FTC investigating Apple's App Store

Introduction

I'm sure you've heard of Apple products, such as the iPod, iPad, and iPhone. Well, these all run an App Store, where developers can post apps that Apple has approved, either for free or for sale. For paid apps, Apple gets a 30% cut of the price while the developer gets a 70% cut. This same setup is used in the Mac App Store as well.

Subscriptions

The Justice Department and FTC (Federal Trade Commission) are deciding whether the recently announced subscription service in the App Store is violating any United States antitrust laws. It seems as if Apple is forcing media companies' customers into using iTunes and the App Store as a payment source, which in turn gives Apple a 30% cut of the profit. Another big issue with the setup is that the developers are not allowed to have links to outside sources or other places where the customer may purchase content, because it would forgo the App Store as part of the purchase which would then take away Apple's 30% cut. Also, Apple's regulations state that the content can't have different prices at different sources (meaning if you buy directly from the developer's website, it can't be cheaper than buying it in the App Store, but the App Store version can be cheaper than outside versions). The article from The iPhone Blog also brings up a good point; several executives in the music industry are complaining because on top of having to pay the record labels royalties, they will not have to pay an additional 30% for any subscriptions sold in the App Store, which makes for a very anti-competitive business model. In addition to the revenue Apple makes from it's cut from the App Store, Apple also gets a cut from their advertising platform, called iAds. Engadget has posted that Rhapsody's official statement is that they will not comply with the new regulations. A Macworld article feels the opposite way, that there is no antitrust threat to Apple because of various reasons. The article says that in order for this claim to be true, plaintiffs would have to show that the new App Store rules prevent companies from selling their content. "Apple's conduct, while exclusionary, is not anti-competitive. A time-honored axiom in antitrust is that it's meant to protect competition, not competitors." This wouldn't be the first time Apple has been pressured into modifying the App Store's terms, though. As stated in a Rethink Wireless article, Forrester Research CEO George Colony thinks that Apple's success has gone to its head and it is overpricing subscription fees in the iTunes Store, which should be about 5% rather than 30%. Because of this new subscription scheme, Apple may infuriate valuable partners, such as the aforementioned Rhapsody.

In-App Purchases

The other subject the FTC is investigating is the subject of in-app purchases, especially in applications marketed towards children (such as Smurfs' Village). The argument they're making is that many children don't understand the difference between real and virtual purchases. The App Store requires the user to enter their password to complete an in-app purchase, but it saves the password for a short period of time. So, if you enter your password and your child goes to play a game, they can rack up very large amounts of in-app purchases without you even knowing. Back to the example of Smurfs' Village, it offers an in-app purchase called "WAGON OF SMURFBERRIES" for $99.99. Unknowingly, children agree to this and end up charging their parents accounts for large amounts of money.

Opinion

I think that while Apple has some right to a cut of the profit because they are supplying the bandwidth and absorbing credit card transaction fees, 30% is somewhat greedy. Apple recently announced that they've paid $2 billion to developers so far since the App Store has launched, which means their cut is close to $1 billion in revenue from the App Store alone. One justification that Apple does have in taking such a large cut is exposure. Without the App Store, many apps would have the exposure that they do and the ability to conveniently and easily be downloaded to many devices. In conclusion, I believe that Apple isn't justified in taking such a large cut from the app and the actual subscription cost, and that they shouldn't put so many limitations on developers. Often, developers would like to give a cheaper incentive on their own website compared to the App Store because there isn't as much overhead in terms of paying Apple a cut and they get more recognized as a developer. If Apple continues to be so greedy and place this many regulations, eventually the majority of the smartphone market will be saturated with Android devices rather an iOS devices because of the open-ness of the system compared to the highly regulated iOS.

What do you guys think? Do you think that Apple has a right to regulate prices of an application in other places than the App Store? What about Apple forcing all developers to remove outside links from the application? And what do you think about the FTC getting involved? Share your ideas in the comments!

The Top Secret iPhone Theft

21-year-old Brian Hogan found an iPhone one night when he was in a bar with his friends. According to Hogan, he was in the bar with his friends when somebody handed him a phone after finding it on a nearby stool. The patron gave Hogan the phone, asked Hogan if the phone belonged to him, and then the patron left the bar. Hogan asked the people around him if the phone was theirs, but when no one claimed it, Hogan left the bar with the phone.


