On March 13, 2019, Spotify filed a complaint against Apple with the European Commission, alleging a breach of Article 102 TFEU. The complaint touches on many of the issues surrounding digital platforms that have been a key focus for the Commission in recent years. In particular, there are parallels with the allegations in Google Shopping, that Google abused its platform dominance in general search to benefit its comparison shopping service.[1] Here, Spotify asserts that as “both owner of the App Store and Spotify’s competitor” Apple has abused its position as “referee and player in the world of audio streaming.”[2] Spotify raises an issue with two related practices:
App Store fee. Spotify alleges that Apple imposes a fee on apps that compete with Apple, whereas Apple’s own services and non-competitors are exempt. All app purchases and purchases of digital content within apps on iOS must be made through Apple Pay, and are subject to a 30% fee (for subscription-based services, like Spotify’s music streaming, the fee drops to 15% after the first year). This includes all payments for Spotify’s “Premium” service[3] made within the Spotify app. By contrast, Uber and Deliveroo, which do not compete with Apple, do not pay a fee when using Apple Pay. Spotify claims that when it started accepting Apple Pay in 2014, the fee forced it to raise its prices from €9.99 to €12.99. It notes that when Apple Music launched the following year it was not subject to the fee and was able to undercut Spotify with a price of €9.99. In 2016, Spotify decided to stop using Apple Pay and lowered the subscription price back to €9.99. As a result, Spotify customers are no longer able to upgrade to Premium through the app on their Apple devices.
Streaming Music Service Marke[4]
Active Worldwide Users (millions)
Apple’s technical restrictions. The App Store’s terms of service also prohibit Spotify from referring customers to other payment methods (including its own website). Spotify argues that this prohibition unfairly hinders their efforts to attract Premium subscribers. Spotify claims that Apple has blocked numerous app updates to effect this prohibition and regularly subjects its service to other technical restrictions without any objective justification. Spotify also alleges that Apple unfairly restricts access to various Apple products, including Siri, the Apple Watch, and HomePod.
The complaint is not publicly available and Spotify’s statements have left a number of questions unanswered. It is unclear in which market Spotify alleges Apple’s dominance. One line of argument might be that Apple’s App Store is an aftermarket for Apple devices. This approach to market definition for online platforms is endorsed by the Commission expert panel’s recent report, ‘Competition Policy in the Digital Era’ (discussed in greater detail below): it finds that consumers are often locked into digital ecosystems such that “ecosystem-specific aftermarkets may need to be defined.”[5] The Commission took a similar position in the Android decision, in which Google Play was held to be the dominant app store on Google’s Android OS.[6]
Possible Theories of Harm
The Commission could possibly pursue a line similar to that in Google Shopping,[7] that the abuse lies in Apple’s favoring of its own services over those of competitors. In Google Shopping, the Commission held that Google had abused its dominant position on the general search market by featuring its own comparison shopping service more prominently on the search results page compared with other comparison services. Alternatively, the claim could be framed as a margin squeeze—that Apple set the prices for downstream competitors to render them unprofitable. The prohibition here is against excluding “as efficient rivals.”[8] The question then, would be whether Apple Music could profitably compete if it were subject to the same fees. Regardless of the theory pursued, it is clear from what Apple has already said that it views the fee as objectively justified to recoup their investments in iOS, the App Store, and Apple Pay.
Apple’s Response
In its public response, Apple argues that the fee is needed to support the App Store ecosystem, upon which Spotify has relied heavily.[9] It denies the discriminatory nature of the App Store fee, stressing that there are a well-defined range of exemptions: free and ad-supported apps, digital goods purchased outside of apps, and physical goods. Notably, Apple’s statement does not directly address the self-preferencing aspect of the complaint—the fact that Apple’s own services are not subject to the fee. Spotify have not responded to Apple’s statement, though its public statements evidence the view that Apple’s policy is inherently discriminatory and targets competitors.
Other Recent Complaints Against Apple
Apple has received a number of similar complaints in recent years, reflecting dissatisfaction with the App Store’s rules.
