Apple’s App Store Draws E.U. Antitrust Charge - The New York Times

By forcing app developers to use its payment system and comply with other rules, regulators said Apple broke European Union competition laws.

LONDON — European Union regulators on Friday accused Apple of violating antitrust laws by imposing unfair rules and fees on rival music-streaming services that depend on the App Store to reach customers.

Amid growing scrutiny of the tech industry worldwide, the case will be an important test of a government's ability to force one of Silicon Valley’s most powerful companies to change its behavior. Europe is seen as a global bellwether on tech policy, but Apple has vowed to fight the charges.

With its ability to make or break the business of app developers, Apple is one of the digital economy’s most important gatekeepers. Any app downloaded to an iPhone or iPad — from Tinder to Instagram to Candy Crush — must comply with the company’s rules and guidelines, including using Apple’s payment system and sharing up to 30 percent on any sales. If not, a company risks losing access to millions of Apple customers.

Apple says tight oversight of the App Store ensures customers download high-quality apps, protecting users from viruses, fraud and buggy software. But companies including Spotify, the music streaming service that filed a complaint two years ago that set off the European Union’s investigation, have grown frustrated with its powerful position. They argue it allows Apple to undercut competitors to services like Apple Music and charge an unfair tax on developers.

The European Commission, the executive arm of the 27-nation bloc, agreed with Apple’s opponents. Authorities zeroed in on requirements that rival music platforms must use Apple’s payment system, forcing them to give Apple a percentage of their subscription fees. The rules have the effect of driving up prices, regulators said, because companies are prevented from offering cheaper payment options and pass on Apple’s fees to customers.

Margrethe Vestager, the commission’s executive vice president in charge of antitrust enforcement, said Apple was abusing its power to harm Spotify, the Swedish company that is Apple’s main competitor in the music streaming and podcast market.

“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,” Ms. Vestager said in a statement.

Margrethe Vestager, the European Commission’s executive vice president in charge of antitrust enforcement, said Apple was abusing its power. — Pool photo by Francisco Seco

Ms. Vestager said the findings were preliminary and there was no fixed deadline for regulators to impose a penalty or reach a settlement. Earlier antitrust cases against Google took years to resolve. In the Apple case, remedies could include letting app developers use alternative payment methods.

Ms. Vestager said the commission had other investigations underway against Apple, including whether the company boxes out rivals to Apple Pay, and had been speaking with counterparts in the United States, Australia and the Netherlands about the inquiries.

“It is an area that has raised concern with a number of colleagues of ours around the world,” Ms. Vestager said.

Spotify cheered the European Commission’s decision. Starting in 2016, the company stopped allowing customers to purchase a subscription through its iPhone and iPad apps as a way to avoid paying Apple’s fee, instead steering people to Spotify’s website.

“Ensuring the iOS platform operates fairly is an urgent task with far-reaching implications,” Horacio Gutierrez, Spotify’s head of global affairs and chief legal officer, said in a statement. The commission’s announcement, he said, “is 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 said its App Store policies did not harm competition, but rather give businesses a platform to reach customers. The company said developers could find payment alternatives, noting that Spotify pays little in commissions to Apple because customers must subscribe through a website. Apple said Spotify had become the world’s largest music streaming service in part because of the App Store.

“They want all the benefits of the App Store but don’t think they should have to pay anything for that,” Apple said in a statement. “The commission’s argument on Spotify’s behalf is the opposite of fair competition.”

Criticism of the App Store is part of a broader debate over tech industry power, where a small number of companies like Amazon, Apple, Facebook and Google have government-like authority to set policies over major parts of the digital economy. This authority determines how people find information and entertainment, communicate and shop.

This week, Apple flexed its power by introducing a software update that gave customers more power to block data tracking by apps, a change that has started a feud with Facebook, which has criticized the move as anticompetitive because it will harm the ability to sell online advertising.

Companies are increasingly pushing regulators and courts to intervene. At a congressional hearing in Washington last week, companies including Spotify, Tile and Match Group told senators how policies set by Apple and Google, whose Play Store is another pinch point for app developers, hurt competition and resulted in higher app prices for customers. And next week, a trial is scheduled to begin in California between Apple and Epic Games, the maker of Fortnite that has filed an antitrust lawsuit against Apple over its fees.

Britain is conducting another antitrust investigation of Apple over the App Store after receiving complaints from developers.

The case announced on Friday is part of a broader effort by the European Union to clamp down on so-called gatekeeper companies like Apple, Amazon, Facebook and Google. Policymakers are drafting laws that would prevent the tech giants from abusing their market power to harm smaller companies, including how they manage app stores.

Efforts to force App Store changes pose a threat to a fast-growing piece of Apple’s business. As sales of iPhones, iPads and other hardware devices mature, the company is counting on digital services as a fresh source of growth. Optimism among investors about that business has helped send Apple’s stock soaring, giving it a market value of more than $2.2 trillion, the largest in the world.

Pressure on Apple about the App Store has already led the company to make changes. Last fall, the company halved its commission on many app sales to 15 percent for developers who made less than $1 million a year on their iPhone apps. That change affected about 98 percent of developers who paid the commission, but it still hardly touched Apple’s bottom line; those developers accounted for less than 5 percent of the revenue Apple collected from apps, according to estimates by Sensor Tower, an app data firm.

Apple earns far more by taking a cut of sales from the most popular apps. Match Group, which makes the dating app Tinder, said recently that it paid Apple nearly $500 million a year in commission payments, its single largest expense.

If European regulators forced Apple to allow apps to use their own payment systems, enabling them to avoid Apple’s commission, it could cost the iPhone maker billions of dollars a year. If a fine were levied instead, even in the billions of dollars, it would be a preferable outcome for Apple.

Apple has shown a willingness to fight with regulators. Last year, the company won an appeal to overturn an order to repay nearly $15 billion in unpaid taxes that the European Commission said the company owed.

A challenge for governments investigating the biggest technology companies is that the markets are complex and fast moving, said Tommaso Valletti, the former chief competition economist for the European Commission. Authorities must act quickly, he said, before competition is irreparably harmed.

“Because of the usual fast dynamics in the digital economy it is very difficult to restore the competition lost,” said Mr. Valletti, now an economics professor at Imperial College Business School in London.

Jack Nicas contributed reporting.

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