Fairness in the App Economy: Rethinking FRAND Access Under the DMA

by Deni Mantzari, UCL Laws

The EU’s Digital Markets Act (DMA) is one of the most ambitious regulatory efforts yet to tame Big Tech. While much of the debate has centered on opening up digital platforms to competition, a quieter but equally critical battle is playing out over the question of fairness, specifically, what constitutes a Fair, Reasonable, and Non-Discriminatory (FRAND) fee for accessing app stores like Apple’s and Google’s. If empowering app developers and ensuring digital fairness is a goal worth-pursuing, regulators can no longer dodge the hard questions about the appropriate level of platform fees. A principles-based approach to FRAND laid down here could offer some much needed guidance.

Why FRAND Access Matters

At the heart of the DMA is the promise that dominant platforms, dubbed ‘gatekeepers’, must treat business users fairly. Article 6(12) of the DMA provides that gatekeepers active in a wide set of core platform services (‘CPS’), including app stores, search engines and social media platforms, should apply FRAND (price and non-price) general conditions of access for business users of those services (hereinafter FRAND platform access).This provision is yet another manifestation of the interplay between contestability and fairness that transcends the DMA. Its intention is twofold: to facilitate access into app store and related markets thereby encouraging downstream competition and the development of rival infrastructure; and to redistribute platform-derived rents to foster fairness in the relationship between CPS and their business users.

Reflecting fairness concerns, Article 6(12) seeks to prevent gatekeepers from imposing (price or non-price) terms of access that are ‘unfair’, or which result in ‘unjustified differentiation’. Recital 62 clarifies that pricing or other general conditions of access are ‘unfair’ if they lead to ‘an imbalance of rights and obligations imposed on business users or confer an advantage on the gatekeeper which is disproportionate to the service provided by the gatekeeper to business users or lead to a disadvantage for business users in providing the same or similar services as the gatekeeper’. Although fairness and contestability are not the same, they are clearly intertwined, as ‘the lack of, or weak, contestability for a certain service can enable a gatekeeper to engage in unfair practices. Similarly, unfair practices by a gatekeeper can reduce the possibility of business users or others to contest the gatekeeper’s position.’

While the law leaves open what ‘fair and reasonable’ actually means, Article 6(12) places the burden on gatekeepers to prove that their conditions meet FRAND standards. So far, however, the European Commission has focused more on promoting contestability, e.g, allowing rival app stores and sideloading, than on enforcing fairness. But enhanced contestability alone may not suffice. In the case of Apple’s closed iOS ecosystem, entrenched network effects and control over app distribution still frustrate meaningful competition and fair access thus making effective contestability elusive.

Eventually, the Commission may have no choice but to intervene directly on the fees and conditions imposed by gatekeepers, should current measures prove inadequate in achieving genuinely fair outcomes for business users and the broader digital marketplace.

App Stores as Ecosystems, Not Just Platforms

To understand the notion of fairness in this context, we need to think of app stores not just as digital storefronts, but as ecosystems. Apple and Google don’t just host/distribute apps: they govern access, set the rules, and capture a significant share of the value created within their platforms. App developers, meanwhile, are essential contributors to these ecosystems but often have little say over how value is shared. This imbalance is further worsened by the gatekeepers’ control over essential tools and infrastructures (like Apple’s in-app payment system) and restrictive anti-steering rules that prevent developers from promoting alternative payment options/ informing users about alternative payment options. The current fee structure typically 15 to 30% lack clarity. It is not grounded on transparent cost models or guided by consistenteconomic principles.

The Challenge of Pricing the Intangible

Determining a FRAND fee in this context is hard because app stores, unlike physical infrastructures or utilities, are powered by intangible assets: brand value and recognition, user trust, network effects, and user data. These are difficult to quantify, and value is co-created through the interplay between platforms and developers. Pricing access based on ‘cost plus margin’ doesn’t work well when the costs are unclear and value creation is mutual. Traditional pricing models, such as ‘cost plus a reasonable margin’ are ill-suited when the underlying costs are opaque and the value contributed by each party is interdependent.

Past EU legal frameworks, like telecoms access rules, competition law remedies, and standard essential patent (SEP) licensing, offer inspiration but are not a perfect fit. For example, telecom access regime rely on cost-based regulation, while competition law and SEP licensing use benchmarks like comparable licenses’ or ‘incremental value.’ Yet these approaches struggle to capture the complex, two-way value exchange in digital ecosystems. App stores are not utilities delivering a one-way service, they are collaborative environments where governance, access, and monetisation are tightly entwined.