On April 11, 2019, the Netherlands Authority for Consumers and Markets (“ACM”) concluded its market study on app stores and announced the launch of an investigation into abusive practices by Apple.[10] As in the Spotify case, app providers complained that they are not given a fair chance against Apple’s own services, noting the 30% fee on in-app purchases and restricted access to certain iPhone features in particular. The ACM also expressed its concerns about the potential for Apple to exploit its upstream position. The report concluded that Apple’s (and Google’s) “unique role” as operators of app stores could induce them to distort competition, suggesting that further inquiries were necessary to consider whether there is “competition on the merits between apps.” The investigation will initially focus on Dutch news media apps, due to the large number of complaints the ACM received from such providers. Apple’s service, Apple News, aggregates content from other providers and recently launched a subscription service offering access to a number of top publications for a monthly fee.
In 2018, the media streaming service provider Netflix decided to stop offering in-app subscriptions on iOS. To subscribe to Netflix, users now have to go through a web browser.[11] Apple currently offers Apple TV, which allows users to purchase content from its library and stream the content of other providers, including BBC iPlayer and Amazon Prime Video. Apple is also launching its own subscription service with original TV shows and movies, called Apple TV+, later this year.
In the US, a class action lawsuit alleging that Apple’s App Store rules lead to higher prices on downstream markets is currently being considered by the US Supreme Court.[12] The plaintiffs, iPhone owners, claim that by forcing consumers to buy apps through the App Store, subject to a 30% fee, Apple significantly inflates app prices. The Supreme Court is considering whether the plaintiffs have standing to sue, in which case a lower court would rule on the merits of the case. Apple is relying on a series of precedents that limit the ability of indirect purchasers to bring antitrust suits, claiming that app-developers, not Apple, set app prices.
The Regulation of Digital Platforms
The Spotify complaint is evidence of a wider trend: increased scrutiny of digital platforms by competition authorities and regulators alike in recent years. Notable antitrust enforcement and regulatory initiatives in this area include:
European Commission. The Commission has issued three infringement decisions against Google in a little less than two years, and is currently investigating Amazon’s conduct with a focus on the collection of competitors’ data and favoring Amazon’s own products on its platform. According to Commissioner Vestager, “these are the most recent cases. We have more to come. It’s a busy workshop.”[13] In addition, on April 4, 2019, three special advisers appointed by Commissioner Vestager published a 130-page report addressing competition enforcement in the digital domain.
The Report argues that structural features of digital economies strongly favor incumbents, namely: network externalities, economies of scale and access to data. While it concludes that existing competition law prohibitions are sufficient to address the challenges of such markets, the Report also recommends that they be tweaked to ease the Commission’s burden of proof. As well as offering proposals on merger control and data, the Report dedicates a chapter to platform industries. Dominant platforms should be obliged to preserve competitive conditions on their platforms. In particular, the report suggests that when dominant platforms self-preference, they should bear the burden of proving that this has no long-run exclusionary effects on product markets.
P2B Regulation. EU institutions are currently working on wide-ranging regulatory proposals to promote fairness and transparency for business users of online platforms (the “P2B Regulation”).[14] The P2B Regulation forms part of the Commission’s Digital Single Market Strategy and was proposed in the context of the Commission’s mid-term review. On February 13, the Parliament, Council, and Commission reached a political deal on the proposal (i.e., an informal agreement). The P2B Regulation provides for:
- Bans on certain unfair practices, including sudden and unexplained account suspensions, unclear, discriminatory and non-transparent terms and conditions, and suspensions without
- Improved transparency: online platforms will have to make their ranking parameters known and available, disclose any advantage they give to their own services that compete on the platform, and inform users about the data they collect and how they use
- New dispute resolution mechanisms: the creation of internal complaint-handling systems, and appointment of
- Judicial proceedings: digital platforms failing to comply with the rules may be brought before national courts.
If enacted, the P2B Regulation could have a major impact on the functioning of digital platforms in Europe and its provisions touch on much of the conduct that has drawn the ire of antitrust authorities in recent years. In this context, in September 2018, the Commission also appointed 15 high-profile experts as the Observatory of the Online Platform Economy, to monitor the evolution of online platforms.
