Apple Fined $3 Billion Over Spotify Complaint

The European Commission has taken a bold stance on the vice grip Apple has on iOS app developers, fining the Californian megacorp more than €1.8 billion ($3 billion AUD) for “abusing its dominant position on the market”.

In case you didn’t already know, Apple has some very strict rules for those wanting to host apps on its proprietary App Store (the only official way to download apps to an iPhone, iPad or Apple Watch) – particularly when it comes to apps offering subscriptions. These rules, as the Commission pointed out earlier this week, include anti-steering provisions designed to stop app developers from informing iOS users about ways to subscribe to their services outside the app itself. It makes more sense when you learn that Apple adopts a “middle man” role and takes a commission for every subscription users sign up for through an iOS app.

To abide by Apple’s own terms and conditions, app developers are not allowed to present users with any messaging that tells them about subscription models not based in the app. They’re also not allowed to inform users of any price differences between in-app subscriptions and subscriptions offered elsewhere, and they’re barred from sharing any links to websites where other subscription models are offered. To boot, developers are not allowed to contact their own users outside the framework of the app itself (ie. via email) to inform them of any other subscription options.

These terms and conditions are illegal in the European Union, as per the territory’s antitrust laws. The Commission ruled that Apple’s anti-steering provisions “are neither necessary nor proportionate for the protection of Apple's commercial interests” and “negatively affect the interests of iOS users, who cannot make informed and effective decisions on where and how to purchase music streaming subscriptions for use on their device”.

The ruling board found that Apple have bound app developers to these provisions for nearly a decade, likely causing iOS users to pay “significantly higher prices” for their subscriptions because of the commission fees that Apple imposes on those developers. The Commission also noted that such provisions caused non-monetary harm by giving iOS users a subpar experience, either having to “engage in a cumbersome search before they found their way to relevant offers outside the app”, or not subscribing to a service at all because “they did not find the right one on their own” (and the developers themselves weren’t allowed to tell users about them).

So what caused the Commission to finally crack down on Apple’s anti-steering provisions? Well, it all stems from a complaint filed by Spotify way back in March of 2019. CEO Daniel Ek noted at the time that Apple imposes a 30 percent tax on purchases made to the App Store, which includes recurring subscriptions. “If we pay this tax,” Ek wrote in an open letter, “it would force us to artificially inflate the price of our Premium membership well above the price of Apple Music. And to keep our price competitive for our customers, that isn’t something we can do.”

The ruling itself took just shy of four years to finalise, with formal proceedings beginning in June of 2020. The Commission sent Apple a Statement Of Objections in April of 2021, to which the company responded that September (with no changes being made to its terms of service for app developers in the EU). A second Statement Of Objections was issued last February, and was similarly responded to last May (once again with no changes).

Reports of the Commission’s final ruling started floating around last month, with word that Apple would be fined a figure in the ballpark of €500 million ($835 million). But in their own press release, the Commission conceded this amount – a figure set on the basis of guidelines established in 2006 – would not have a signifiant enough impact on Apple’s bottom line; the company is worth some $4.09 trillion at the time of writing, so to deter them from simply taking this fine as a slap on the wrist (and ultimately changing nothing for the way the App Store operates), the Commission has added this €1.8 billion as an additional lump sum to their initial fine (the exact figure of which is not said).

Along with the fine, the Commission has ordered Apple to “remove the anti-steering provisions and to refrain from repeating the infringement or from adopting practices with an equivalent object or effect in the future”.

In a formal statement, Margrethe Vestager – the Executive Vice-President in charge of competition policy for the European Commission – said of the ruling on Monday (March 4): “For a decade, Apple abused its dominant position in the market for the distribution of music streaming apps through the App Store. They did so by restricting developers from informing consumers about alternative, cheaper music services available outside of the Apple ecosystem. This is illegal under EU antitrust rules, so today we have fined Apple over €1.8 billion.”