A Principles-Based Approach to FRAND

Instead of adopting rigid pricing formulas, a principles-based approach to FRAND access might be the best way forward. A principles-based framework for FRAND access offers a more flexible and equitable alternative to rigid pricing formulas. Such an approach acknowledges the multifaceted nature of digital platforms, particularly app stores, and seeks to guide access terms based on foundational economic and fairness principles. The conceptual framework put forward rests on four key propositions:

1. Gatekeepers should not be remunerated for network effects

Unlike the techonolgy embodied in SEPS, network effects belong inherently to the market, not to any single platform. While gatekeepers should in principle be allowed to recover the costs of offering apps on their app stores, they should not be compensated for the lock-in value created by the control of their ecosystem, the restrictions they impose on app developers and users through the app store rules and the resulting network effects. The additional market power and network effects result from their privileged position and should not be monetised as rent by the gatekeeper.

2. FRAND remuneration should take into account the value to gatekeepers of providing an app store

App stores are part of ecosystems of complementary products, such that it is not just the app store’s business users who benefit; the app store provider also benefits from running and operating the platform. It benefits because the quality and range of app developers’ products enhances demand for its complementary products, earning it more revenue than it would earn if it did not run the app store itself. Gatekeepers often justify fees (e.g., app store commissions, ad platform fees) based on cost-recovery or service value. But these traditional pricing models based on ‘cost plus margin’ suffer from two major drawbacks: first they are insufficient in ecosystems where gatekeepers set the rules of the game (e.g. terms of app store access) and capture innovation rents that are disproportionate to their contribution. Second, they disregard the contribution of complementators/ business uesrs. So remuneration models under FRAND should reflect not just costs incurred, but also account for the value co-created, and whether rents are being fairly distributed.

3. FRAND should entail an assessment of the mutual value each side of the market transaction gets from it and the value it receives

The reasonable price a gatekeeper can charge should reflect the net effect of the two-way exchange in value. It is evident that in many instances, the gatekeeper does not directly charge end users for the service (other than through the use of their data), generating revenues solely from business users. Consequently, there is a value addition from both sides of the transaction, which may need a ‘net-off’ to obtain an access price (subject to any futirity-based value considerations). For example, the presence of publishers on the social networking platform may indeed make the platform more attractive. Or the availability of attractive apps allows gatekeepers to monetise their products and services more effectively; for example, by selling a greater number of smartphone devices, or increasing the attractiveness of their ecosystems for advertisers. In the latter scenario the gatekeeper also benefits from providing access. 

4. FRAND should reflect the gatekeeper’s Long Run Average Incremental Costs (LRAIC)

The fourth and final proposition is that a FRAND platform price should cover the costs of providing and maintaining access to it. This requirement is consistent with the requirement of exploitative abuses and the cost-plus models used in telecommunications. An access price that does not cover the running costs could reduce the gatekeepers’ incentives to make the necessary investments into improving the platforms in response to the changes in the market, the improvements in technology, and the needs of end-users app developers. As noted by experts, applying a non-discriminatory approach means that all developers, regardless of when they join, should face access terms based on unamortised investments and current running costs. It is an empirical question whether these costs are minimal or large and these need to be assessed on a case-by-case basis.

Jurisprudence and Policy Guidance

One could turn to the recent ECJ’s Android Auto ruling for further guidance in this context.  The Court determined first that Google is a dominant provider of market access – in this case, access to the consumers of in-car apps – and that third parties can reasonably expect access to that market. Third parties are not necessarily entitled to access, but as the EC has observed, most digital platforms are ‘inherently’ designed to accommodate third-party participation rather than exclusive use, so a presumption in favour of access will normally apply in this context. The Court then concluded that Google must grant access, once a reasonable period has elapsed – allowing, for example, time to address safety and security concerns – and must do so on terms that are fair and reasonable, which should compensate Google for both its upfront fixed costs and incremental costs (para. 76).

In the context of app stores, the EC should consider first, the investment costs of creating the app store (initial investment costs) and second, the costs of providing and maintaining access (ongoing operational costs). Both categories of costs can be fairly recovered if the gatekeeper covers its long run average increamental costs (LRAIC) which is the average of variable and fixed costs. Regarding the first set of costs, the EC should consider the extent to which the investment costs of creating the app store in the first place have already been amortised similarly to the pattern in the SEPs context. Such costs would have largerly been incurred upfront and some proportion would surely be already recovered by the fees app developers have already paid to the gatekeepers and therefore should not be included in the LRAIC. Only the unrecovered portion should be included in the LRAIC calculation.

