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Apple faces EU's antitrust charges

App Store-Spotify interactions at issue by ADAM SATARIANO THE NEW YORK TIMES | May 1, 2021 at 1:52 a.m.
Apple is abusing its power and harming Spotify, European Commissioner Margrethe Vestager said Friday at the European Union headquarters in Brussels. (AP/Francisco Seco)

LONDON -- European Union regulators Friday accused Apple of violating antitrust laws by imposing unfair rules and fees on rival music-streaming services that depend on the App Store to reach customers.

As scrutiny of the tech industry increases worldwide, the case will be an important test of a government's ability to force one of Silicon Valley's most powerful companies to change its behavior. Europe is seen as a global bellwether on tech policy, but Apple has vowed to fight the accusations.

With its ability to make or break the business of app developers, Apple is one of the digital economy's most important gatekeepers. Any app downloaded to an iPhone or iPad -- from Tinder to Instagram to Candy Crush -- must comply with the company's rules and guidelines, including using Apple's payment system and sharing up to 30% on any sales. If not, a company risks losing access to millions of Apple customers.

Apple says tight oversight of the App Store ensures customers download high-quality apps, protecting users from viruses, fraud and buggy software. But companies including Spotify, the music-streaming service that filed a complaint two years ago that set off the EU's investigation, have grown frustrated with its powerful position. They argue it allows Apple to undercut competitors to services like Apple Music and charge an unfair tax on developers.

The European Commission, the executive arm of the 27-nation bloc, agreed with Apple's opponents. Authorities zeroed in on requirements that rival music platforms use Apple's payment system, forcing them to give Apple a percentage of their subscription fees. The rules have the effect of driving up prices, regulators said, because companies are prevented from offering cheaper payment options and pass Apple's fees on to customers.

Margrethe Vestager, the commission's executive vice president in charge of antitrust enforcement, said Apple was abusing its power to harm Spotify, which is Apple's main competitor in the music-streaming and podcast market.

"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," Vestager said in a statement.

Vestager said the findings were preliminary and there was no fixed deadline for regulators to impose a penalty or reach a settlement. Earlier antitrust cases against Google took years to resolve. In the Apple case, remedies could include letting app developers use alternative payment methods.

Vestager said the commission had other investigations underway against Apple, including whether the company boxes out rivals to Apple Pay, and had been speaking with counterparts in the United States, Australia and the Netherlands about the inquiries.

"It is an area that has raised concern with a number of colleagues of ours around the world," Vestager said.

SPOTIFY, APPLE RESPOND

Spotify cheered the European Commission's decision. Starting in 2016, the Swedish company stopped allowing customers to purchase a subscription through its iPhone and iPad apps as a way to avoid paying Apple's fee, instead steering people to Spotify's website.

"Ensuring the iOS platform operates fairly is an urgent task with far-reaching implications," Horacio Gutierrez, Spotify's head of global affairs and chief legal officer, said in a statement. The commission's announcement, he said, "is a critical step toward holding Apple accountable for its anti-competitive behavior, ensuring meaningful choice for all consumers and a level playing field for app developers."

Apple said its App Store policies do not harm competition but rather give businesses a platform to reach customers. The company said developers can find payment alternatives, noting that Spotify pays little in commissions to Apple because customers must subscribe through a website. Apple said Spotify has become the world's largest music-streaming service in part because of the App Store.

"They want all the benefits of the App Store but don't think they should have to pay anything for that," Apple said in a statement. "The commission's argument on Spotify's behalf is the opposite of fair competition."

TECH INDUSTRY POWER

Criticism of the App Store is part of a broader debate over tech industry power, where a small number of companies like Amazon, Apple, Facebook and Alphabet, which owns Google, have government-like authority to set policies over major parts of the digital economy. This authority determines how people find information and entertainment, communicate and shop.

This week, Apple flexed its power by introducing a software update that gave customers more power to block data tracking by apps. The change has started a feud with Facebook, which has criticized the move as anti-competitive because it will harm the ability to sell online advertising.

Companies increasingly are pushing regulators and courts to intervene. At a hearing in Washington last week, companies including Spotify, Tile and Match Group told senators how policies set by Apple and Google, whose Play Store is another pinch point for app developers, hurt competition and resulted in higher app prices for customers. And next week, a trial is scheduled to begin in California between Apple and Epic Games, which makes Fortnite and has filed an antitrust lawsuit against Apple over its fees.

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