EU sends Apple Statement of Objections (music streaming services)

Just a few days after the Australian Competition & Consumer Commission released its interim report on app marketplaces finding that “Apple’s App Store and Google’s Play Store have significant market power in the distribution of mobile apps in Australia,” the European Commission addressed to Apple a Statement of Objections over its App Store rules for music streaming providers (press release here). The investigation was launched in response to a complaint filed by Spotify in March 2019. I was planning on drafting a post on the ACCC report but thought I should first focus on what the Commission announced today.

This is a quite narrow (perhaps too narrow) case, giving Google Shopping vibes. It deals only with music streaming. The Commission has taken the (preliminary) view that Apple has distorted competition in the music streaming market by abusing its dominant position in the market for “the distribution of music streaming apps through its App Store.” I should also note that the case is based solely on Article 102 TFEU – there is no reference to Article 101 TFEU (which the Commission had mentioned in its press release last summer). Here are my thoughts – based on the press release issued today and EVP Vestager’s press conference:

Market definition

Rather than arguing that Apple is dominant in the market for app distribution on iOS devices in general (as Damien and I have argued), the Commission opted for a narrow market definition, limited to the distribution of music streaming apps. This would mean in theory that one could define as many markets for app distribution as many categories of apps exist (e.g., one for music streaming, another for video streaming, another for messaging services, another for dating services, and so on). Whether this is a sound approach remains to be seen, but I do share Damien’s concerns around defining markets in such a way. Apple on its part seems to have pushed for this kind of reasoning in its litigation with Epic Games, arguing that the relevant market is one for digital game transactions, as Damien has explained.

I find it rather bizarre that the Commission is delineating the relevant market where Apple is dominant in such a narrow fashion, while at the same time referring to evidence that would presumably apply to all categories of apps. According to the press release, the Commission found that users of Apple’s devices are very loyal to the brand and they do not switch easily. The result is that “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.” The Commission relatedly notes that for app developers, “the App Store is the sole gateway to consumers using Apple’s smart mobile devices running on Apple’s smart mobile operating system iOS.” Both finding make sense, and would support a market definition encompassing all categories of apps. Whether the Commission thinks that the above holds true for music streaming but not necessarily for other apps is not clear.

In her press conference, EVP Vestager provided a bit more context on the market definition pursued by her team. She seemed to allude that app distribution is a case of an aftermarket, the foremarket being the smart mobile device. She noted that when it comes to smart mobile devices Apple is unlikely to be dominant. However, when the user purchases an Apple device, she becomes locked in to the App Store. This makes me think of the Pelikan/Kyocera decision. EVP Vestager noted that in such a case, Google Play is not an effective alternative to the App Store, since consumers would not switch to an Android device if prices for music streaming services were higher on Apple devices (hinting at a SSNIP-like test). According to Vestager, Apple has not just significant market power in such market; it is a monopolist.

The conduct

The Commission has taken issue with the combination of two well-known rules which Apple imposes “in its agreements with music streaming service providers” (well, these rules are imposed on all app developers selling digital goods or services):

  • The obligation to use Apple’s IAP solution to accept user payments for digital content, which comes with a 30% commission. The Commission found that most streaming providers passed this fee on to end users by raising their prices.
  • “Anti-steering provisions” which limit the ability of app developers to inform users of alternative purchasing possibilities.

These rules are closely intertwined, as Damien and I have explained. The marketing restrictions are there to reinforce the obligation to use IAP; if there is no such obligation, then these restrictions serve no purpose.

The Commission did not explain how it qualifies Apple’s practice under Article 102 TFEU (tying? margin squeeze? something else?). It limited itself to stating that these rules distort competition in the market for music streaming services by raising rivals’ costs. This in turn leads to higher prices for iOS users and in Apple taking over the billing relationship. Commissioner Vestager also stressed in the press conference what she perceived as problematic: the fact that Apple’s own music streaming app (Apple Music) does not have to abide by the same rules (one could of course respond that it would be meaningless for Apple Music to abide by these rules; if it paid a commission, the money would end up with Apple again). Vestager also clarified that the Commission has not taken issue with the level of the IAP fee as such.

The remedies

The press release is entirely silent on what types of remedies the Commission may envisage (assuming we reach the point of a final decision). When asked by journalists, Commissioner Vestager was careful not to give a precise answer, rather limiting herself to noting that Apple would have to put an end to the infringement and refrain from repeating it in the future (a cease and desist order). She did not elaborate on how Apple should do that, which led to a flurry of additional questions from journalists: would Apple have to lower its commission? Would it have to allow music streaming apps on the App Store without obliging them to use IAP and pay a commission? It is not entirely clear, but Commissioner Vestager did say something interesting, namely that this would not mean the end of Apple’s business model, since Apple also receives the $99 annual developer fee.

One thing is certain though: whatever the remedy will be, it will be limited to music streaming apps.

Impact on other cases

As noted in the beginning of this post, this is a very narrow case. Commissioner Vestager confirmed the Commission is running a number of additional, separate cases into the App Store, one on ebooks (following the Rakuten complaint filed in March 2020 I assume), one on the App Store “as such” (perhaps following the Epic Games complaint) and one on gaming apps (which she confirmed is at the very early stages – perhaps it is the same investigation as the one on the App Store “as such”).

I cannot say I agree with this piecemeal approach. While it may be easier for the Commission to run a very narrow case (in terms of e.g., resources), it is unclear that such an approach delivers satisfactory outcomes for competition and consumers. We might well end up with a Google Shopping style case, where the Commission’s intervention was focused on a specific segment, while having no impact on other segments (travel, jobs, etc.).

On the other hand, this does leave ample room for national competition authorities – especially after the CJEU’s green light in Slovak Telekom (C-857/19) – to launch their own investigations focusing on other categories of apps. And it seems that the Dutch ACM is already close to adopting a decision against Apple. In these circumstances, Apple might well have to consider revising its policies across the whole EU, lest it be faced with a patchwork of enforcement actions across Member States when it comes to remedies … Note however that a national competition authority may be asked not to intervene when another national competition authority is already investigating a given type of app. Hence, we may end up with a mosaic of actions in different Member States focusing on one category of app. Let’s face it, this is a mess.

Apple has now 12 weeks to respond to the SO.

Photo by Sara Kurfeß on Unsplash

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