mHealth app developers and consumers may not realize is that these new technologies are becoming the target of increasingly tight regulations by both federal and state laws in the United States.

At the federal level, mobile health apps may be scrutinized under the following federal agency laws:

  • Health Insurance Portability and Accountability Act (HIPAA) and HITECH Act – These acts regulate data privacy and security of health information. They are enforced by the U.S. Department of Health & Human Services’ Office for Civil Rights (OCR) and Office of the National Coordinator for Health Information Technology (ONC);
  • Food, Drug, and Cosmetic Act (FDCA) – This act allows the Food and Drug Administration (FDA) to regulate the safety and effectiveness of “medical devices;” and
  • Federal Trade Commission Act (FTC Act) – This act both creates the FTC and allows it to enforce and penalize deceptive or unfair business practices including false or misleading claims about apps’ performance.

Among these major agency players, the FDA has struggled the most with trying to adapt its existing regulatory framework to include and regulate mHealth apps.

For instance, the FDA can regulate “medical devices,” but what qualifies as a “medical device” under FDA law? According to its 2015 Guidanace, the FDA does not want to regulate every single smartphone app that tangentially relates to fitness or wellness. Instead, the FDA only wants to keep an eye on a small subset of apps called “mobile medical apps” that may pose moderate to high risks to a patient’s safety if the apps fail to work as intended. “Mobile medical apps” can either be those connected to existing medical devices already regulated by FDA, or those that “transform” mobile platforms into an FDA-regulated device.

The FDA explains that a mobile app “transforms” into a medical device when it uses attachments, display screens, or sensors, or when it uses a mobile platform’s built-in features such as light, vibrations, and camera to create functionalities similar to those of currently regulated devices. But the exact actions that constitute a “transformation” are not yet known and remain open to significant agency discretion.

Therefore, if you were to create a new mHealth app that “transforms” a mobile device, you may need to seek FDA approval for a specific medical device classification based on the level of safety risks it poses. The classes are ranked I, II, or III and any class of device can be subject to what is known as Premarket Notification 510(k).

In anticipation of ambiguities in this field, multiple federal agencies collaborated in 2016 to create the Mobile Health Apps Interactive Tool. What is unique about this user-friendly educational website is that it is clearly intended for IT developers, not healthcare professionals or general consumers.

State laws have also come into play. Earlier in 2017, the New York Attorney General settled with three mHealth app developers for state law violations over their misleading marketing and privacy practices. Those mHealth apps are: My Baby’s Beat–Prenatal Listener; Heart Rate Monitor & Pulse Tracker; and Cardiio-Heart Rate Monitor + 7 Minute Workout. As illustrated in the settlement documents, these apps do not look any more sophisticated than other similar apps, but the New York AG maintained that these cardiac rate monitors probably fall under FDA Class II medical devices. Such a classification means that these are higher risk devices than Class I and thus subject to greater regulatory controls. Although the investigation did not go further, these state cases show that mHealth app developers and manufacturers can be exposing themselves to large amounts of liability at the state level as well as the federal level.

Despite this heightened oversight, the current FDA Guidance is clearly nothing more than a temporary fix when much more is needed to address these issues in such a rapidly growing and changing field. Because Congress has a less-than-great track record of quickly enacting laws, the FDA and other relevant agencies should act swiftly to reevaluate these regulations in order to ensure consumer health and safety while simultaneously fostering innovation in this massively beneficial field.

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The Key to the YouTube Advertisement Crisis: an Improved AI

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maxresdefaultBy Derk Westermeyer

A little over 4 years ago, comedian Ethan Klein uploaded his first video on his YouTube Channel, h3h3productions. That video’s premise was about how people use toilet paper. While this type of comedy may not be for everyone, Ethan’s channel has largely been a success. Since that first video, Ethan has uploaded hundreds more videos to his channel, a large portion of which generate millions of views each. Continue reading →