Author: Sean Rui O’Donovan, Attorney at Law

Have you ever regretted spending money on an application on your smartphone, only to later discover that there was a cheaper way to access the same service? The new Act on Promotion of Competition for Specified Smartphone Software, (the Smartphone Act for Big-Tech Companies (unofficial name)) enacted during the 2024 regular National Diet session, aims to promote competition among smartphone applications and reshape the landscape of application charges. The impact of this Act extends beyond just altering the amount consumers would pay for such applications and may also encourage companies to venture into new smartphone-based businesses.

Currently, the monthly fee for “YouTube Premium” on Apple’s iPhone is 1,680 yen (through in-application purchase), while subscribing to “YouTube Premium” via a PC costs 1,280 yen. Similar price differences can be found in certain gaming applications on Apple’s iPhone. This happens because the fees Apple charges to the application developers are passed on to the consumers – a phenomenon often dubbed as the “Apple tax” online. Application developers have expressed strong dissatisfaction over such costs.

The Smartphone Act for Big-Tech Companies, groups “mobile OS,” “application stores,” “browsers,” and “search engines” collectively as “Specified Software”. It prohibits anti-competitive practices and mandates specific regulations for providers of these Specified Software, particularly those with significant market power. Big-tech companies with substantial influence in the Specified Software market with enough power to exert strong influence on competitors will be designated as “Designated Providers” by the Japan Fair Trade Commission and will be subject to regulation under this Act. The fine for violating these regulations is twenty percent (20%) of the sales of goods and services related to the prohibited acts during the period of violation (Article 19, Paragraph 1), a relatively high percentage compared to other laws. For example, the fine for cartels under the Antimonopoly Act is ten percent (10%) of the sales of the products during the period of violation.

Under this Act, it will be illegal for application stores to obstruct the operation of independently run application stores by other businesses, except for legitimate reasons such as security concerns (Article 7, Paragraph 1). Additionally, preventing smartphone users from using alternative payment systems of other businesses will be prohibited (Article 8, Paragraph 1). These measures are expected to promote competition among application stores, making it difficult for Big-Tech companies to continue charging high fees to application developers. As a result, consumers could see lower prices for applications.

For application developers, the Act is expected to offer more flexibility in designing pricing structures and payment methods. There have been instances, where companies, despite wanting to launch new app-based ventures, had to reluctantly give up due to high application store fees, making the business model financially unfeasible. In the future, the barriers to providing applications may decrease, and with the significant changes in the smartphone business environment, we can expect more companies to explore new opportunities in this space.