EU accuses Apple of antitrust violations over App Store
‘Closed ecosystem’ for IOS devices
Apple Inc. is facing antitrust charges in Europe for allegedly abusing its “dominant position” in music-streaming distribution to choke competition in its App Store, regulators announced Friday.
The European Commission said that Apple’s rules “distort competition” in the market for music-streaming services by raising the costs of competing app developers. Regulators pointed to Apple’s mandated use of its in-app purchase system (from which the tech giant takes a 30-percent commission, known informally as the “Apple Tax”) and to “antisteering provisions” that limit app developer’s ability to tell users about alternate purchasing options, which are usually cheaper.
“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,” Margrethe Vestager, executive vice-president of the European Commission, said in a statement. “This is done by charging high commission fees on each transaction in the App store for rivals and by forbidding them from informing their customers of alternative subscription options.”
Regulators said Apple’s tactics result in costs being passed on to consumers.
The charges come as Apple is poised to take the stand over similar complaints from Epic Games, the maker of Fortnite. Epic has accused Apple of using its control of its mobile operating system to stymie competition. Apple kicked Fortnite off the App Store last year after the videogame maker offered an alternative payment option to its customers, bypassing the mandatory 30-per-cent commission charged by Apple.
The landmark trial, which kicks off Monday, will determine whether Apple’s control over IOS is a monopoly, and whether Apple can use that control to force developers to use the App Store and its payment system.
A 2019 complaint from streaming giant Spotify spurred the EC investigation, but the concerns at its core are being echoed by regulators, businesses and advocates around the globe.
“Ensuring the IOS platform operates fairly is an urgent task with far-reaching implications,” Horacio Gutierrez, Spotify’s chief legal officer, said in a statement emailed to The Washington Post. “The European Commission’s Statement of Objections is a critical step toward holding Apple accountable for its anticompetitive behaviour, ensuring meaningful choice for all consumers and a level playing field for app developers.”
Apple did not immediately respond to requests for comment from The Post. But in a statement to The Verge, the tech juggernaut took aim at Spotify, which competes with Apple Music.
“Spotify has become the largest music subscription service in the world, and we’re proud for the role we played in that. Spotify does not pay Apple any commission on over 99 per cent of their subscribers, and only pays a 15-per-cent commission on those remaining subscribers that they acquired through the App Store.” Apple said in the statement. “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.”
In the charge sheet, the executive arm of the EU argued that Apple exploits the “closed ecosystem” formed by its devices and software for more than a billion users worldwide. Many developers and smaller firms are dependent on Apple for their livelihood and don’t have the resources to cope if Apple removes their app or prohibits them from updating it.
“The App Store is the sole gateway to consumers using Apple’s smart mobile devices,” the charge sheet states. “The Commission found that users of Apple’s devices are very loyal to the brand and they do not switch easily. As a consequence, in order to serve IOS users, app developers have to distribute their apps via the App Store, subject to Apple’s mandatory and non-negotiable rules.”
Apple’s App Store Review Guidelines once contained a warning for developers who might consider protesting Apple’s policies: “If your app is rejected, we have a Review Board that you can appeal to. If you run to the press and trash us, it never helps,” the guidelines once stated, according to a securities filing.
Apple has argued that its tight control over IOS is necessary to keep the system secure and to protect the privacy of its users. Apple says it vets every app allowed on the App Store for malware and that the commissions it charges for digital payments go to funding the App Store, which provides tools that help developers build software for IOS.
As it faces calls of foul play around the world over its App Store practices, Apple has tweaked some of its more controversial policies by allowing certain apps to bypass the “Apple Tax” and lowering its commission rate to 15 per cent for developers earning less than US$1 million in annual revenue.
If Apple is found to be in violation after pleading its case before the EU’S executive arm, it could be fined as much as US$27 billion based on its annual revenue last year, and potentially have to alter its business practices.
“The walls are starting to close in with the EU antitrust suit and the Epic trial starting, all focused on Apple’s golden jewel App Store and 30-per-cent fee,” said Dan Ives at Wedbush Securities. “While this remains a clear risk for the Street, we believe so far the bark has been worse than the bite as Cook & Co. have successfully defended its App Store moat, with the upcoming Epic court battle likely a victory for Apple and the bulls.”