South Korea set to curb Google, Apple commission dominance

South Korea is likely to bar Google and Apple from requiring software developers to use their payment systems, effectively stopping them from charging commissions on in-app purchases, the first such curbs on the tech companies by a major economy.

An amendment of the Telecommunications Business Act, dubbed the “Anti-Google law,” that takes aim at app store operators with dominant market positions, is being considered by lawmakersin South Korea, who have pushed the issue of the commission structure since mid-2020.

In a statement, Apple Inc (AAPL.O) said the bill “will put users who purchase digital goods from other sources at risk of fraud, undermine their privacy protections, make it difficult to manage their purchases.”

The iPhone maker said it believes “user trust in App Store purchases will decrease as a result of this proposal — leading to fewer opportunities for the over 482,000 registered developers in Korea who have earned more than KRW8.55 trillion to date with Apple.”

Alphabet Inc’s (GOOGL.O) Google was not immediately available for comment.

Adam Hodge, spokesman for the U.S. Trade Representative’s office, said U.S. officials were still considering how to balance the views of the U.S. tech companies with the Biden administration’s push to increase competition in the industry.

“We are engaging a range of stakeholders to gather facts as legislation is considered in Korea, recognizing the need to distinguish between discrimination against American companies and promoting competition,” Hodge said.

Both Apple and Google have faced global criticism because they require software developers using their app stores to use proprietary in-app payment systems that charge commissions of up to 30% on in-app purchases.

“For gaming apps, Google has been forcing app developers to use its own payment system … and it wants to expand its policy to other apps like music or webtoon,” said Kwon Se-hwa, a general manager at the Korea Internet Corporations Association, a nonprofit group representing Korean IT firms.

Google app is seen on a smartphone in this illustration taken, July 13, 2021. REUTERS/Dado Ruvic/Illustration

“If the new bill becomes the law, developers will have options to use other independent payment systems,” Kwon said.

Naomi Wilson, vice president of policy for Asia at the Information Technology Industry Council, a trade group that includes Apple and Google, said the legislation would violate South Korea’s multilateral and bilateral trade commitments.

“If enacted, the bill would present challenges both for app developers and app stores seeking to do business in the Korean market,” she said, urging Korean legislators to re-examine the obligations for app markets and ensure they do not disproportionately affect U.S. companies.

The European Union last year proposed the Digital Markets Act, taking aim at app store commissions. The rules are designed to affect large companies, but some European lawmakers are in favour of tightening them to specifically target American technology giants, Reuters reported in June.

Earlier this month in the United States, a bipartisan trio of senators introduced a bill that would rein in app stores of companies that they said exert too much market control, including Apple and Google.

In South Korea, the home market of Android phone maker Samsung Electronics Co Ltd (005930.KS), Google Play Store earned revenue of nearly 6 trillion won ($5.15 billion) in 2019, according to a government report published last year.

Earlier this year, Google said it would lower the service fee it charges developers on its app store from 30% to 15% on the first $1 million they earn in revenue in a year. Apple has made similar moves.

For Apple too, commissions from in-app purchases are a key part of its $53.8 billion services business, and are a major expense for some app developers.

In May, an antitrust lawsuit filed by the maker of the popular game Fortnite against Apple revealed that the game maker paid $100 million in commissions to Apple over two years.