top of page
  • Harsh

Beyond Abuse of Dominance: The Continued Anguish of Indian App Developers

[Harsh is a student at Hidayatullah National Law University.]


App developers now rely on app stores as an indispensable platform to distribute their applications to end users, with the availability of these stores directly tied to the operating system installed on smart devices. However, numerous prominent Indian app developers, including some of the most popular startups in the country, are currently confronted with the looming risk of being removed from the Google Play Store. Notably, this platform holds an overwhelming market dominance, commanding the allegiance of more than 95% of the total user base, while the market share of the Apple App Store pales in comparison at less than 4%.


Brief Recapitulation


In 2005, Google acquired Android, the renowned mobile operating system. Then, in 2020, Google introduced the mandatory and exclusive utilization of the Google Play's billing system (GPBS) for processing payments related to paid app downloads and in-app purchases. Under GPBS, Google mandates that all in-app purchases go through its payment gateway and the company charges 15% to 30% commission on such purchases. In addition, Google prevents app developers from including direct links within their apps to webpages offering alternative payment methods. Restrictive covenants like these are colloquially known as “anti steering provisions.”


These developments prompted the Competition Commission of India (CCI) to initiate an investigation into the market activities of Google Asia Pacific. Following a thorough assessment, the CCI took action by imposing a penalty of INR 936.44 crore on Google for abusing its dominant position with respect to its Play Store policies. In addition to the financial penalty, the CCI also issued a cease-and-desist order, urging Google to discontinue the anti-steering provisions.


Google’s Response: Compliance and Circumvention


The CCI order, comprising two separate mandates issued on 20 October 2022 and 25 October 2022, encompassed a comprehensive set of over two dozen recommended changes for Google to implement. Subsequently, Google introduced the "Google Choice Billing Pilot" during the current year. Under the framework of this alternative billing system, the service fee for such transactions shall mirror the service fee applicable to transactions facilitated by Google Play's billing system but reduced by 4%. Consequently, should the end user elect to effectuate payment through a third-party payment aggregator, the commission imposed by Google shall be diminished to a range between 11% and 26%. It is noteworthy that Google has introduced a parallel system in South Korea subsequent to a legislative approval by the National Assembly. The aforementioned legislation specifically prohibits app store operators, including Google and Apple, from compelling developers to utilize their in-app payment systems.


While the initial reduction offered by Google may appear modest, the situation becomes direr when considering the additional burden imposed on app developers in the form of commissions payable to third-party payment aggregators. For instance, Razor Pay, a popular payment processing solution, imposes a commission of 2%, thereby resulting in a combined net payable commission of 13%-28%. Although a 2% difference in fees may have substantial implications for large-scale transactions, it is important to bear in mind that prior to 2020, Google did not claim a share of the revenue generated through in-app purchases. The only payable fee was the commission charged by payment aggregators such as Razorpay.


The Indian Startups: Google Clash


The dispute between the CCI and Google encompasses various aspects. Apart from the INR 936-crore penalty imposed by the CCI, the regulatory body has additionally imposed a fine of INR 1,337.76 crore on Google for its abuse of dominant position in multiple markets within the Android Mobile device ecosystem. Google subsequently contested this penalty at the National Company Law Appellate Tribunal (NCLAT). The appellate body has upheld the Competition Commission of India's order and has now directed Google to remit 10% of the INR 1,337 crore penalty.


Although the legal proceedings pertaining to this abuse of dominance within the Android ecosystem have attracted considerable attention and media coverage, the concurrent legal actions regarding Google's Play billing policy have not received adequate scrutiny. In the writer's view, these proceedings hold equal significance, as the forthcoming developments possess the capability to mould the entirety of the app development landscape. The subsequent paragraphs will delve into some of the pivotal advancements in this regard.


Matrimony.com had filed a lawsuit challenging Google's new payment policy and sought an injunction to prevent the delisting of their app. The court found in favour of Matrimony.com and granted the interim order until 1 June 2023[1]. Consequently, The Madras High Court issued a temporary restraining order (dated 25 May 2023) against Google, preventing them from removing the mobile applications of Matrimony.com Limited, the parent company of Bharath Matrimony, from the Google Play Store. Matrimony.com argued that Google was using its monopoly power in the Android platform to enforce its payment policy, which charged service fees ranging from 11% to 26% for payments made through alternative billing systems. 7 June 2023 was decided as the next date of hearing.


In the first week of June, a number of startups, namely Unacademy, Kuku FM, TrulyMadly, and QuackQuack, filed petitions with the Madras High Court to challenge Google's notification that requires them to comply with the company's prescribed billing mechanism or face potential removal from the Play Store. These entities have joined the ranks of Matrimony.com and Shaadi.com, which have previously approached the high court to contest Google's billing policies and request legal remedy. As the legal battle between Google and Indian startups unfolds, the Madras High Court delivered a mixed bag of news for the tech giant. On one hand, the court instructed startups to provide a report on their June download figures to Google and pay a 4% commission to the search giant. On the other hand, the court issued an extended interim injunction, prohibiting Google from removing any companies that have filed petitions against it from the Play Store.


