The European Commission (“Commission”) has imposed a hefty fine of over EUR 1.8 billion on Apple for violating EU antitrust rules. The Commission found that Apple abused its dominant position in the market for distribution of music streaming apps to iPhone and iPad users via its App Store. The abuse primarily stems from Apple’s imposition of anti-steering provisions, preventing app developers from informing iOS users about alternative and cheaper services available outside the App Store, contravening the EU antitrust rules.
This is not the first time that the Commission has fined Apple, but it is the first time that the Commission has added a lump sum fine of EUR 1.8 billion to a base fine as a deterrent measure.
Description of abuse
The Commission noted that Apple’s dominance in providing the sole App Store platform for iPhone and iPad users across the European Economic Area (“EEA”) facilitated its control over the entire user experience. Consequently, Apple’s anti-steering provisions barred app developers from fully disclosing alternative subscription prices or including external links within the apps to their users, which hindered users’ ability to make informed choices.
This restriction can be best illustrated by the example of Spotify, the main advocate against Apple’s anti-steering provisions on the market for the distribution of music streaming apps. Namely, Spotify, a music streaming company from Sweden, publicly complained and invited the Commission several times to react when it comes to Apple’s 30% commission fees for all payments conducted on apps downloaded from the App Store, including subscriptions for its streaming platform. To circumvent this fee, Spotify directs users to register on its website outside the app and set up automatic subscription payments. However, Apple has also prohibited Spotify from including a link to its website within the Spotify app downloaded from the App Store, further hindering Spotify’s user experience.
The Commission’s decision categorises Apple’s anti-steering provisions as unfair trading conditions in breach of Article 102(a) of the Treaty on the Functioning of the European Union (“TFEU”). Over almost a decade, this conduct resulted in users potentially paying higher prices for music streaming subscriptions as Apple’s commission fees were passed on to consumers. Moreover, the Commission examined the non-monetary aspects of Apple’s conduct and found that these provisions degraded the user experience by making it burdensome for users to explore alternative offers, thereby limiting their choices.
The Commission increased the fine to deter future violations
The Commission determined the fine against Apple considering factors such as the duration and severity of the infringement, as well as Apple’s financial metrics like turnover and market capitalization. Additionally, the Commission took into account Apple’s provision of incorrect information during the proceedings as an aggravating circumstance. The base fine, calculated in accordance with the mentioned approach, would amount to a mere EUR 40 million. In the words of the EU Competition Commissioner, Ms. Margrethe Vestager, this number is akin to a “parking fine” for a company such as Apple. Thus, to ensure a deterrent effect, the Commission increased the base fine with an additional lump sum of EUR 1.8 billion, acknowledging the significant non-monetary harm caused by the infringement, which could not be adequately addressed through traditional revenue-based methodologies. This marks the rare use of the Commission’s fining powers that allow for the fine increase for deterrence reasons, and the first instance of its use in a dominance-abuse case.
Concluding that the total fine surpassing EUR 1.8 billion is proportionate to Apple’s global revenues, the Commission aims to deter both Apple and similarly sized companies from engaging in alike anticompetitive behaviour. Alongside the fine, the Commission has mandated Apple to remove the anti-steering provisions and refrain from repeating the infringement or adopting similar practices in the future to uphold fair competition in the digital marketplace.
Apple’s response and market reactions
Apple responded fiercely to the fine, pointing out that Spotify, a European company, stands to benefit the most from the Commission’s decision.
According to Apple, Spotify with its dominant position in Europe’s music streaming market, has extensively engaged with the Commission, as Spotify and the Commission met over 65 times during the investigation. Apple contended that Spotify’s success is partly attributable to the infrastructure provided by Apple, including the App Store, despite Spotify not paying any fees for these services. Namely, unlike other developers subject to Apple’s 30% commission on in-app purchases, Spotify circumvents this fee by selling subscriptions directly on its website. Furthermore, Apple announced its intention to appeal before the Court of Justice of the EU. Thus, it remains to be seen if the Court will uphold the Commission’s fine which is 46 times higher than the base fine.
Meanwhile, Spotify welcomed the Commission’s decision as a significant step towards a more open market for consumers. At the same time, the Coalition for App Fairness, an association of app developers such as Basecamp, Epic Games and Proton, applauded the Commission, inviting for “more to be done to truly create a fair and open mobile app ecosystem that benefits consumers and developers”.
The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.
