Insight into the FCC Questions for Apple

The issues surrounding the FCC questions about Apple's App Store and approval process are complex. The Mac Observer spoke with an attorney familiar with the matter and obtained a better insight into what's going on. As usual, nothing is as simple as it appears.

Apple's Approach

On Friday, Apple released a statement -- it's answers to FCC questions about the App Store approval process and, specifically, the status of the Google Voice app.

The most important thing to realize in this matter, our consultant said, is that this is new territory. Apple points that out in paragraph #7, and so it's not an idle statement. There has never been an App Store before that sought, as its goal, to protect the privacy and security of smartphone customers.

This has necessitated a closed business model in which Apple bears the burden of testing apps against that standard. So long as Apple is complying FCC regulations, only denies apps when they would infringe on its intellectual property (IP) or business model, and is being reasonable, the company is likely on solid ground.

Even so there are new and untested issues and things that the FCC wants to explore. For example, can an app that significantly alters the user experience be legitimately disqualified? (Note that Apple has not formally rejected Google Voice; it has simply not yet been approved. More on that below.) Apple makes the argument that the user experience is special to what makes the iPhone what it is. That's neither a patent or copyright issue and is something to be explored. To support that, Apple could argue that integration, performance and battery power issues come into play that ultimately affect that special user experience.

In fact, Apple has to consider many things when it makes a decision about approving an application.

  • IP rights
  • Malware
  • User privacy
  • Inappropriate material for certain age groups
  • Overall performance of the iPhone
  • User Interface and app stability
  • Power consumption
  • Affect on the AT&T network and agreements. (See Apple's answer to Question #3.)

For example, AT&T's network is not unlimited. In their on brief on the matter, AT&T got fairly specific about the limitations of its own network and the need to maximize performance for all users. To that end, they prohibit VOIP on the 3G network. That can be argued to be a reasonable business practice.

The FCC Approach

Historically, the government has been friendly to the idea of reasonable business model. "Antitrust law doesn't require suicide pacts," our consultant pointed out. In other words, "not everything a company does to protect its business including agreements it strikes with partners is anticompetitive."

On the FCC side, they have to take all this in and look at case law. "Several agencies have antitrust authority, the DOJ, the FTC and the FCC. In this case, the FCC has been given the lead," our consulted said. "But there are also politics involved. The philosophy they use interpret regulations will be driven by politics."

In recognition of that, the Apple letter is deceptive. At first reading, it appears to be casual, but deep within it are implicit references to the regulatory and legal stance Apple has taken. "I liked that letter because it can be read on two levels," he said. "It's written for both the layman and the FCC members to show the approach Apple has taken."

As a result, people who just don't like Apple's position on face value or disagree with Apple's authority to take on the burden it has or even the legality of partnering with AT&T may not appreciate the Apple response. However, on the legal side, the so-called "Rules of Reason" analysis suggests that Apple is doing the best it can at balancing its own business against the needs of customers.

For example, Apple is highly vertically integrated. That means they develop the key components, all the way from the hardware up to the software. That affords a competitive and cost advantage and also keeps their secrets ... secret. All indications are that Apple's customers like this integration.

The FCC has to ponder all this, Apple's considered approach, the reasonableness of its business practices, the issues that arise because Apple has assumed a burden, and the compensating fact that Apple's isn't really making a whole lot of money in the App Store (compared to other parts of its business).

What Happens Next?

One FCC concern here is that Apple, in doing all the things mentioned above, might inadvertently cross the line. Apple's penchant for control could, if not checked, at some point reach into anticompetitve territory, and that's one reason the FCC is looking into the matter.

"The most likely outcome of all this is that Apple and Google will get together and decide on changes that are acceptable, that allow both sides to 'save face'," our consultant opined. Then the whole thing mostly goes away. "The FCC likely isn't looking to be punitive, rather, just keep an eye on things, preparing for future developments in a new market."

Given all this, there is no real clear-cut culprit. The issues are complex, and the oversight process has to both be vigilant yet reasonable. Apple's statement was designed to show that Apple, in good faith, is doing all it can to stay within regulatory bounds and work in the best interest of its customers.

Soon, we'll find out what the FCC thinks of all that.