South Korea Fines Google & Apple $47.4 Million Over App Payment Restrictions

Key Takeaways

• $47.4 Million in Penalties: South Korea's telecommunications regulator fined Google $31.9 million (KRW 42.9 billion) and Apple $15.5 million (KRW 20.81 billion) for violations involving app payment restrictions, review delays and, in Apple's case, discriminatory commissions.
• Payment Restrictions Found Unlawful: The regulator determined that 26% commissions, additional developer costs and restrictive conditions effectively forced developers to use the companies' proprietary payment systems.
• Apple's Discriminatory Fees: From July 2015 to January 2023, Apple calculated its 30% commission on tax-inclusive prices for domestic developers but tax-exclusive prices for overseas developers.
• Corrective Measures Ordered: Both companies must permit external payment options, revise third-party billing policies and improve app review procedures, with Apple also required to prevent discriminatory commission practices.
• First Enforcement Under 2021 Law: The decision marks the first sanctions under South Korea's amended Telecommunications Business Act provisions governing forced payment methods and unfair app review delays.

Deep Dive

Google and Apple charged South Korean app developers a 26% commission even when those developers chose to use their own payment systems. The developers also had to bear the costs of building and operating those systems, while working without some of the features available through the companies' proprietary billing services.

South Korea's telecommunications regulator concluded Wednesday that the arrangement effectively forced developers to use the payment systems operated by the two technology companies, despite a law intended to give them greater freedom over how they collect money from customers.

The Korea Media and Communications Commission (KMCC) imposed combined penalties of approximately $47.4 million (KRW 63.71 billion) on October 28, fining Google $31.9 million (KRW 42.9 billion) and Apple $15.5 million (KRW 20.81 billion). Both companies were also ordered to revise their payment policies and application review procedures.

The decision is the first enforcement action under amendments to South Korea's Telecommunications Business Act adopted in 2021, which prohibit app marketplace operators from forcing developers to use particular payment methods or unfairly delaying app reviews. The investigation began in 2022, and the regulator notified the companies of proposed sanctions in October 2023. A final decision took another three years.

The commission found that Google and Apple had formally permitted developers to use third-party payment systems built into their applications, but continued to prohibit other arrangements, including payments through external websites. Developers who chose third-party systems faced conditions that made those alternatives commercially unattractive.

The 26% commission was central to the regulator's findings. Developers using third-party billing remained responsible for payment gateway fees, the cost of developing their own payment infrastructure and expenses associated with settling transactions. The commission determined that Google and Apple had imposed their fees without adequately accounting for those additional costs.

The alternatives also lacked certain features available through the companies' own payment services, including subscription management.

Other restrictions differed between the two operators. Google limited how developers could display prices associated with different payment methods, while Apple required separate application submissions from developers seeking to use third-party billing.

The commission found that these conditions, considered together, effectively compelled developers to continue using Google and Apple's proprietary payment systems. It determined that both companies had improperly exercised their positions in commercial transactions, violating Article 50 of the Telecommunications Business Act.

The ruling addresses a problem that persisted after South Korea changed its law. Developers had been given a legal right to choose alternative payment methods, but the terms imposed by the marketplace operators continued to determine whether those alternatives were commercially viable.

App Review Delays and Discriminatory Commissions

The commission also found that Google and Apple had unfairly delayed reviews of applications submitted to their marketplaces. According to the regulator, the companies sometimes failed to provide specific explanations when reviews were delayed. Even when developers made individual inquiries, they did not always receive clear answers about the reasons for delays or the expected review schedule.

The KMCC determined that these practices violated provisions of the Telecommunications Business Act governing app reviews. Predictable review procedures are particularly important to developers whose ability to release applications and updates depends on approval from the marketplace operator.

Apple faced an additional finding involving the commissions it charged South Korean developers over a period of more than seven years. From July 2015 through January 2023, Apple applied its standard 30% commission to different transaction values depending on whether a developer was based in South Korea or overseas.

For overseas developers, the commission was calculated on the transaction value excluding value-added tax. For domestic developers, Apple used the final consumer price, including the tax.

Applying the same percentage to a higher amount resulted in a greater effective commission burden for South Korean developers.

The practice began following amendments to South Korea's Value-Added Tax Act in July 2015. The commission determined that Apple's differing treatment of domestic and overseas developers constituted unlawful discrimination under the Telecommunications Business Act.

The finding was specific to Apple. Both companies were sanctioned for their payment restrictions and app review procedures, but only Apple was found to have imposed discriminatory commissions through the tax treatment of domestic developers.

Companies Ordered to Revise Payment Policies

The corrective orders require Google and Apple to allow developers to offer external payment options, including links within applications directing customers to outside payment services. The companies must also improve the commission arrangements governing third-party billing.

Google was instructed to revise its guidelines governing the user experience for third-party payments. Apple must address its requirement that developers submit separate applications when using alternative payment systems.

Both companies must improve their review procedures, including the information provided to developers when applications are delayed. Apple must also establish measures to prevent further discriminatory treatment of domestic developers. According to South Korean news agency Yonhap, the companies must submit compliance plans within one month of receiving the corrective orders and implement the required changes within three months.

KMCC Chairperson Kim Jong-cheol said the enforcement action should produce changes that developers and consumers could experience in their dealings with the marketplaces. He emphasized the contribution app developers make to innovation and said the commission would continue enforcing the law without favoring domestic or foreign operators.

The penalties come after both companies had already begun discussing changes to their payment arrangements with the regulator.

Google announced revisions to its payment policies in March, including plans to permit external payments and reduce service fees. Apple had separately presented the KMCC with plans for voluntary improvements to its marketplace transaction practices. Google also expressed regret over Wednesday's decision, saying the regulator had not sufficiently considered its recent efforts to expand payment options and reduce fees, according to Yonhap.

The commission nevertheless proceeded with the sanctions and said it would continue monitoring the implementation of the companies' revised payment policies in South Korea.

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