Hybrid Jurisdiction Clause


Another aspect that has received scant coverage is the imposition of what is commonly referred to as an "optional" or "hybrid" jurisdiction clause by Google on app developers seeking to publish their apps on the Play Store. Under the terms of the mandatory "Developer Distribution Agreement", developers are compelled to waive their right to pursue legal action in Indian courts and instead must exclusively seek resolution in the United States court located in Santa Clara, California, should any disputes arise. Notably, Google reserves the right to initiate legal proceedings in Indian courts at its convenience, thereby giving rise to these clauses being labelled as "unilateral jurisdictional clauses." The legality of such a clause under the Indian Contract Act 1872 (Contract Act) and the Competition Act 2002 constitutes a contentious issue in the ongoing dispute between Google and the startups.


Common law jurisdictions demonstrate a consistent trend favoring the validity of unilateral clauses. English courts have long embraced these clauses, emphasized the importance of party autonomy and asserted that granting one party a positional advantage does not invalidate the clause. Recent cases, such as Mauritius Commercial Bank Ltd. v. Hestia Holdings Ltd., further reinforce this position. While concerns exist regarding the applicability of unilateral clauses in consumer contracts, there is a belief that their validity should not be dismissed solely based on the party's identity. Similarly, in the United States and Australia, while no settled case law invalidates unilateral clauses, questions have arisen in imbalanced agreements, such as employment contracts, regarding the legality of certain jurisdiction options. Nevertheless, the High Court of Australia, in PMT Partners Pty. Ltd. (In Liq.) v. Australian National Parks & Wildlife Service, upheld a unilateral clause, recognizing the parties' right to choose between arbitration and litigation.


Continental jurisdictions present a more diverse landscape in interpreting unilateral clauses. German law generally upholds their validity, but German courts have invalidated certain clauses on the grounds of unfairness, particularly when significant imbalances exist, favoring only one party. Additionally, concerns have been raised about the asymmetric position of the parties, as the party with a state forum option may face counter-actions invoking arbitration. In Italy, both older and more recent case laws lean toward favoring unilateral clauses, confirming their validity within the jurisdiction. The Court of Appeal of Madrid, Spain, recently reviewed a unilateral clause and reaffirmed its effectiveness, citing party autonomy and justifying the combination of arbitration and court litigation options. However, in certain jurisdictions such as France, Russia, Bulgaria, Poland, and China, a different approach to unilateral clauses has been observed, introducing an element of unpredictability.


Understanding India's Judicial Stance: The Path Ahead


The current state of hybrid jurisdiction clauses in India remains uncertain due to conflicting rulings by the judiciary. There is no clarity on the enforceability of such clauses. However, it is essential to consider that Indian courts prioritize the avoidance of injustice. In situations where enforcing an asymmetric jurisdiction clause would lead to unfairness or clear injustice due to exceptional circumstances and unforeseen factors, courts may choose not to uphold the clause.


Indian courts firmly acknowledge the concept of forum non conveniens, which allows them to decline jurisdiction if they determine that they are not the appropriate forum for a cross-border dispute. The response of an Indian court may differ if a party initiates litigation that contradicts a choice-of-forum clause selecting a foreign court. In such instances, the Indian court may assume jurisdiction over the case if the party can demonstrate extraordinary and unforeseen circumstances that would cause great injustice if the chosen forum were respected. Conversely, if the Indian court determines that the proceedings in India are oppressive, vexatious, or merely an attempt to undermine the choice of forum clause, or if the designated forum is considered appropriate considering the convenience of the parties, the Indian court may suspend or terminate the proceedings.


The Madras High Court's decision to refrain from outright rejecting the claims asserted by the Indian app developers solely based on the exclusive jurisdiction clause within the contract is a favorable indication. The imposition of a requirement upon Indian app developers to pursue litigation before a court situated in California, a jurisdiction housing the Google headquarters commonly known as "Google Park," would undeniably impose severe inconvenience upon Indian startups. Moreover, it is pertinent to note that the subject matter at hand transcends a mere antitrust concern, as it entails intricate considerations encompassing the Contract Act, the Payment and Settlement Systems Act 2007, and the alleged violation of guidelines formulated by the Reserve Bank of India, among other factors. The assessment of the validity of the asymmetric jurisdiction clause in light of Sections 27 and 28 of the Contract Act remains among the numerous inquiries that the Indian startups anxiously yearn for resolution. The potential implications upon the constitutionally safeguarded fundamental right of trade and commerce, as enshrined within Article 19(1)(g) of the Constitution, may also emerge as a pivotal subject to be addressed before the courts in the imminent months. In conclusion, the matter continues to evolve, garnering vigilant observation from all stakeholders and scholars within the field.

[1] Matrimony.Com Ltd v Alphabet Inc and Ors., (O.A.No.366 of 2023 in C.S (COMM DIV) No.98 of 2022)

Related Posts

See All

Comments


bottom of page