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EU charges Apple with antitrust violations
The European Union is charging Apple with App Store antitrust violations. The charges stem from a 2019 complaint filed by Spotify.
The European Union has leveled charges against Apple for violating antitrust laws, accusing the tech giant of abusing its dominant market position in how it distributes music streaming apps through its App Store.
The European Commission, the EU's antitrust enforcer, keyed in on two App Store practices applied to music streaming apps that compete with Apple's own Apple Music service. The first is Apple's requirement that music streaming app developers use Apple's in-app payment mechanism to distribute their apps through the App Store, which includes a 30% user fee. The second is Apple preventing app developers from disclosing other, cheaper means of acquiring their services.
Margrethe Vestager, the commission's executive vice president in charge of competition policy, said in a press release that app stores play a "central role in today's digital economy." She said Apple's high commission fees and lack of transparency are an abuse of its market power.
"Our preliminary finding is that Apple is a gatekeeper to users of iPhones and iPads via the App Store," she said in the news release. "With Apple Music, Apple also competes with music streaming providers. By setting strict rules on the App Store that disadvantage competing music streaming services, Apple deprives users of cheaper music streaming choices and distorts competition."
Experts believe the charges have more sticking power than other antitrust lawsuits filed against powerful technology companies because they target a specific problem, which helps make a clearer, more direct case of anticompetitive behavior.
"This action by the EU is likely to have bite -- and it is overdue," said Marshall Van Alstyne, a professor at the Boston University Questrom School of Business. "At present, it is merely a formal objection and not yet a lawsuit, but it differs from many broader platform critiques in that it is very specific, it can demonstrate consumer harm and there are clear remedies."
EU's Apple antitrust objection
The charges follow a complaint filed by popular music streaming service Spotify in 2019 against Apple for antitrust violations -- and it's not the only company coming for Apple's App Store practices.
Epic Games, creator of the popular Fortnite, filed an antitrust lawsuit against Apple in August 2020 for similar reasons as well as a lawsuit against Google for its Google Play app store practices.
Horacio Gutierrez, chief legal officer and head of global affairs at Spotify, testified last week before the U.S. Senate Subcommittee on Competition Policy, Antitrust and Consumer Rights regarding Apple's App Store practices. During the hearing, Gutierrez said the App Store's rules and fees create a disadvantage for Spotify but "benefit Apple's own service," Apple Music, a principal competitor.
Indeed, Van Alstyne said as Apple forbids app operators like Spotify from informing consumers about alternative payment methods that would avoid Apple's 30% in-app purchase user fee, it raises prices for consumers, as the costs are often passed down to them.
"The obvious information asymmetry, of uninformed buyers, has clear economic efficiency losses," he said. "Additionally, the practice is anticompetitive. Apple sells music services in competition with many sellers in its store but does not charge itself the same 30% tax, placing third-party sellers at a serious pricing disadvantage."
Van Alstyne said remedies could include Apple eliminating the clause preventing app operators from letting consumers know about alternate payment methods or allowing the use of payment methods other than Apple's in-app payment mechanism.
Apple responds to EU charges
In a statement responding to the EU's charges, Apple claimed Spotify doesn't rely solely on the App Store for its success.
Apple claimed that Spotify uses its more than 8,000 partnerships worldwide to market its out-of-app offers through social media and other traditional media campaigns, meaning consumers are made aware of offers elsewhere.
Additionally, it stated Spotify doesn't pay Apple the 30% fee on more than 99% of its subscribers. Apple said Spotify only pays a 15% fee on the remaining subscribers that it acquired through the App Store.
"At the core of this case is Spotify's demand they should be able to advertise alternative deals on their iOS app, a practice that no store in the world allows," according to a statement from Apple. "Once again, they want all the benefits of the App Store but don't think they should have to pay anything for that. The commission's argument on Spotify's behalf is the opposite of fair competition."
Ray Wang, founder and principal analyst at Constellation Research, said the European Commission has the right intentions when it comes to ensuring free and fair markets. However, he said its current argument against Apple is flawed.
"It's trying to force any private network, [or] app store in this case, to change rules on how it takes payments," he said. "Imagine you open up a series of chain stores or boutiques and you only take cash, or you will only take Visa, not Mastercard. Costco, for example, only takes cash and its Citibank Visa card. The merchant usually sets the rules. This is like telling Costco, you are a monopoly for only taking Visa and maybe cash."
The case for Apple's App Store
Wang cited Epic Games' lawsuit against Apple, saying the company, like Spotify, wants to use the store and not pay the fees to be in a store that was built by Apple, which provides product quality, safety and convenience.
"You can't just use the store without a fee," Wang said. "It's like saying 'I want my stuff sold at Costco for free.'"
Julie Ask, Forrester principal analyst and vice president, made a case for Apple's App Store in a blog post published this month and described the good that's come from the business model, including offering developers a new way to create products for mobile devices.
"Many of us remember when the wireless carriers controlled access to our phones," she wrote in the blog post. "Few, if any, developers could afford the cost of doing business with the carriers, let alone buying a spot on the top deck. Steve Jobs had the vision to create a new model -- one far more open to developers."
Creating this new business model wasn't cheap, she wrote. Apple has spent hundreds of millions of dollars building out the App Store since 2008 to protect consumer security and privacy when choosing and downloading apps. It also provides developer tools and continues to update and improve its operating system, which costs money.
Marshall Van AlstyneProfessor, Boston University Questrom School of Business
"Yes, there are rules, and also alternative platforms that are far larger, if one doesn't like the rules that Apple created," she wrote in the blog post. "But Apple seems entitled to protect the brand and product it has built."
But Van Alstyne argues that, while Apple has created a secure and tightly integrated system, the exorbitant commission fees start to chip away at the benefits the platform provides.
"The tax Apple imposes is disproportionate to its value-add and surely should not be indefinite for subscription revenues where Apple plays no role in ongoing provision of the service," he said. "I expect this objection will either cause Apple to change behavior or, barring that, I expect a lawsuit to proceed -- and for it to succeed."
What the future holds
The charges from the EU against Apple are an example of a regulatory body zeroing in on a tech giant's specific business practices. The specificity rather than broad brush strokes on acquisition practices or data practices will make it harder for powerful technology companies like Apple to defend, said Alan Pelz-Sharpe, founder of analytics firm Deep Analysis.
Pelz-Sharpe said if both the EU and U.S. authorities continue hitting tech giants in such a targeted manner, they're likely to get some results. But, he said, the push from authorities to regulate and reign in technology companies may be less about correcting anticompetitive behavior and more about control over companies that have grown so large they think "the rules don't apply to them."
"Consumers know these are huge brands, but few understand their true scale, distributed nature and wealth," he said. "In boxing terms, these are sparring rounds where a few shots may be landed, but not championship fights. They are too big at this point for an external party to knock them down."
Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington Star-News and a crime and education reporter at the Wabash Plain Dealer.