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Apple faces App Store EU antitrust charges and potentially huge fines

The European Commission has accused Apple of antitrust, alleging that its App Store rules rely on its “dominant position” to squeeze streaming music rivals like Spotify. The charges claim Apple’s policies – in particular the 30-percent cut it takes on in-app subscriptions to competing streaming services – have led to an increase in prices paid by users in Europe. If found guilty of antitrust behaviors, Apple faces the potential of billions of dollars in fines.

Apple, the EC said today, “distorted competition in the music streaming market” by leaning on its position as gatekeeper to iOS and iPadOS devices. Rivals to Apple Music faced limitations and rules that Apple’s own service did not, with the end result being that many competitors pushed up their subscription fees, passing on the costs to end-users.

“The Commission takes issue with the mandatory use of Apple’s own in-app purchase mechanism imposed on music streaming app developers to distribute their apps via Apple’s App Store,” the EC said today. “The Commission is also concerned that Apple applies certain restrictions on app developers preventing them from informing iPhone and iPad users of alternative, cheaper purchasing possibilities.”

Apple does allow services like Spotify and TIDAL to accept new sign-ups to their streaming services within their iPhone and iPad apps. However, it takes a 30-percent cut on that revenue – generally, though unofficially, referred to as the “Apple tax” – as a commission. Developers are only permitted to use Apple’s purchase system, not a third-party option such as they may use outside of the App Store.

There have been several reactions to the approach. Some companies opt to charge higher prices through the App Store, to accommodate Apple’s commission. Others raise prices across the board, whether subscriptions are established through the App Store or otherwise. Either way, European Commissioner Margrethe Vestager argues, “Apple deprives users of cheaper music streaming choices and distorts competition.”

“Our investigation showed that this fee was passed on to end users by raising prices,” Vestager said, “typically from 9.99 to 12.99 Euros.”

At the same time, the EC also takes issue with what’s referred to as “anti-steering provisions.” Apple does not allow app-makers to advertise alternative deals within apps in the App Store: that is to say, Spotify – which filed the initial complaint to the EC about Apple – is not allowed to promote a cheaper subscription outside of the version available through Apple’s purchase process.

“Not only are they not allowed to mention their websites or any link to them in their own apps,” Vestager said. “They are also not allowed to send e-mails to users that created an account in the app in order to inform them about cheaper alternatives.”

Apple’s argument: This is how stores work

Unsurprisingly, Apple has long been unimpressed by the allegations. In a statement today, it points out that Spotify is already the largest music subscription service. It also highlights that stores typically do not allow deals from other stores to be advertised in them.

“Spotify has become the largest music subscription service in the world, and we’re proud for the role we played in that. 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. 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. 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” Apple

Spotify, meanwhile, has welcomed the EC’s Statement of Objections – which effectively submits to Apple the list of its complaints – with founder Daniel Ek tweeting about the news. “Today is a big day,” Ek said. “Fairness is the key to competition.”

In a statement by Horacio Gutierrez, head of global affairs and chief legal officer at Spotify, the company said it saw “holding Apple accountable” as “a critical step” for delivering fairer prices:

“Ensuring the iOS platform operates fairly is an urgent task with far-reaching implications. 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” Horacio Gutierrez, head of global affairs and chief legal officer, Spotify

Apple’s potential fines are vast

It’s not just Spotify that the European Commission is concerned about. While Spotify may have filed the original complaint, and arguably stand to benefit the most financially should the EC force Apple to change its policies, it also highlights smaller players in the streaming space that are affected, and beyond that app-makers who offer subscriptions in general.

“Apple’s conditions affect all music streaming services competing with Apple Music, in particular the smaller ones, such as Deezer and Soundcloud,” Vestager said today. “And of course, App Store rules are a concern for many app developers beyond music streaming. Because they depend on Apple App Store as a gatekeeper to access users of Apple’s iPhones and iPads. This significant market power cannot go unchecked as the conditions of access to the Apple App Store are key for the success of app developers.”

