EU charges Apple with breaking antitrust law over Spotify

Suban Abdulla
·5-min read

WATCH: EU charges Apple with antitrust abuse in Spotify case

The European Commission (EC) has issued antitrust violation charges against US tech firm Apple (AAPL) over concerns about the company's App Store practices. 

It follows a Spotify (SPOT) complaint, accusing the tech giant of abusing its control over the distribution of music streaming apps on its App Store. 

The EC — the continent's antitrust enforcer — announced a formal "statement of objections" and informed the company of its preliminary view on Friday. 

"The Commission's preliminary view is that Apple's rules distort competition in the market for music streaming services by raising the costs of competing music streaming app developers," the EC said.

EC's chargesheet usually indicates whether a fine is merited and what actions companies have to take in order to stop anti-competitive practices.

Margrethe Vestager, EC's executive vice-president said Apple exercises "considerable market power" in the distribution of music streaming apps to owners of Apple devices, during a press conference on Friday.

"On that market Apple has a monopoly," she said. "This power cannot go unchecked."

The preliminary competition concerns focus on two conditions imposed by Apple to access its App Store. 

First, the "mandatory use" of Apple's own In App Purchase (IAP) system to buy digital content, where Apple charges a 30% commission fee for all purchases. 

This means music streaming providers cannot sell subscriptions without paying the sum to Apple each month on every purchase. Vestager said its investigation showed the 30% levy was "passed onto users by raising prices" from €9.99 ($12, £9) to €12.99.  

Its second concern, related to Apple's so called anti steering provisions, which limit the ability of app developers to inform Apple users of cheaper alternatives. 

Margrethe Vestager, European Commision executive vice-president, said Apple exercises 'considerable market power' in the distribution of music streaming apps to owners of Apple devices, during a press conference on Friday. Photo: Johanna Geron/ AFP via Getty
Margrethe Vestager, European Commision executive vice-president, said Apple exercises 'considerable market power' in the distribution of music streaming apps to owners of Apple devices, during a press conference on Friday. Photo: Johanna Geron/ AFP via Getty

Vestager noted some streaming providers, including Spotify stopped offering paid subscriptions in their apps to bypass the fee.

"We are concerned that Apple's rules negatively impact its rivals, by raising its costs, reducing their profit margins as well as their attractiveness on the Apple platform," she said. "Through these rules Apple steps in between its competitors and their customers."

Apple's IAP system also gives the firm "valuable data insights" other music streaming providers don't get, Vestager added, which puts them at a disadvantage with their customers.

However, Apple said the EC’s "argument on Spotify’s behalf is the opposite of fair competition." 

A company spokesperson told Yahoo Finance UK Spotify "does not pay any commission on over 99% of their subscribers, and only pays a 15% commission on those remaining subscribers that they 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. Once again, they want all the benefits of the App Store but don’t think they should have to pay anything for that," the spokesperson said. 

Spotify, which first complained in 2019, said Apple unfairly restricts rivals to its own music streaming service Apple Music and also protested against the 30% fee levied on app developers to use Apple’s IAP.

Vestager tweeted ahead of an official announcement that the tech giant was "in breach of EU competition law."

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"App stores play a central role in today's digital economy," Vestager said in a statement. "Our preliminary finding is that Apple is a gatekeeper to users of iPhones and iPads via the App Store." 

The tech firm will have a period of around 12 weeks to respond to the charges before the EC reaches a decision. If found guilty, it could face a fine of up to 10% of its annual revenue and be forced to adjust its business practices. Apple can also appeal any decision in court.

On Thursday, Apple posted its second quarter 2021 earnings results, showing its revenue jumped 54% to $89.6bn (£65bn) year-over-year on strong hardware sales. 

Read more: EU opens competition probes into Apple's App Store and Apple Pay

The Silicon Valley firm founded in 1976, has been in the crosshairs of the EU as the bloc aims to tame Big Tech. The latest case is one of four investigations lined against the iPhone maker. 

In June last year, the EU opened two competition probes into the company's App Store and its Apple Pay services. 

Apple has defended its practice of taking a cut of some sales through the App Store in the past, saying it wants competing apps to thrive. 

It also faces another battle over its App Store practices in a federal trial in America brought by Fortnite maker Epic Games. The gamemaker sued Apple after its move to pull Fortnite from the App Store, with Epic saying the 30% fee is unfair and accused the tech giant of abusing its market power.

Apple, which produces iPhones, Macs, watches, and offers services including iCloud and Apple Music is one of the world’s most valuable firms, with a market value of more than $2tn.

Watch: Apple reports strong earnings