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European Union Files Antitrust Chargesheet Against Apple in Spotify Case

Editor, TRANSFIN.
May 7, 2021 5:56 AM 6 min read
Editorial

The European Commission (EC) has issued a charge-sheet against Apple accusing it of abusing its App Store dominance to hurt competition in the music streaming industry.

Apple vs Spotify

The case pertains to a complaint brought forth by Spotify in 2019. This complaint and the Commission's preliminary view hold Apple guilty of two things.

  1. One, requiring apps to use Apple's in-app purchase system for selling digital content besides charging a 30% commission fee on subscriptions bought via that system.
  2. Two, for implementing "anti-steering provisions" that limit app developers' ability to inform users about cheaper ways to pay outside the App Store.

In the EC’s view, these actions have led to a situation wherein app developers pass on the hefty commission fees on to consumers. App Store’s dominant position as a “gatekeeper” has also meant stifling of competition, particularly so in music streaming where the company has its own service - Apple Music - which is not subject to the same rules as its non-Apple competitors.

The EU’s competition chief Margrethe Vestager told the press that this distorted system led to consumers paying €12.99 ($15.68) for other apps as opposed to the €9.99 ($12) Apple charges for its own music service.

In response, Apple has predictably refuted the EC's charges, contending that they were "the opposite of fair competition". The tech giant pointed that Spotify has become the largest music subscription service in the world "and we’re proud [of] the role we played in that". The 30% commission is something the company has defended in the past, saying apps cannot benefit from its service without supporting it.

Apple has 12 weeks to respond to the charges. While not the first time the company has found itself on the wrong side of European regulators, the stakes in this case are quite high. If found guilty, the company could face a fine of up to 10% of its annual revenue and be forced to tweak its business practices, although it is hard to envisage a fine of that magnitude actually going through.

The ultimate verdict of the Commission, however, can be appealed in court. So expect this probe to last a while.

 

“Not a Spotify Case”

While this particular investigation was brought in by Spotify, Vestager has made it clear that “this is not a Spotify case - this is a music streaming case”.

With a market cap of $50bn, Spotify is in a relatively better position to thrive without bowing before Apple. But there are other fish in the streaming sea - Deezer, SoundCloud, Mixcloud, Stereomood, Soundrop and dozens of other smaller services that can’t survive without the App Store.

Nor is this case an isolated one. There is a growing chorus of criticism from app developers against App Store policies. Next week, a US court is scheduled to hear a lawsuit brought in by Fortnite-owner Epic Games against Apple, accusing the latter of anti-competitive practices. In India, where the majority of smartphone users are on Android OS, the opprobrium has been directed against Play Store, again for similar reasons such as mandating in-app payments for purchases and high commission rates (more on that here).

The Apple vs. Spotify showdown also comes amid a growing international backlash against Big Tech. And nowhere is this clash more brutal - and consequential - than in the EU.

 

A Continent for Competition

Europe’s reputation as a regulatory trendsetter and its influence on global policy discourse has a name - the Brussels effect.

In the realms of antitrust law, the bloc is miles ahead of the rest of the world. Since 2016, the EU and individual EU countries have levied more than €20bn ($24bn) in fines and other penalties against Big Tech.

Crucially, Europe's legal landscape has evolved in recent years to adapt to changing times, blending existing competition rules with other consumer and privacy protections as well as giving regulators more power to keep big companies in check.

One of the best examples of this is the GDPR, the holy grail of data security legislation, the implementation of which in 2018 sparked similar policies in other countries and brought the conversation about data privacy and tech firms’ responsibility for the same to the mainstream. An example of its impact - WhatsApp’s new privacy policy, which evoked a great hue and cry across the rest of the world but didn’t cause waves in Europe simply because the continent’s privacy legislation was too robust for Facebook to push through its controversial updates.

In December last year, the bloc took things further with the Digital Markets Act and the Digital Services Act. These two pieces of legislation, if passed, could end tech companies' ability to boost their own products on their platforms over others' (aka self-preferencing), impose hefty fines in case of non-compliance, and force divestment "if no other remedy is available".

 

Empress of Antitrust

Much of the credit for the EU’s strong record on tech regulation goes to Ms. Vestager. She has taken an increasingly vocal, confrontational and personal stand against Big Tech companies, winning plaudits the world over.

Before 2014, which was when Vestager assumed the role of antitrust tsar, the EU's attempts at safeguarding small businesses and competition were plagued by the same anathema in other countries - cut-throat lobbying by deep-pocketed big companies and a general reluctance to take on the big guns.

But barely two years later, Vestager had slapped a €2.42bn ($2.92bn) fine on Google over its Search practices (the company is appealing). She followed this swiftly with probes into Apple, Amazon, Microsoft and Facebook (here’s a list).

These efforts were augmented by cross-Atlantic forays with American officials and numerous public appearances to sell her case to the public, which is crucial to water-down complicated legal jargon in a way that makes the average consumer understand and empathise. 

 

A Battle for Best Practices

When it comes to tech regulation, two jurisdictions’ decisions are particularly noteworthy – America’s, as the home of Big Tech, and Europe’s, as the trend-setter.

At least until recently, the US and EU didn’t exactly see eye-to-eye on how to address the growing clout of Big Tech. Regulators in the latter typically took - and arguably still take - more aggressive stances against antitrust violations as opposed to their American counterparts.

For example, in 2017 the EC imposed a record $2.3bn fine on Google for allegedly manipulating its Search results to favour its own products to the detriment of its rivals. In the US, the FTC found no such bias. A year later, European regulators took Google to task again over Android and slapped a $5bn fine and then a $1.7bn fine over its AdSense online advertising programme. US action in these areas, meanwhile, has been muted.

What could possibly explain this disparity? After all, distrust of Big Tech monopolies is a bipartisan sticking point across the political spectrum and across countries, right? Perhaps America’s softer stance is premised on the fact that the accused are “American” companies that are powerful embodiments of American power and influence across the globe (think Google Tax). Or maybe the difference is philosophical – the US prefers to let the market correct itself naturally while Europe doesn’t mind the occasional corrective government nudge in the right direction.

Either way, in recent months American regulators have taken an increasingly hardline stance against tech giants. A coalition of US states has filed a lawsuit against Google, accusing it of manipulating digital advertising markets. Officials have sued Google over its Search-related deal with Apple. The FTC is taking Facebook to court, aiming to unwind its acquisitions of WhatsApp and Instagram.

Led by the EU, stringent action against Big Tech’s dubious practices is underway across the world. At a time when the pandemic has made the platforms an indispensable and essential service, the outcome of these probes will determine how strong the checks and balances in the system will be going forward.

FIN.
 

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