(CN) --- Opening a new chapter in Europe's efforts to rein in Big Tech, European Union regulators on Friday accused U.S. tech giant Apple of anticompetitive practices in the music streaming market.
The European Commission accused Apple of abusing its dominant position in the digital economy by making music streaming services distribute their products through Apple's own Apple Music app and pay fees.
The commission is siding with Spotify, which filed a complaint with EU regulators against Apple's practices in March 2019. The EU may seek to levy hefty fines against Apple and likely will demand it make changes to its business practices. The case will be closely watched as Europe is seen as a bellwether in tech policy. Apple has vowed to fight against the EU's efforts to force it to change its business model.
EU regulators said Apple competes with music streaming providers through its Apple Music app, which is installed on iPhone and iPad products. Competitors are forced to use Apple's App Store to reach millions of people using Apple devices and software. EU regulators said this “closed ecosystem” allows Apple to control “every aspect of the user experience for iPhones and iPads.”
All apps downloaded to an iPhone or iPad must be compatible with Apple's iOS mobile operating system and its rules and guidelines, which means they must also use Apple's payment system and share up to 30% on any sales. Apple argues that its closed system protects users from viruses, fraud and bad software.
When it comes to streaming music, EU watchdogs accuse Apple of unfairly charging its rivals high commission fees for each transaction in the Apple App Store and preventing them from informing iPhone and iPad customers of alternative, cheaper subscription options.
EU regulators said Apple charges app developers a 30% commission fee on subscriptions bought through its mandatory in-app purchase system. In turn, music streaming services pass the fee onto customers by raising prices, the commission said. Apple rejected the charges.
“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,” said Margrethe Vestager, a Danish politician and commission executive who's led the EU's antitrust fights against Big Tech.
In today's digital world, she said it is crucial that app stores play by fair rules.
“App stores play a central role in today's digital economy,” she said. “We can now do our shopping, access news, music or movies via apps instead of visiting websites.”
The commission opened an antitrust investigation into Apple's App Store rules in June 2020. Apple will be able to contest the commission's findings. The commission is the EU's executive branch and it is charged with enforcing competition rules.
On Friday, Apple rejected the accusations and pointed out that Spotify has become the world's largest music subscription service, suggesting that Apple's practices have not stifled rivals.
The Silicon Valley giant said Spotify does not pay Apple any commission for more than 99% of its subscribers and pays a 15% commission 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,” Apple said in a 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.”
Apple pointed out that Spotify has said it will not depend on the App Store for its future success. Apple also said Spotify's business model depends on advertising out-of-app offers from within their app and that it markets itself widely on social media and on traditional media, a fact that it suggested undermines Spotify’s argument that the App Store restrictions amount to a gag order.
Horacio Gutierrez, Spotify's head of global affairs and chief legal officer, welcomed the commission's findings.
“Ensuring the iOS platform operates fairly is an urgent task with far-reaching implications,” Gutierrez said in a statement. He said the commission had taken a “critical step toward holding Apple accountable for its anticompetitive behavior, ensuring meaningful choice for all consumers and a level playing field for app developers.”
Apple and Spotify are in competition for dominance in the lucrative streaming music market. Spotify has about 356 million active users and 158 million paid subscribers. Apple Music is estimated to have more than 70 million subscribers.
This is the first EU antitrust charge against Apple, though the commission is seeking about $15 billion in back taxes it says Apple owes Ireland. Apple scored a big victory last July when the European General Court ruled against the commission over the back taxes, though the commission has appealed.
Apple faces another antitrust complaint in the EU after Epic Games, the maker of the popular video game Fortnite, accused it of similar unfair practices in February.
Epic tried last year to bypass the Apple App Store with a direct payment system, prompting Apple to drop the Fortnite app from its App Store. In return, Epic filed legal challenges in the U.S., Australia and Britain.
In its complaint to the European Commission’s competition watchdog, Epic alleged that Apple’s restrictions have eliminated competition in app distribution and payment. It accused Apple of blocking competitors and abusing its dominant position, in breach of EU rules.
The EU has taken aim at giant American tech firms, charging that they are violating antitrust laws, driving up prices and stymying competition. It's taken on Amazon, accusing the e-commerce giant of abusing its access to data, and levied large antitrust fines against Google.
In December, the EU proposed new rules to allow regulators to levy massive fines against tech companies that repeatedly fail to take down content deemed dangerous and break fair competition practices. The EU sees itself as a pioneer in seeking to impose a legal framework to the disorder of the digital world.
With these proposals, the EU is threatening to levy fines of between 6% and 10% of a company’s global revenues for breaking the rules.
A core goal is to rein in the colossal powers of the big American tech companies like Google, Apple, Facebook and Amazon, whose practices are seen in Europe as stifling European competitors, disregarding the continent’s deeply held privacy concerns, operating as untrammeled profit engines and threatening democracy by allowing the spread of hate speech and disinformation. These companies are dominant in Europe just as they are around the globe.
Courthouse News reporter Cain Burdeau is based in the European Union.
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