Europe starts probes into Apple's potential violations of anti-trust rules following complaints by Spotify

By Emmanuel Legrand

Apple has said that the decision by the European Commission to open two antitrust investigations into the tech giant's practices was “disappointing” and that the firm intended to provide a robust defense to “baseless” accusations by competitors such as music streaming service Spotify.   

  Apple was reacting to the decision by Commission's antitrust division, headed by Commissioner in charge of Competition and Executive Vice-President of the Commission Margrethe Vestager, to start two formal procedures into Apple's conduct and business practices. The first one will look into Apple's proprietary mobile payment solution Apple Pay and the second on Apple's rules for app developers on the distribution of apps via the App Store. In both cases, the Commission will assess whether these practices violate EU competition rules. 

  The first investigation concerns “Apple's terms, conditions and other measures for integrating Apple Pay in merchant apps and websites on iPhones and iPads, Apple's limitation of access to the Near Field Communication (NFC) functionality (“tap and go”) on iPhones for payments in stores, and alleged refusals of access to Apple Pay.” 

  The latter investigation concern in particular “the mandatory use of Apple's own proprietary in-app purchase system and restrictions on the ability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of apps," according to the Commission. The investigation is a follow-up on separate complaints by Spotify and by an e-book/audiobook distributor on the impact of the App Store rules on competition in music streaming and e-books/audiobooks. 

A 'gatekeeper' role

  "Apple sets the rules for the distribution of apps to users of iPhones and iPads,” said Vestager. "It appears that Apple obtained a 'gatekeeper' role when it comes to the distribution of apps and content to users of Apple's popular devices. We need to ensure that Apple's rules do not distort competition in markets where Apple is competing with other app developers, for example with its music streaming service Apple Music or with Apple Books. I have therefore decided to take a close look at Apple's App Store rules and their compliance with EU competition rules.” 

  The Commission said it will investigate in particular two restrictions imposed by Apple in its agreements with companies that wish to distribute apps to users of Apple devices: 
  (i) The mandatory use of Apple's own proprietary in-app purchase system “IAP” for the distribution of paid digital content. Apple charges app developers a 30% commission on all subscription fees through IAP. 
  (ii) Restrictions on the ability of developers to inform users of alternative purchasing possibilities outside of apps.

  The Commission noted that “while Apple allows users to consume content such as music, e-books and audiobooks purchased elsewhere (e.g. on the website of the app developer) also in the app, its rules prevent developers from informing users about such purchasing possibilities, which are usually cheaper.” 

Distorting competition

  The probe follows a complaint filed on 11 March 2019 by music streaming provider, Spotify, competitor of Apple's own music streaming service Apple Music, about the two rules in Apple's license agreements with developers and the associated App Store Review Guidelines, and their impact on competition for music streaming services. 

  Vestager's division ran a preliminary investigation the Commission which showed “concerns that Apple's restrictions may distort competition for music streaming services on Apple's devices.” According to the Commission, Apple's competitors have “either decided to disable the in-app subscription possibility altogether or have raised their subscription prices in the app and passed on Apple's fee to consumers. In both cases, they were not allowed to inform users about alternative subscription possibilities outside of the app.”

  Another complaint was filed on 5 March 2020, by an unnamed e-book and audiobook distributor, raising “similar concerns to those under investigation in the Spotify case but with regard to the distribution of e-books and audiobooks.” 

Penalties and undertakings

  The Commission has informed Apple and the competition authorities of the Member States that it has opened proceedings in these cases. The Commission's investigation will eventually determine if these practices “may ultimately harm consumers by preventing them from benefiting from greater choice and lower prices.” If proven, the practices under investigation “may breach EU competition rules on anti-competitive agreements between companies and/or on the abuse of a dominant position.” Penalties can include fines and/or undertakings by the company investigated if found guilty of breaking competition rules.

  The Commission did not indicate how long the investigation will last since “there is no legal deadline for bringing an antitrust investigation to an end" and that the duration of an antitrust investigation “depends on a number of factors, including the complexity of the case, the extent to which the companies concerned cooperate with the Commission and the exercise of the rights of defense.”

Apple's harmful impact

  Reacting to the announcement, Spotify’s Head of Global Affairs and Chief Legal Officer Horacio Gutierrez, called the announcement of the probe “a good day for consumers, Spotify, and other app developers across Europe and the world.” He said he was encouraged to see that the Commission recognised “the harmful impact of Apple’s actions.” 

  Gutierrez said the investigation will be “the opportunity to prove how Apple has used its gatekeeper position to stymie competition and favour Apple Music at the expense of consumers and competitors.” 

  He added: “This case is about making sure companies like Spotify can compete fairly on a level playing field so that consumers can access the content they want through the service they prefer without being penalized economically. However, this case is not just about Spotify. The commission’s decision to take on the case against Apple is an important first step towards developing new rules, rules of the road that will govern the conduct of online platforms for years to come.” 

Baseless complaints

  He explained that Spotify was not seeking “special treatment or a free ride” but rather a “fair treatment and the opportunity to compete without artificial obstacles put in our way.” 

  Apple spokesman Josh Rosenstock commented: “It’s disappointing the European Commission is advancing baseless complaints from a handful of companies who simply want a free ride, and don’t want to play by the same rules as everyone else. We don’t think that’s right — we want to maintain a level playing field where anyone with determination and a great idea can succeed.”

  He added: “Throughout our history, Apple has created groundbreaking new products and services in some of the most fiercely competitive markets in the world. We follow the law in everything we do, and we embrace competition at every stage because we believe it pushes us to deliver even better results.”