With government sanctions confirmed over Google and Apple's forced in-app payment practices, changes are expected in South Korea's app market. The two companies must allow external payments within 3 months and improve their fee policies. Potential damages claims by affected developers and whether the companies file administrative lawsuits have also emerged as variables.

First sanctions for forcing in-app payments... corrective order to be carried out within 3 months

The Broadcast Media Communications Commission on Tuesday held its 46th plenary meeting and voted to impose fines and corrective orders totalling 63.71 billion won, including 42.9 billion won on Google and 20.81 billion won on Apple.

It is the first sanctions case since a 2021 amendment to the Telecommunications Business Act, known as the "in-app payment forcing ban law", was introduced. Final sanctions were confirmed about 3 years after the Korea Communications Commission in October 2023 gave advance notice of its plan to impose fines of up to 68 billion won on Google and Apple. The regulator calculated the final fines by reflecting revenue linked to the violations and statutory standards for aggravating or mitigating factors.

The regulator determined that Google and Apple effectively forced a specific payment method by allowing only their own in-app payment systems and third-party payments, while imposing a 26 percent fee and unreasonable conditions on third-party payments.

Compared with the existing 30 percent fee for their own in-app payments, the fee for third-party payments is 4 percentage points lower. But if developers use third-party payments, they must also bear additional costs such as payment gateway fees as well as the expense of building and operating payment systems. The regulator viewed this as effectively forcing the use of in-app payments because developers had little incentive to choose third-party payments.

Unreasonable conditions by payment method were also cited. Google restricted the display of charges by payment method when third-party payments were used. Apple required developers seeking to introduce third-party payments to submit their apps separately. The regulator judged these actions limited developers' choice of payment method.

It also found that app reviews were unfairly delayed. The two companies did not provide specific reasons when app reviews were delayed, or clearly explain the reasons for delays and future schedules even when developers inquired.

In particular, Apple was found to have charged domestic developers fees based on standards less favourable than those applied to overseas developers. From July 2015 to January 2023, it applied a 30 percent fee to overseas developers based on supply value excluding value-added tax. In contrast, it applied the same fee rate to domestic developers based on the final consumer price including value-added tax.

The regulator issued corrective orders requiring the two companies to allow other payment methods via external links within apps, in addition to their existing in-app payment systems and third-party payments. It ordered Google to improve its user experience guidelines applied to third-party payments and Apple to improve the requirement to submit apps separately when using third-party payments.

It also required the companies to provide specific reasons and future schedules when app reviews are delayed, and ordered Apple to prepare measures to prevent a recurrence of fee discrimination between domestic and overseas developers. The two companies must submit implementation plans within 1 month of receiving the corrective orders and complete improvements within 3 months.

Google's year-end policy overhaul... damages and administrative lawsuits as variables

Google in March announced a global payments policy overhaul that includes allowing external payments and lowering service fees. It plans to apply it domestically through Dec. 31. Under the new system, developers can use their own payment methods or external web payments in addition to Google Play payments.

It also features separating service fees and payment fees and applying differentiated rates based on transaction type and user conditions. Under the new system, Google will apply a 10 percent service fee to the first $1 million of annual revenue generated through Google Play.

For standard in-app transactions above that amount, it will apply 20 percent to users who install or update an app for the first time after the new system takes effect, and 25 percent to existing users. For payments through external websites, a 20 percent service fee will apply to both new and existing users. If Google Play's payment system is used, an additional 5 percent payment fee is added.

Whether app developers harmed by forced in-app payment practices will seek damages is also in focus following the sanctions. The regulator did not directly order the return of fees to developers in its decision. But under Article 55(2) of the Telecommunications Business Act, businesses harmed by prohibited conduct can seek damages from the violating business. In that case, the violating business must prove it did not act intentionally or negligently.

The possibility also remains that Google and Apple could file administrative lawsuits to challenge the fines and corrective orders. On the possibility of such lawsuits, the regulator said, "The committee conducted an in-depth technical and legal review of Google and Apple's legal violations," and added, "If a lawsuit is filed, we will respond faithfully."