EU Member States. The French Competition Authority is reviewing two complaints against Google, to determine whether the policies of their online advertising service Google Ads are sufficiently clear, transparent, and applied in a non- discriminatory way. The German Bundeskartellamt issued a decision against Facebook in February this year for abusing its dominant position for linking data collected from third party websites to users’ profiles. German and Austrian authorities are also cooperating on separate investigations into whether the terms Amazon imposes on businesses selling on its platform abuse its dominant position. Andreas Mundt, president of Germany’s Federal Cartel Office described the authority’s investigation as considering whether Amazon’s role as both the largest online retailer and largest online marketplace in Germany “has the potential to hinder other sellers on the platform.”[15] On April 16, the Italian Competition Authority announced yet another investigation into Amazon, this time based on suspicions that it has been giving preferential exposure on its site to third-party vendors that subscribe to its logistics service.
Developments Outside Of Europe. There have been a series of similar initiatives by authorities outside of Europe in recent months. A report commissioned by the UK Government, entitled ‘Unlocking Digital Competition’ was published on March 13, and contained a wide range of recommendations to improve competition enforcement.[16] For further details on the Report, see our Alert Memorandum on the topic. In December 2018, Australia’s Competition and Consumer Commission recommended imposing regulation to curb the market power of Google and Facebook.[17] Japan’s Fair Trade Commission opened a market study on competition and digital platforms in December 2018.
[1] Google Shopping (Case COMP/AT.39740), Commission decision of June 27, 2017.
[2] See Spotify’s video ‘Time to Play Fair’, available at: https://www.timetoplayfair.com/.
[3] Spotify has two membership tiers: a free, ad-funded service (Freemium), and an ad-free version with additional features available to subscribers paying a monthly fee (Premium).
[4] Source: Apple/Shazam (Case COMP/M.8788), Commission decision of September 6, 2018. Spotify, a streaming music service (“SMS”), launched on Apple’s App Store in October 2008—just three months after the App Store itself—and is now the leading SMS in the EEA and worldwide, with over 160 million subscribers. In 2015, Apple launched its own SMS, Apple Music, which has since become the second most popular service in the EEA, with over 50 million users.
[5] European Commission, Competition Policy for the Digital Era, Final Report of April 5, 2019, page 48.
[6] See the Commission Press Release issued on July 18, 2018, available at: http://europa.eu/rapid/press-release_IP-18-4581_en.htm.
[7] Google Shopping (Case COMP/AT.39740), Commission decision of June 27, 2017.
[8] See, e.g., Case C-295/12 P Telefónica v Commission EU:C:2014:2062, para 14.
[9] See Apple’ statement ‘Addressing Spotify’s claims’, March 14, 2019, available at: https://www.apple.com/newsroom/2019/03/addressing-spotifys-claims/.
[10] See ACM Report ‘Market study into mobile app stores’, April 11, 2019, available at: https://www.acm.nl/sites/default/files/documents/2019-04/marktstudies- appstores.pdf; see also ACM Press Release, ‘ACM launches investigation into abuse of dominance by Apple in its App Store’, April 11, 2019, available at: https://www. acm.nl/en/publications/acm-launches-investigation-abuse-dominance-apple-its-app-store.
[11] See ‘How much does Apple stand to lose as Netflix stops in-app subscriptions?’, January 2, 2019, available at: https://www.forbes.com/sites/ greatspeculations/2019/01/02/how-much-does-apple-stand-to-lose-as-netflix-stops-in-app-subscriptions/#4cc0f7977589.
[12] See Pepper v Apple (Docket 17-204), US Supreme Court.
[13] Commissioner Vestager’s speech at the Youth and Leaders’ Summit in Paris, January 21, 2019.
[14] The Commission made this Regulation proposal on April 26, 2018. The draft is available at: https://ec.europa.eu/digital-single-market/en/news/regulation- promoting-fairness-and-transparency-business-users-online-intermediation-services.
[15] See Bundeskartellamt Press Release issued on November 29, 2018, available at: https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/ Pressemitteilungen/2018/29_11_2018_Verfahrenseinleitung_Amazon.html.
[16] Digital Competition Expert Panel, Unlocking Digital Competition, March 13, 2019, available at: https://assets.publishing.service.gov.uk/government/uploads/ system/uploads/attachment_data/file/785547/unlocking_digital_competition_furman_review_web.pdf.
[17] ACCC, Digital Platforms Inquiry Preliminary Report, December 2018, available at: https://www.accc.gov.au/system/files/ACCC%20Digital%20Platforms%20 Inquiry%20-%20Preliminary%20Report.pdf.