Apple is brought under investigation by the EU Commission for its alleged anti-competitive practice

On June the 16th 2020 the European Commission announced that it is opening an anti-competition investigation that aims to assess whether Apple’s rules requiring that app developers distribute their product via App Store amounts to a violation of EU competition regulations. Particularly, the EU antitrust authorities seek to investigate the mandatory use of Apple’s proprietary in-app purchase system and failure to inform users of alternative cheaper options that they could buy outside the apps.

The investigation concerns the application of these rules to all the other app service with which Apple competes with within the European Economic Area and it has resulted from earlier filed complaints from Spotify and an unnamed e-book/audiobook distributor which alleged that Apple’s practices in the music streaming and e-book/audiobooks market were breaching their obligations under the European competition rules.

The Basis of Action

At the moment, users of iPhones and iPads can only download apps that are available through App Store, and those companies which want to distribute their apps to those users are faced with certain rules that they must abide by if they won't get Apple’s permission to do so. There are two specific rules that the European antitrust authorities will investigate.

The first rule concerns the mandatory use of Apple’s proprietary in-app purchase system for the distribution of paid digital content for which app developers are charged a 30% commission on all subscription fees.

Secondly, although users can consume content purchased elsewhere also in the app, the developers are restricted in their ability to inform users of alternative purchasing options outside the app.

The complaint filed by Spotify earlier in the year focused on these two rules and their impact on the competition for the music streaming services. In their preliminary investigation, the Commission found that such restrictions imposed by Apple might have the effect of distorting the competitive nature of this market. The investigation regarding a complaint brought by an e-book/audiobook distributor raised similar concerns.

The Investigation

The Commission proposes itself to investigate these allegations regarding Apple’s anti-competition market practices in the distribution of digital content services which could harm the consumers by preventing them from enjoying the benefits of greater choice of content and lower prices. If the investigation leads to positive answers, Apple’s rules will be deemed in breach of EU competition rules on anti-competitive agreements between companies (Article 101 of the Treaty on the Functioning of the European Union (TFEU)) and/or on the abuse of a dominant position (Articles 102 TFEU).

As a result of the opening of this investigation by the Commission, domestic competition authorities are relieved from their obligation to apply EU competition rules to the practices in question. The basis for this is found in Article 11(6) of the Antitrust Regulation. Moreover, per Article 16(1), national courts must avoid ruling in conflict with a decision taken by the Commission in any initiated proceedings.

Double Hit

However, this is not the only antitrust investigation sought by the Commission vis-à-vis Apple. Apple Pay – the contactless and online payment service – is brought under investigation for a set of restrictions that it imposes that have the effect of banning the use of any other contactless payment apps on iPhones or iPads.

EU Executive Vice President Margrethe Vestager in competing on the investigations alluded that there is a risk that Apple’s measures deny the consumers the benefit of using new payment technologies, thus harming their experience in using such services.

In an earlier investigation, the Commission ordered payment of 13 billion euros after having found that Ireland had given the company illegal state aid as a result of improper tax deduction. Both Ireland and Apple filed an appeal against that decision that was heard in September 2019. A decision in that respect is yet to be taken.

Competitors in the Digital Market

The Guardian reported that this is the first time that Apple is facing a formal investigation by the EU over competition regulations. By contracts, its biggest competitor – Google – has been brought under scrutiny having been involved in a number of investigations which resulted in an excess of 8 billion euros of fines. Most recently, the Commission opened an investigation into the company’s data collection practices.

Given the economic scale on these investigations, this story deserved to be followed as it will progress. It shall be noted in the future whether Apple will follow the steps of Google. The importance of this investigation is ever more relevant in the present times when the use of technology in the wake of COVID-19 has been unprecedentedly high. With more work and leisure activities being carried remotely through the use of technology, and more digital content being consumed around the world, competition practices in the provision of digital services market will be for certain an area that experts and analysts will be paying attention to for years to come.

To be continued…