EU Antitrust Probe: €500 Million Fine for Apple and the Digital Markets Act

Posted On - 6 March, 2024 • By - King Stubb & Kasiva

Introduction

In a landmark development, Apple is on the brink of a fine of over €500 million by the European Commission, triggered by a 2019 complaint from Spotify. The probe focuses on Apple’s alleged breaches of EU competition laws, specifically impeding third-party music services while favoring Apple Music. The primary issue lies in the App Store’s policies, prohibiting companies like Spotify from direct user billing and channeling transactions through Apple’s service with a hefty commission of up to 30%.

The investigation focuses on whether Apple suppressed apps from informing users about other cost-effective subscriptions outside the App Store. Expected findings anticipate accusations of market abuse and unfair trading conditions. If the Commission proceeds, it could lead to one of the largest fines against a tech giant in the EU.

This development aligns with the impending Digital Markets Act (DMA) in March, aiming to regulate tech giants. Apple, anticipating changes, has started adjusting its EU practices. This article discusses the investigation’s intricacies and the potential implications of the Digital Markets Act in the following manner:

  • Background of Antitrust Law in the Digital Age, with specific reference to EU
  • Spotify’s Complaint and the EU Investigation
  • Potential Consequences and the Digital Markets Act

Background of Antitrust Law in the Digital Age, with specific reference to EU

Background of EU’s Competition Law

The European Union prioritizes fair competition within the Single Market through its robust competition law framework. This framework aims to prevent anti-competitive practices that harm consumers and hinder innovation. The two central pillars of EU competition law are enshrined in the Treaty on the Functioning of the European Union[1]:

  • Article 101: Prohibits agreements between companies that restrict competition. This includes cartels, price-fixing, and market-sharing agreements.
  • Article 102: Prohibits dominant companies from abusing their market power through unfair practices. This includes charging excessive prices, limiting production, or refusing to innovate, all of which can disadvantage consumers and hinder competition.

The European Commission enforces these regulations, investigating potential violations and imposing fines on companies found to be in breach. This ensures a level playing field for businesses and protects consumers from harmful anti-competitive practices. Some additional points are:

  • The EU competition law framework also covers merger control, ensuring mergers and acquisitions do not create excessive market concentration and impede competition.
  • National competition authorities in EU member states collaborate with the European Commission to enforce competition law effectively across the bloc.
  • The EU is a strong advocate for competition at the international level, promoting similar principles and collaborating with other countries to combat anti-competitive practices on a global scale.

Competition and Antitrust in the Digital Age

The digital environment presents distinct challenges for competitors. Market concentration is typically the result of network effects and high fixed costs, which limit new entrants’ capacity to compete, especially against well-established enterprises with large customer bases. Furthermore, digital enterprises might get a competitive advantage by leveraging large amounts of data and implementing personalised pricing methods.

Despite the persistence of traditional antitrust issues, technology companies increasingly operate in ecosystems governed by platforms, data, and network effects. To handle these challenges, antitrust enforcement must adapt to strike a balance between innovation, fair competition, and consumer protection. The controversy over the bundling of Microsoft’s browsers in US v. Microsoft exemplifies how antitrust laws are changing in the digital era.[2]  In an ever-changing environment, technology companies, policymakers, and consumers must collaborate to develop solutions that promote a competitive and strong digital ecosystem.

Spotify’s Complaint and the EU Investigation

The EU is preparing to impose a €500 million fine on Apple. This action stems from a long-running investigation launched in 2019 following a formal complaint by the music streaming service Spotify.

The Allegations

  • Spotify accused Apple of using its control over the App Store to unfairly advantage its own Apple Music service.
  • Specifically, the investigation focused on Apple’s rules preventing app developers, like Spotify, from informing users about cheaper subscription options outside the App Store.
  • Apple charges developers a commission of up to 30% on in-app purchases, potentially making subscriptions outside the App Store more cost-effective.