Apple now has twelve weeks to respond to the EC’s charges. The fines for antitrust behaviors can be considerable, as they are based on a percentage of annual revenue. Specifically, the European Commission can levy a fine of up to 10-percent of Apple’s annual revenue, which would mean over $27 billion based on its 2020 performance.

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EU proposes strict AI rules, with fines up to 6% for violations

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(Reuters) — The European Commission on Wednesday announced tough draft rules on the use of artificial intelligence, including a ban on most surveillance, as part of an attempt to set global standards for a technology seen as crucial to future economic growth.

The rules, which envisage hefty fines for violations and set strict safeguards for high-risk applications, could help the EU take the lead in regulating AI, which critics say has harmful social effects and can be exploited by repressive governments.

The move comes as China moves ahead in the AI race, while the COVID-19 pandemic has underlined the importance of algorithms and internet-connected gadgets in daily life.

“On artificial intelligence, trust is a must, not a nice to have. With these landmark rules, the EU is spearheading the development of new global norms to make sure AI can be trusted,” European tech chief Margrethe Vestager said in a statement.

The Commission said AI applications that allow governments to do social scoring or exploit children will be banned.

High risk AI applications used in recruitment, critical infrastructure, credit scoring, migration and law enforcement will be subject to strict safeguards.

Companies breaching the rules face fines up to 6% of their global turnover or 30 million euros ($36 million), whichever is the higher figure.

European industrial chief Thierry Breton said the rules would help the 27-nation European Union reap the benefits of the technology across the board.

“This offers immense potential in areas as diverse as health, transport, energy, agriculture, tourism or cyber security,” he said.

However, civil and digital rights activists want a blanket ban on biometric mass surveillance tools such as facial recognition systems, due to concerns about risks to privacy and fundamental rights and the possible abuse of AI by authoritarian regimes.

The Commission will have to thrash out the details with EU national governments and the European Parliament before the rules can come into force, in a process that can take more than year.

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EU fines Valve and major game publishers for geo-blocking titles

The geo-blocking ostensibly prevented people in one EU country from buying cheaper Steam keys in another, cutting into profits. The fines are relatively small for most of the companies. However, they do send a signal that the EU won’t tolerate game companies (and other digital goods makers) limiting access to games within its market. That’s generally good news for gamers looking for deals, although it could lead to stores and publishers raising prices in some countries to compensate.

Valve provided us with the following statement:

During the seven year investigation, Valve cooperated extensively with the European Commission (“EC”), providing evidence and information as requested.  However, Valve declined to admit that it broke the law, as the EC demanded.  Valve disagrees with the EC findings and the fine levied against Valve.  

The EC’s charges do not relate to the sale of PC games on Steam – Valve’s PC gaming service. Instead the EC alleges that Valve enabled geo-blocking by providing Steam activation keys and – upon the publishers’ request – locking those keys to particular territories (“region locks”) within the EEA.  Such keys allow a customer to activate and play a game on Steam when the user has purchased it from a third-party reseller. Valve provides Steam activation keys free of charge and does not receive any share of the purchase price when a game is sold by third-party resellers (such as a retailer or other online store).  

The region locks only applied to a small number of game titles.  Approximately just 3% of all games using Steam (and none of Valve’s own games) at the time were subject to the contested region locks in the EEA. Valve believes that the EC’s extension of liability to a platform provider in these circumstances is not supported by applicable law. Nonetheless, because of the EC’s concerns, Valve actually turned off region locks within the EEA starting in 2015, unless those region locks were necessary for local legal requirements (such as German content laws) or geographic limits on where the Steam partner is licensed to distribute a game.  The elimination of region locks may also cause publishers to raise prices in less affluent regions to avoid price arbitrage. There are no costs involved in sending activation keys from one country to another, and the activation key is all a user needs to activate and play a PC game.

Update, 1:30PM ET: Added a statement from Valve.

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