However, as Padilla et al rightly note, ‘the gatekeeper has a non-discrimination requirement to uphold, so charging the app developers in the earlier part of its lifecycle differently from the app developers in the later part of its lifecycle may also not be appropriate’. They therefore recommend incorporating unamortised upfront investments in the LRAIC, along with ongoing running costs, to ensure non-discriminatory and economically justified access terms/ that an appropriate way to calculate LRAIC would be to consider non-amortised upfront investments along with the running costs.

Taken together, the four propositions allow us to lay down a principles-based conceptual framework to FRAND access pricing grounded in the following core principles: 

1. Compensation for the intrinsic value of their platform and not for network effects. Gatekeepers should be remunerated for the genuine value of their platform, not for market-wide network effects to which all participants contribute.
2. Transparent reflection of costs and benefits: Fair and reasonable commissions should reflect the relative costs and the tangible benefits of each servicet they provide.
3. Assessment of mutual value exchange: in the model should take into account situations where value is exchanged in both directions. This would entail an assessment of the mutual value each side of the market transaction gets from it and the value it receives. This approach has strong parallels with cross-licensing of SEPs. 

In assessing the mutual value, one could draw inspiration form the UK Code of Conduct for platforms and content providers. In 2022, the CMA and Ofcom published advice to government on what conduct regulations could look like for relations between digital platforms and news publishers. The advice indicated that content providers should be entitled to ‘fair and reasonable compensation’ for the use of their content by digital platforms that have been designated with Strategic Market Status. This would entail that ‘fair and reasonable prices’ involve the platforms paying publishers for hosting their content, rather than publishers paying platforms for access. To determine whether access terms are ‘fair and reasonable’, the CMA’s advice suggests that the joint value created by hosting news content on platforms should be estimated with content providers receiving a fair share of this joint value for use of their content by the SMS firm. To ensure content providers receive a fair portion of the joint value the report recommends that the value sharing should account for the incremental benefits and losses that accrue to both parties as part of their agreement. Similarly to the DMA, to ease the implementation challenges, the CMA advice suggested that arbitration would be preferable to administrative enforcement. Rather than imposing their own view of FRAND, the arbitrator has to decide which offer is closest to FRAND.

What Needs to Happen Next

The European Commission has so far avoided defining FRAND; perhaps to avoid the politically fraught role of price regulator. Instead, the issue has been outsourced to the parties: The DMA promotes a decentralised approach to the implementation of Article 6(12), whereby the Commission oversees the implementation of FRAND, as the latter derives from a bargaining process between the gatekeeper(s) and the business users. This process resembles the procedural approach endorsed by the ECJ in Huawei. Instead of adopting a substantive strategy, for instance calculating royalty rates by reference to comparable licences or engaging in ‘top down’ approaches, the ECJ in Huawei imposed a procedural framework for good faith SEP licensing negotiations identifying the steps that patent holders and implementers must follow in negotiating a FRAND royalty.

But the current hands-off approach risks making fairness an empty promise. Business users are left to bargain with the gatekeepers under unclear rules. The Commission should provide principled guidance, not rigid pricing rules, but clear criteria to evaluate fairness. This could include:

• Clarify whether and gatekeepers may monetise network effects.
• Promote arbitration models that assess value-sharing for access pricing.
• Explicitly recognize that co-created value should be shared fairly. In doing so the Commission should make some verifiable assumptions about how innovation occurs in these markets based on research and empirical indicia. It can rely on innovation ecosystems theory and on research on cumulative/collective innovation and operate under these assumptions, test them and revise them.

Conclusion

If the DMA is to live up to its promise, fairness must take its rightful place alongside contestability. That means grappling with what FRAND access really means in the digital age. Only by grounding access terms in transparent, principles-based criteria can it ensure a truly fair and innovative marketplace for all participants.

This a modified version of my CLES research paper on Fairness in Platform to Business Relationships: The Case of Regulating Access to App Stores on FRAND terms under Article 6(12) DMA. The article also draws on my Journal of Antitrust Enforcement article on FRAND. 

I would like to thank my colleagues at UCL Laws, Prof. Ioannis Lianos and Dr Stavros Makris, as well as Prof. Pablo Ibáñez Colomo, Sophie Ahlswed (DG Comp), Dr Jorge Padilla, Dr Cristina Caffarra as well as the participants at the LawEcon Workshop at Bonn University, the UCL Laws Competition Law and Policy Workshop: A Foresight Approach, and the CCP Seminar Series at the University of East Anglia for their feedback on earlier drafts. I have no relevant affiliations or relationships to disclose.