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Policy / Big Tech

EU’s antitrust charges could strike at the heart of Apple’s business model

The EU's probe into the rules governing the Apple App Store could have big implications for the company and other so-called 'digital gatekeepers'.

The EU is poised to hit Apple with anti-competitive charges this week that could land the company with a hefty fine and undermine a central plank of its business model. Based on complaints brought two years ago by Spotify, Apple is accused of exploiting its App Store rules to privilege its own services and impose steep fees and restrictions on competitors. Experts in competition law say that if successful, the charges could have radical implications for Apple and other ‘digital gatekeepers’.

EU Apple Antitrust charges
Apple CEO Tim Cook speaks on stage during an Apple product launch event on October 27, 2016 in Cupertino, California. (Photo by Stephen Lam/Getty Images)

Music streaming platform Spotify’s 2019 complaint focused on Apple’s 30% tax on purchases made through its payment system. It argued that this put apps like Spotify in the position of being forced to pass this fee onto customers, which would artificially raise its prices above those of its direct competitor, Apple Music. On the other hand, if Spotify refused to use Apple’s payment system, “Apple then applies a series of technical and experience-limiting restrictions on Spotify,” wrote the company, “they continue to give themselves an unfair advantage at every turn.”

Ultimately the case is about who is in control of the end customer relationship.
Thomas Höppner, Hausfeld

The EU’s investigation focused on the mandatory use of Apple’s proprietary in-app purchase system for the distribution of paid digital content, and the company’s decision to prevent app developers from informing users of alternative purchasing possibilities outside of apps. “Both of these practices can increase the prices paid by consumers for the relevant services,” says Pinar Akman, professor of law at the University of Leeds. “The concern underlying the EU’s competition case is that Apple may be distorting competition in the markets where Apple itself is competing with app developers with its own apps.”

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“Ultimately, the case is about who is in control of the end customer relationship,” says Thomas Höppner, partner at Hausfeld law firm. “While Apple needed app developers to make its ecosystem as attractive as it is today, Apple has always kept tight control over it. Until now such an approach ensured that Apple may set the rules for competition at all relevant levels within its ecosystem, and it’s of little surprise that Apple has set such rules in a way that maximises its revenues.”

The impact of antitrust charges on Apple

Apple denies allegations of anti-competitive behaviour. The company is likely to appeal the EU’s forthcoming charges, but if eventually found guilty, it could be forced to pay a fine of up to 10% of global revenues. In addition to a fine, the European Commission could take action to limit the power that Apple has over its app ecosystem. “The Commission is likely to clarify that a dominant platform controlling access to a large user group may not take advantage of the dependence of business users to reach such users via the platform by imposing disproportionate terms and conditions for such access,” says Höppner.

Eyad Maher Dabbah, professor of competition law and policy at Queen Mary University of London, says the outcome of the case could be hugely important for Apple because it represents the first major antitrust case concerning the business within the EU bloc. This would have far-reaching implications for antitrust investigations into the company in other parts of the world including Australia, Russia and the UK. He argues that this may well be the impetus Apple needs, given its “business model is in desperate need of reform”.

EU Apple antitrust charges could bolster case for the Digital Markets Act

The EU has been attempting to crack down on ‘digital gatekeepers’ – online platforms which provide the only way of accessing a particular market – for some time, and in November opened a second antitrust investigation into Amazon over its role as both a marketplace provider and seller in that marketplace. However, it is reportedly struggling to build a case against the tech giant, and will be hoping its probe into Apple yields greater results.

What implications could the charges have for the EU’s blockbuster legislative proposal, the Digital Markets Act? “On superficial analysis, one may find it odd that the [European Commission] pushed a case like this, while saying that competition proceedings are not fast enough. Why use a tool that’s broken?” says Nicolas Petit, professor of European Competition Law at the European University Institute. “On closer analysis, however, it makes a lot of sense, because running cases in parallel to the legislative procedure puts the inefficiencies of competition proceedings in broad daylight.” 

Höppner says the EU Apple antitrust charges will likely provide some guidance for the scope of the DMA, with several elements of the proposed legislation relating to the Apple case. “The DMA legislation is still some distance away from becoming the law, which means such victory will strengthen the Commission’s argument that the DMA legislation should in its final outfit be as ambitious as it is in its current draft outfit,” says Dabbah.

Laurie Clarke

Senior reporter

Laurie is a senior reporter at Tech Monitor.