Apple hit with European Union complaint as App Store fee battle escalates

Apple Inc. was handed a European Union antitrust complaint over its app payment rules, drawing one of the world’s toughest competition enforcers into a global battle over fees for downloads on smartphones and tablets.

The European Commission sent a so-called statement of objections to Apple on Friday, laying out how it thinks Apple abused its power as the “gatekeeper” for music-streaming apps on its App Store. The case backs complaints from Spotify Technology SA, which accuses Apple of imposing its in-app purchase system to take a cut of its subscription fees.

The EU move comes days before a trial begins in California over Epic Games Inc.’s allegations that Apple’s standard fee violates US antitrust law. Epic, which is also seeking to challenge Apple in the UK, has garnered support in its US lawsuit from Microsoft Corp. and smaller developers.

Apple’s “significant market power cannot go unchecked,” EU Competition Commissioner Margrethe Vestager told reporters in Brussels. “This is not the last case that we would have when it comes to the App Store.”

Apple shares fell 0.2 per cent at 10:33 a.m. in New York trading.

The Cupertino, California-based company’s regulatory woes have intensified in recent months as software firms lined up to criticize the levies Apple and Alphabet Inc.’s Google charge outside developers for using their digital distribution platforms.

Apple faces separate antitrust scrutiny from the UK, the Netherlands and Russia. The EU has other probes into Apple Pay and e-book apps. Vestager said she also “took an interest” in gaming apps.

While the EU says it doesn’t take issue with the amount that Apple charges for app subscriptions, Vestager described the cut as “high,” especially since Apple’s own music service doesn’t have to face the same levy. The EU also criticized rules that prevent apps telling users of other payment methods to avoid paying the fee to Apple.

Every limit to Apple’s ability to exert control over its own platform is a challenge to its strategy to derive long-term growth from services instead of devices, said Joseph Evans, head of tech at Enders Analysis.

“It’s striking that aside from games and maybe dating apps, there are very few new business models that have really thrived and become extremely profitable through in-app payments,” he said. “The kind of ‘transaction tax’ is probably part of why we haven’t seen as much business model innovation in that area.”

Spotify complained in 2019 that Apple unfairly squeezes its music streaming service with ever-changing rules and a large sales cut on the app store. It has said it was forced to “artificially” increase monthly subscriptions for its premium service to cover the extra costs.

The EU said its investigation shows people usually don’t switch from Apple to Google’s Android devices. Even though Apple phones aren’t a monopoly in Europe, Apple users are effectively locked in to the company’s ecosystem.

Apple hit back, saying the EU’s “argument on Spotify’s behalf is the opposite of fair competition” and it was “proud for the role” it played in making Spotify the largest music subscription service in the world, a spokesperson said in a statement.

“Spotify does not pay Apple any commission on over 99 per cent of their subscribers, and only pays a 15 per cent commission on those remaining subscribers that they acquired through the App Store,” it said. “No store in the world” allows alternative deals to be advertised as Spotify is seeking from its iOS app, it said.

“They want all the benefits of the App Store but don’t think they should have to pay anything for that,” Apple said.

Apple already reacted last year by halving the fees it charges to most developers who sell software and services on the App Store. It lowered a fee to 15 per cent from 30 per cent for developers who generate as much as $1 million in yearly revenue from their apps and those who are new to the store. Apple says many apps pay no fees in return for the company’s efforts to host and maintain the security of the store.

The move to send Apple a statement of objections raises the risk that the EU could order changes to its App Store or impose fines. Apple has 12 weeks to respond in writing and can seek an oral hearing to argue its case against any EU suspicions before regulators take a final decision.

Getting Apple’s platform to operate fairly “is an urgent task with far-reaching implications” and the EU statement is “a critical step toward holding Apple accountable for its anti-competitive behavior,” Horacio Gutierrez, Spotify’s chief legal officer, said in a statement.