Out of tune: European Commission issues its third largest fine – EUR 1.84 bn – against Apple for abusive practices in respect of music streaming apps
On Monday, 4 March 2024, the European Commission announced that Apple had infringed competition law by prohibiting developers of iOS music streaming apps from informing users of cheaper ways to subscribe to, or buy, content for apps distributed through Apple’s App Store.
A €1.84 billion fine may sound significant: but when it only equates to half a percent (0.5%) of Apple’s worldwide turnover, it is far from clear that it will be perceived as such by Apple. More striking perhaps is that only €40 million of the fine is in respect of the conduct itself; €1.8 billion “account[s] for the non-monetary harm caused to consumers and to achieve deterrence”[1] ; the fine also includes an element in sanction for Apple’s obstructive behaviour during the investigation.
But why does the ability to communicate freely with their customers matter to an app developer?
Because Apple’s iOS is a closed ecosystem: app developers cannot distribute – and customers cannot purchase – iOS apps outside the App Store. By distributing apps through Apple’s App Store, every purchase must use Apple’s payment system; and on the vast majority of these transactions, Apple charges a 30% commission.
Some large developers – like Spotify, whose complaint launched the European Commission’s investigation – have been considering ways to avoid Apple’s charges and offer their products cheaper elsewhere. From 2011, companies like Spotify have been able to offer customers the option of subscribing to their services directly (and for a lower fee) on their website. However, Apple prohibited them from informing – or ‘steering’ – customers to those cheaper offers in their apps; meaning most customers are simply not aware that this option even exists.
As Apple has a monopoly over the provision of iOS apps to iOS device users, it has a special responsibility not to abuse that position by restricting competition. The European Commission found that Apple’s ‘anti-steering’ restrictions amounted to unfair trading conditions and an abuse of Apple’s dominant position under EU competition law. The European Commission stated that Apple’s ‘anti-steering’ restrictions are “neither necessary nor proportionate” for the protection of Apple's commercial interests and “negatively affect the interests of iOS users, who cannot make informed and effective decisions on where and how to purchase music streaming subscriptions for use on their device.” [2] In doing so, Apple’s conduct “may have led many iOS users to pay significantly higher prices for music streaming subscriptions because of the high commission fee imposed by Apple on developers and passed on to consumers in the form of higher subscription prices for the same service on the Apple App Store.” Further, the European Commission found that Apple’s restrictions led to non-monetary harm to consumers in the form of a poorer user experience “iOS users either had to engage in a cumbersome search before they found their way to relevant offers outside the app, or they never subscribed to any service because they did not find the right one on their own.”
Unsurprisingly, Apple has already stated that it will appeal the European Commission’s decision.
This decision comes only a few days before the 6 March deadline for big tech ‘gatekeepers’ (including Apple) to comply with requirements of the Digital Markets Act in Europe. As a result, Apple has announced fundamental changes to the way it operates the iOS ecosystem, and in particular, its App Store: see our commentary on Apple’s proposed changes here. Indeed, Apple’s fine could be seen as a taste of things to come. Under the DMA, the European Commission will be able to fine companies up to 10% of global sales for breaking the rules. For repeat infringements, this increases to 20%. We can hope that this decision indicates that the European Commission will not shy away from fines of even greater magnitude; ultimately, fines that will be match the scale of the profits made by big tech from anti-competitive conduct.
However, the DMA only applies in the European Union and UK based Apple customers will see no benefits either from the European Commission’s decision nor from the DMA. A UK legislative equivalent, the Digital Markets, Competition and Consumers Bill, is making its way through Parliament but its timing remains uncertain. Additionally, the Competition and Markets Authority is currently undertaking an investigation into Apple’s iOS ecosystem – including its conduct vis-à-vis the App Store. Whether Apple will make similar changes in the UK to those it has now been forced to make in the EU is unclear. Until then, private enforcement cases like that brought by Dr Rachael Kent against Apple remain of pivotal importance.
Footnotes
[1] Remarks by Executive Vice-President Vestager on the adoption of an antitrust decision against Apple over abusive App store rules for music streaming providers dated 4 March 2024, accessed 5 March 2024, available online: https://europa.eu/newsroom/ecpc-failover/pdf/speech-24-1309_en.pdf.
[2] Press Release: Commission fines Apple over €1.8 billion over abusive App store rules for music streaming providers, dated 4 March 2024, accessed 5 March 2024, available online: https://ec.europa.eu/commission/presscorner/detail/en/ip_24_1161.