In its preliminary findings of an investigation into Apple’s App Store, the European Commission found the company to be in violation of EU competition law. The Commission expressed its concerns on Friday in response to a Spotify antitrust complaint filed in 2019 about Apple’s policy for handling in-app payments.
For the past year, the EU has been looking into whether Apple is abusing its power by charging Spotify and other subscription-based companies a 30% fee for in-app purchases, dubbed the “Apple Tax.” Spotify claimed in its complaint that Apple was stifling competition by charging companies that compete with its own services, in this case Apple Music.
The EU has been investigating whether Apple’s fees prevent or discourage other music streaming services from offering affordable subscriptions through their own apps. Despite the fact that Spotify filed the complaint, it is also investigating the impact on smaller streaming services such as Deezer and Sound Cloud.
In a tweet on Friday morning, European Competition Commissioner Margrethe Vestager stated that the investigation discovered “consumers losing out” as a result of Apple’s policies. The preliminary findings are a Statement of Objections to Apple’s behavior, not a final judgment.
Vestager described Apple as a “gatekeeper” in a statement because iPhone and iPad users have no choice but to download apps from the company’s own App Store. “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,” she said. “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.”
Apple will now have the opportunity to respond to the Commission’s objections before a final decision is rendered on the matter. If it fails to assuage the Commission’s concerns, it could face a fine of up to 10% of its annual revenue and be forced to change the way it charges for streaming services – at least within the EU.
Apple reacted angrily to the announcement on Friday, claiming that the Commission’s argument on Spotify’s behalf was “the polar opposite of fair competition.” A spokesman for Apple said in a statement that the company is proud of its role in helping Spotify become the largest global music streaming service, and that it does not pay commission on more than 99 percent of its subscribers (and only 15 percent commission on the remaining subscribers 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,” said Apple. “Once again, they want all the benefits of the App Store but don’t think they should have to pay anything for that.”
This isn’t Apple’s first brush with Europe’s Competition Commission or Vestager. In 2016, Apple CEO Tim Cook responded to Vestager’s $14.5 billion tax penalty by calling it “political crap.” Following the announcement, Spotify’s CEO Daniel Ek tweeted: “we are one step closer to creating a level playing field.”
In a separate statement, Horacio Gutierrez, the company’s Head of Global Affairs and Chief Legal Officer, stated that ensuring the iOS platform operates fairly is “an urgent task with far-reaching implications.”
“The European Commission’s Statement of Objections 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,” he said.
For at least another year, the Commission is unlikely to announce whether formal charges and a subsequent penalty will be levied. When wealthy tech companies violate EU competition law, fines can run into the billions of dollars, as Google has done several times in recent years. If the Commission decides that Apple violated competition law and imposes a fine, the company will be able to appeal the decision.