European Commission’s Expected Findings

  • The EU is expected to announce the fine in March, along with a ban on Apple’s “anti-steering” provisions.
  • These provisions allegedly prevent music streaming apps from directing customers to better deals on subscriptions outside the App Store.
  • The EU considers these actions illegal and a violation of EU competition rules within the single market.

Significance and Implications

  • This fine is one of the largest ever imposed by the EU on a big tech company.
  • It reignites tensions between the EU and Big Tech companies, particularly regarding compliance with the EU’s new DMA.
  • The Act aims to foster competition and allow smaller tech firms to thrive by imposing stricter regulations on “gatekeepers” like Apple, Amazon, and Google.
  • These regulations include allowing rivals to share information about their services and potentially opening alternative app distribution channels.

Apple’s Response

  • Apple has implemented changes to its iOS software, App Store, and Safari browser in an attempt to appease the EU.
  • However, Spotify claims these efforts are insufficient and do not address the core concerns.
  • Apple maintains its stance that the App Store has helped Spotify become a leading music streaming service and denies any wrongdoing, reserving the right to appeal the EU’s decision.

Potential Consequences and the Digital Markets Act

The DMA, enacted by the EU, serves as a pivotal regulatory framework designed to foster fairness and competition within the digital sector. Introduced in response to concerns about the dominance of large digital platforms, the DMA identifies and regulates entities deemed “gatekeepers.” These gatekeepers, operating core platform services like online search engines and app stores, must adhere to a set of obligations (“do’s”) and prohibitions (“don’ts”) specified in the DMA.[3]

Key Components of the DMA

  • Gatekeeper Identification: The DMA employs objective criteria to identify gatekeepers, acknowledging their influential role in the digital landscape.
  • Obligations (“Do’s”): Gatekeepers are mandated to undertake specific actions, such as allowing third-party interoperability, providing access to user-generated data, and enabling independent verification of advertisements on their platforms.
  • Prohibitions (“Don’ts”): Gatekeepers face restrictions, including avoiding preferential treatment of their own services, preventing anti-competitive practices like blocking users from linking to external businesses, and refraining from intrusive tracking for targeted advertising without user consent.

Compliance and Consequences

Notification and Designation: Gatekeepers must notify the European Commission of their status and comply with obligations within six months of designation. The Commission designates gatekeepers following a market investigation.

Potential Consequences of Non-Compliance

  • Fines: Up to 10% of the company’s global annual turnover, escalating to 20% for repeated violations.
  • Periodic Penalty Payments: Up to 5% of the average daily turnover.
  • Remedies: In cases of systematic infringements, additional remedies, including non-financial measures like divestiture, may be imposed.

Implications for Apple

In the context of the ongoing Apple controversy, the DMA assumes a critical role. If Apple is found in violation of DMA rules, it could face substantial fines and additional remedies. The DMA’s stringent provisions aim to curtail anti-competitive practices and ensure a level playing field in the digital market, underscoring the EU’s commitment to regulating tech giants for the benefit of fair competition and consumer protection. As the DMA is still in its early implementation, the outcome of its application to Apple may set a precedent for future regulatory actions in the evolving digital landscape.

Conclusion

The impending €500 million fine on Apple by the EU, stemming from alleged breaches of competition laws, marks a significant development in the ongoing battle between regulators and tech giants. The Spotify-initiated investigation, coupled with the DMA, underscores a concerted effort to rein in Big Tech’s dominance. As the EU navigates the complex intersection of antitrust regulations and the evolving digital landscape, the outcome of this case and the subsequent DMA implementation may reshape the regulatory framework for major players in the tech industry.

[1] https://competition-policy.ec.europa.eu/antitrust-and-cartels_en.

[2] https://www.justice.gov/atr/us-v-microsoft-courts-findings-fact.

[3] https://digital-markets-act.ec.europa.eu/about-dma_en.

King Stubb & Kasiva,
Advocates & Attorneys

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