EU launches Apple antitrust probe focusing on whether App Store and Apple Pay ‘distort competition’

June 16, 2020, 12:27 PM UTC

Apple faces a twin-pronged attack from European Union antitrust chief Margrethe Vestager amid concerns the U.S. tech giant’s App Store and Apple Pay services squeeze developers and potential rivals.

Just four years after hitting Apple with a record-breaking tax bill, Vestager has switched her attention to the iPhone maker’s market power.

The EU will review whether Apple’s app store violates competition law by requiring developers to accept a 30% commission for every sale on Apple’s platform. Watchdogs will also examine how Apple limits “tap-and-go” functionality to its own Apple Pay product.

“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,” Vestager said in a statement on Tuesday. “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.”

Targeting Silicon Valley

The investigation is the latest in a growing list of EU probes into Silicon Valley, which have led to criticism from U.S. President Donald Trump. The EU last year wrapped up nearly a decade of probes into Google that racked up some $9 billion in fines. An investigation into is set to escalate in the coming weeks.

Apple said that the EU is responding to complaints from rivals that “simply want a free ride, and don’t want to play by the same rules as everyone else.”

“It’s disappointing the European Commission is advancing baseless complaints from a handful of companies,” Apple said in a statement. “At the end of the day, our goal is simple: for our customers to have access to the best app or service of their choice, in a safe and secure environment.”

Apple is already fighting Vestager’s 2016 order to repay Ireland 13 billion euros ($14.7 billion) in unpaid taxes. Chief Executive Officer Tim Cook called Vestager’s decision “political crap” in a longer battle over how digital giants should be taxed in Europe.

The latest EU probe targets a strategic area for company, which has gradually shifted focus from hardware to subscription-based services like Apple TV and Apple Music in search for other revenue streams. For the 2019 fiscal year ending September 28, 2019, revenues for Apple’s services grew 16% to $46.3 billion but they but they were still a fraction of its overall sales of $260.2 billion.

Apple says it welcomes competition on its app store and says other apps it competes with, including on television and podcasts, are also available on its platform. The iPhone giant says developers have earned more than $120 billion around the world from selling digital goods and services in apps distributed by Apple’s store.

Regulators are separately wrestling with how to act against online giants that critics say run a rigged game when they set the rules for platforms that also host their rivals. New laws on how online platforms should treat the companies they host will enter into force on July 1.

Spotify Technology SA last year complained that Apple unfairly squeezes its music streaming service with ever-changing rules and a large cut of sales on the app store. Such behavior gives an unfair advantage to Apple’s own service Apple Music, it alleged.

Spotify said the EU announcement made it “a good day for consumers” and called on the EU “to act with urgency to ensure fair competition on the iOS platform for all participants in the digital economy,” according to an emailed statement from Spotify’s top lawyer, Horacio Gutierrez, referring to Apple’s operating system for mobile devices.

The EU said it was also acting on a complaint filed in March from an e-book and audio book provider it didn’t name. The Financial Times reported earlier Tuesday that Rakuten Inc.’s Kobo unit complained to the EU.

The app store probe will also examine Apple’s curbs on developers telling users of other payment methods which may be cheaper, the EU said. Apple and Google also face a growing backlash against the toll they charge outside developers for using their app stores.

The Apple Pay investigation will scrutinize Apple’s terms and conditions for how Apple Pay is integrated into merchant apps and websites that run on Apple phones and tablets, saying these might distort competition and reduce choice and innovation. Apple Pay is the only mobile payment solution that can use so-called NFC technology for contactless payments in stores, it says.