“By setting strict rules on the App store that disadvantage competing music streaming services, Apple deprives users of cheaper music streaming choices and distorts competition,” Margrethe Vestager, executive vice president of the European Commission, said in a statement. “This is done by charging high commission fees on each transaction in the App store for rivals and by forbidding them from informing their customers of alternative subscription options.”
Regulators said Apple’s tactics leave consumers to absorb the added costs.
The charges come as Apple is poised to go to court over similar complaints from Epic Games, the maker of “Fortnite,” which has accused Apple of using its mobile operating system to stymie competition. The iPhone maker kicked “Fortnite” off the App Store last year after the video game maker offered its customers an alternative payment option, bypassing Apple’s 30 percent commission.
The landmark trial, which kicks off Monday, will determine whether Apple’s control over its operating system, iOS, is a monopoly and whether it uses that control to force developers to use the App Store and its payment system.
The European Commission’s investigation was spurred by a 2019 complaint from streaming giant Spotify, but the concerns at its core have been echoed by regulators, businesses and advocates around the globe.
“Ensuring the iOS platform operates fairly is an urgent task with far-reaching implications,” Horacio Gutierrez, Spotify’s chief legal officer, said in a statement emailed to The Washington Post. “The European Commission’s Statement of Objections is 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.”
Apple did not immediately respond to requests for comment from The Post. But in a statement to the Verge, the Cupertino, Calif.-based company took aim at Spotify, which competes with Apple Music.
“Spotify has become the largest music subscription service in the world, and we’re proud for the role we played in that,” Apple said. “Spotify does not pay Apple any commission on over 99% of their subscribers, and only pays a 15% commission on those remaining subscribers that they acquired through the App Store. … Once again, they want all the benefits of the App Store but don’t think they should have to pay anything for that. The Commission’s argument on Spotify’s behalf is the opposite of fair competition.”
Tim Cook, Apple’s chief executive, has expanded the brand into a juggernaut with more than $2.2 trillion in market capitalization, according to MarketWatch, after succeeding founder Steve Jobs in the role a decade ago. At the beginning of 2021, the company claimed more than 1.6 billion Apple devices were in active use worldwide.
In the charge sheet, the executive arm of the European Union argued that Apple exploits the “closed ecosystem” formed by its devices and software. Many developers and smaller companies are dependent on Apple for their livelihood and do not have the resources to cope if Apple removes their app or prohibits them from updating it.
“The App Store is the sole gateway to consumers using Apple’s smart mobile devices,” the charge sheet states, adding: “The Commission found that users of Apple’s devices are very loyal to the brand and they do not switch easily. As a consequence, in order to serve iOS users, app developers have to distribute their apps via the App Store, subject to Apple’s mandatory and non-negotiable rules.”
Apple’s App Store Review Guidelines once contained a warning for developers that might consider protesting Apple’s policies, according to a securities filing: “If your app is rejected, we have a Review Board that you can appeal to. If you run to the press and trash us, it never helps.”
Apple has argued that its tight control over iOS is necessary to keep the system secure and to protect the privacy of its users. The company says it vets every app featured on the App Store for malware and that commissions charged on digital payments support the App Store, which provides tools that help developers build software for iOS.
As it faces allegations of foul play over its App Store practices, Apple has tweaked some of its more controversial policies by allowing certain apps to bypass the “Apple Tax” and lowering its commission rate to 15 percent for developers earning less than $1 million in annual revenue.
If Apple is found to be in violation after pleading its case before the E.U.’s executive arm, it could be fined as much as $27 billion, based on its annual revenue last year, and potentially have to alter its business practices.
“The walls are starting to close in with the E.U. antitrust suit and the Epic trial starting all focused on Apple’s golden-jewel App Store and 30% fee,” Dan Ives, managing director of equity research at Wedbush Securities, said in an email. “While this remains a clear risk for the Street, we believe so far the bark has been worse than the bite as Cook & Co. have successfully defended its App Store moat, with the upcoming Epic court battle likely a victory for Apple and the bulls.”
Last summer, Apple won a major legal victory when a European court overturned a ruling from the European Commission that would have required the tech giant to pay nearly $15 billion in back taxes to Ireland. The commission is appealing the decision.
A previous version of this article incorrectly said that Epic Games’ lawsuit against Apple was going to trial Friday. It goes to trial Monday. The article has been corrected.