EU charges Apple with App Store antitrust violations in Spotify case

BRUSSELS (WSJ): The European Union charged Apple Inc. AAPL -1.21% with antitrust violations for allegedly abusing its control over the distribution of music-streaming apps, broadening the battle over the tech giant’s App Store practices ahead of a federal trial in the U.S. brought by “Fortnite” maker Epic Games.

The European Commission, the EU’s top antitrust enforcer, on Friday issued a charge sheet against Apple that says the iPhone maker squeezed rival music-streaming apps by requiring them to use Apple’s in-app payments system to sell digital content. The case stems from a complaint by Spotify Technology SA, SPOT -3.37% which competes with Apple’s music-streaming service.

In addition, EU regulators say Apple “distorted competition” by limiting how app developers can inform users about cheaper ways to subscribe outside the app. Apple’s in-app payment system imposes a 30% commission on purchases inside many of the most popular apps.

“This case is about the central role of app stores in the digital economy,” Margrethe Vestager, who is in charge of competition enforcement at the European Commission, said at a press conference Friday. “An app store can become a gatekeeper, in particular if there is only one app store available in a mobile ecosystem.”

In response, Apple took aim at Spotify, saying the company has been successful, even after removing paid subscriptions from its iOS app in order to avoid Apple’s fees. “At the core of this case is Spotify’s demand they should be able to advertise alternative deals on their iOS app, a practice that no store in the world allows,” an Apple spokesman said. “The Commission’s argument on Spotify’s behalf is the opposite of fair competition.”

In the past, Apple has defended its practice of taking a cut of some sales through the App Store, and said it wants competing apps to thrive.

Apple will have a chance to argue its case before the European Commission renders a decision. If found guilty, Apple could face a fine of up to 10% of its annual revenue and be forced to adjust its business practices, though it can also appeal any decision in court.

Spotify, for its part, painted its complaint as part of a broader battle. On Friday, Horacio Gutierrez, Spotify’s head of global affairs, described the EU charges as “a critical step toward holding Apple accountable for its anticompetitive behavior, ensuring meaningful choice for all consumers and a level playing field for app developers.”

App developers have become increasingly outspoken against Apple over its App Store fees at issue in the EU charges, arguing that the entire mobile-app ecosystem is at stake. Next week a federal court will hear a lawsuit from Epic Games, which alleged Apple abused its dominance by kicking “Fortnite” out of the App Store for skirting Apple’s payment system.

In February, Epic Games also lodged an antitrust complaint against Apple with the European Commission on similar grounds, which the commission said it is examining.

“We will not stand idly by and allow Apple to use its platform dominance to control what should be a level digital playing field,” Epic founder and Chief Executive Tim Sweeney said at the time.

Apple has countersued Epic in the U.S. and rejected its claims in the EU. In response to the EU complaint, Apple described Epic’s decision to go around Apple’s in-app payment rules that apply to all developers as “reckless behavior” that “made pawns of customers.”

The EU charges come as the number of cases against large tech companies is growing on both sides of the Atlantic. In the U.S., the Justice Department, Federal Trade Commission and many U.S. states have filed antitrust lawsuits against Alphabet Inc.’s Google and Facebook Inc.

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The EU, which formally opened the App Store case last year, is also probing Apple over its treatment of payment providers and app developers in its Apple Pay system, as well as its imposition of its in-app payments system for competing providers of electronic books.

At the time, Apple said it required all developers to follow strict guidelines and is committed to a “fair and level playing field for all developers.”

The EU case deepens the bloc’s long-running battle with Apple over tax and competition issues. In 2016, the European Commission ordered Apple to repay 13 billion euros, equivalent to $15.7 billion, but Apple won a court appeal of that order last summer. The commission has appealed to the bloc’s highest court.

At the core of the EU case against Apple is a question that is increasingly being asked by antitrust regulators and experts globally: What responsibilities should be placed on companies that serve millions of businesses and billions of consumers with services that in the eyes of many have become essential?

Under particular scrutiny are companies that operate platforms used by thousands of other businesses. In November, the EU issued charges against Inc. for allegedly unfairly competing against merchants that sell goods via its retail site.

Amazon disputed the allegations and said it would engage with the commission “to ensure it has an accurate understanding of the facts.”

In December, the EU also proposed a new bill that would impose new requirements on so-called gatekeeper businesses, defined as companies with high earnings and market capitalizations with more than 10,000 active business customers or 45 million active end users in the bloc.

If the law is passed, something that could take years, gatekeeper companies would face obligations, such as not tying the ability to access one of their services to purchasing for another core service. Violators would be subject to fines of up to 10% of their annual world-wide revenue, or even orders to be broken up in some cases.