Commentary on Political Economy

Friday, 30 April 2021

 

Apple’s App Store Draws E.U. Antitrust Charge

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

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An Apple store in Paris.
Credit...Sabine Mirlesse for The New York Times

European Union regulators on Friday accused Apple of violating antitrust laws by imposing unfair rules and fees on the makers of games, dating services, music platforms and other apps that depend on its 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, scams and buggy software. But companies including Spotify, the music streaming service that filed a complaint two years ago that sparked 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 Apple’s requirement that developers use its payment system, forcing them to give Apple a commission on in-app purchases. The rules have the effect of driving up prices, regulators said, because companies are prevented from giving customers to cheaper payment options.

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 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.

Ms. Vestager said the findings were preliminary. It is unknown how long regulators will take to determine whether to impose a fine or force Apple to changes its business practices. Earlier antitrust cases against Google took years to resolve. In the Apple case, remedies could include letting app developers use alternative payment methods. The two sides could also agree on a settlement.

Ms. Vestager was expected to hold a news conference to discuss the findings later on Friday.

Spotify cheered the decision.

“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 do not harm competition, but rather give businesses a platform to reach customers. The company said developers can find payment alternatives, noting that Spotify pays little in commissions to Apple because it makes customers subscribe through a website. Apple said Spotify has 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 Apple, Facebook, Google and Amazon have government-like authority to set policies over major parts of the digital economy. It 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 sparked a rivalry 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 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 changes to the App Store 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.

The E.U. case against Apple adds to the antitrust cases facing the tech industry on both sides of the Atlantic. In November, the European Commission announced charges against Amazon for violating antitrust laws over its treatment of independent merchants that depend on its e-commerce platform to reach customers. Google is appealing billions of dollars worth of fines issued in three antitrust cases by the European Commission.

In the United States, the Justice Department and dozens of state attorneys general in October brought antitrust charges against Google for illegally protecting it monopoly in search and search advertising. The Federal Trade Commission filed another case in December against Facebook for attempting to squash competition by buying up smaller rivals.

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.

Adam Satariano is a technology reporter based in London. @satariano

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