EU Targets Apple App Store for Antitrust Violations

Tuesday morning, the European Commission (EC) announced that it is initiating three antitrust proceedings against Apple Inc. (NASDAQ: AAPL). The proceedings are aimed at Apple’s requirement that app developers use only Apple’s in-app purchase system while restricting developers from informing users of Apple’s mobile devices of alternative and possibly cheaper ways to purchase what they want outside of the Apple ecosystem.

One of the investigations centers on the development of music streaming apps that compete with Apple Music. According to the EC’s announcement, “The investigation will, in particular, focus on the requirement that such developers – with whom Apple competes via its own music streaming service Apple Music … .”

Further, these developers are required to use Apple’s in-app purchase software to distribute paid content within devices powered by the company’s iOS operating system. Apple charges a fee for those payments and restricts developers’ “ability to communicate with iOS users and inform them about potential alternative (cheaper) subscription possibilities outside of the app.”

Apple’s rules “may also disintermediate developers of competing music streaming services from important customer data, while Apple may obtain valuable data about the activities and offers of its competitors.”

Spotify Technology S.A. (NYSE: SPOT) filed an antitrust complaint against Apple in March of 2019 citing mostly the same concerns, and the EC acknowledged Spotify’s complaint and that of an unnamed e-book/audiobook distributor.

Margrethe Vestager, the EC’s executive vice president commented:

Mobile applications have fundamentally changed the way we access content. Apple sets the rules for the distribution of apps to users of iPhones and iPads. It appears that Apple obtained a “gatekeeper” role when it comes to the distribution of apps and content to users of Apple’s popular devices. We need to ensure that Apple’s rules do not distort competition in markets where Apple is competing with other app developers, for example with its music streaming service Apple Music or with Apple Books.

The second of the three investigations announced Tuesday is focused on the distribution of e-books and audiobooks. Again the requirement to use Apple’s in-app purchase software and the inability to inform users of alternatives are central.

The third probe will look at how other app developers are treated when they build apps that compete with Apple’s own.

Apple investors are not worried, apparently. The company’s share price traded up about 2% at $349.99 Tuesday morning, in a 52-week range of $192.58 to $354.77.

Unless the EC ultimately dishes out a fine with at least 11 digits, Apple won’t even feel it. The chances of that happening are approximately zero.

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