What is The Report from Japan

Apple and Google engage in practices that undermine competition in the smartphone app market by making the most of their control over distribution channels, a report by the Ministry of Economy, Trade and Industry argues.

The report looked at how these two U.S. technology giants, as well as others that control platforms through which smartphone applications are sold, use their positions of power to decide what app developers can and cannot do.

Restricting what payment methods developers can accept and limiting their pricing freedom may not directly violate Japan’s anti-monopoly law, but these practices lead to elimination of competitors, the report asserts.

A study group established at the ministry in January compiled the report by incorporating a survey of app developers that was conducted jointly with the Japan Fair Trade Commission.

The so-called Apple tax was an issue covered in the report. The U.S. firm requires that any purchase made through an iPhone application — be it digital content, a service or something else — be processed through the company’s system. Apple then charges roughly 30% of the payment amount as commission. “Apple tax” is the name developers have given to this steep levy.

This practice may be deemed abuse of an advantageous position under the anti-monopoly law, some members of the study group argued at a meeting. The report expressed concern that the monopoly on payment methods will lead to market control that allows the company to eliminate competition.

Restriction of app developers’ freedom in pricing was another issue. Apple does not allow yen-dominated prices to include sub-10 yen (10 yen roughly equals 10 cents) amounts. This means an app that would have been sold at 125 yen must be priced at 120 yen or 130 yen to be offered through Apple’s distribution platform.

The report also criticizes Apple’s handling of refunds as placing an excessive burden on developers. Since the company does not return its 30% commission, developers must pitch in with their own funds to cover the 30% charge to issue a full refund to customers.

The anti-monopoly authority at the European Union and others have been investigating possible abuse of dominant positions by Apple and Google, but the METI report is the first to shed light on payment systems from the angle of possible anti-competition violations.

Japan’s competition watchdog intends to investigate further and “may choose to conduct on-site inspections if there is sufficient suspicion of regulation breach,” a high-ranking official said.