It turns out that the phone that Hogan left with was a prototype for a new version of the iPhone. Hogan claims that the phone immediately shut down and was un-useable for the duration of the time that it was in his possession. This being the case, Hogan thought of things that he could do with the phone.

The tech site Gizmodo offered to pay Hogan $5000 for the phone,in order to give the site exclusive access to review the phone. Gizmodo emphasized to him that there was nothing wrong in sharing the phone with the tech press. On April 19, 2010, Gizmodo published a bombshell story about the iPhone prototype.

Meanwhile, the man who lost the iPhone prototype and the Apple company contacted the San Mateo County District Attorney’s office to report the phone stolen. The investigation has led them to Hogan, but also to Gizmodo editor Jason Chen, who received and reported on the phone. Law enforcement officials raided Chen’s home and seized computers and other equipment. Gizmodo and others have argued that the search warrant violated state and federal laws protecting journalists from searches and seizures without a subpoena. The San Mateo County district attorney’s office said this week that investigators will not examine the seized materials until the legality of the warrant has been resolved. Hogan has been interviewed by law enforcement investigators but has not been charged with a crime. Hogan’s lawyer states that Hogan regrets his mistake in not doing more to return the phone.

But was it a mistake? There are many interesting issues raised by this case. First of all, are Hogan’s actions an example of “stealing”? Hogan had no way to return the phone to its owner since he had no way of knowing who the owner was. Perhaps Hogan could have done more by giving the phone to the bar owner so that it could be placed in the bar “lost and found”, but was that really Hogan’s responsibility under the law? Or is this “theft” considered more serious because of the nature of what was stolen or missing? For example, if someone in a bar finds a missing money clip, and no one in the bar claims it, is it a crime for the person to leave the bar with the money clip and not take further efforts to return it? It may be unethical but ethics are not what determine the law.

Second of all, it seems unreasonable that the GIzmodo editor had his house raided and his computers seized. What crime did Gizmodo commit? Is it illegal for a website or magazine to report on new technology once that technology is discovered? It is not as if Gizmodo was attempting to reproduce the iPhone. They were merely reporting about the new technology that had become available. Perhaps this is considered a more serious “crime” because it involves a huge company like Apple which has a lot of money at stake. Even if this is a serious matter to Apple (which makes sense), it seems peculiar to involve the police in raiding someone’s home and seizing their computers just because of someone’s questionable ethics.

Hogan’s lawyer states that Hogan’s family has relocated to an undisclosed location because “This thing has gotten completely, completely out of control”. It makes sense that finding top secret Apple technology is a big deal, but it may not be right for the law to bend simply because of the unique circumstances.

Nokia sues Apple for patent infingement

Nokia, the world's leading cell phone supplier and a leading handset provider, has recently filed a law suit against Apple for patent infringement. Nokia has been taking hits on its sales since the release of the iPhone the most popular smart-phone on the market. The Finland based handset giant has said that so far negotiations with apple have not been very successful. Nokia states that the charges of patent infringement stem from the fact that Nokia spent around 40-60 billion on research and development for its phones and that Apple has forgone this research. "By refusing to agree to appropriate terms for Nokia's intellectual property, Apple is attempting to get a free ride on the back of Nokia's innovation," said Ilkka Rahnasto, Nokia's vice president for legal and intellectual property at Nokia.

So what Nokia is saying is that Apple has stolen their ideas and patents and used them in their IPhone since release. Nokia though isn't asking for injunction which would halt the shipment and sale of the iPhone. Instead Nokia asks for an appropriate compensation for the past and future uses of their technology.

In the past couple years Apple has increased their share of smart phones sold from 3% to 13% while Nokia has dropped from 47% to 45%.

To me It seems odd that Nokia has taken this long to sue apple for patent infringement when the iPhone has been out for some time now. It feels like now that they realize that Apple is a threat they are trying to compete with them any way they can. But, it doesn't matter at all why it has taken Nokia so long to file a law suit the fact is if Apple has used technology patented by Nokia then Apple could be in truoble. What do you think?