Out-Law News

Apple’s €1.8bn penalty highlights ongoing EU antitrust focus in digital sector

The European Commission’s decision to fine Apple €1.8 billion for competition law breaches could raise concerns over the EU’s calculation of penalties and how non-monetary harm should be quantified.  

On 4 March 2024, the Commission fined Apple over €1.8 billion for abusing its dominant position in the market for the distribution of music streaming apps to iPhone and iPad users through its App Store. In particular, the Commission found that Apple applied restrictions on app developers preventing them from informing users about alternative and cheaper music subscription services available outside of the app. In the Commission’s view, these restrictions amounted to anti-steering provisions, which are illegal under EU competition law.

Apple has announced it will appeal. It said the decision “was reached despite the Commission’s failure to uncover any credible evidence of consumer harm, and ignores the realities of a market that is thriving, competitive, and growing fast”.

The Commission imposed the fine having found that Apple’s anti-steering rules prevented music streaming app developers from fully informing users about alternative and cheaper music subscription services available outside of the app and from providing any instructions to users about how to subscribe to such offers. In particular, the anti-steering provisions prevented app developers from informing users within their apps about the prices of subscription offers available on the internet outside of the app, and about the price differences between in-app subscriptions sold through Apple's in-app purchase mechanism and those available elsewhere.

The anti-steering rules also prevented app developers from including links in their apps that led users to the app developer's website on which alternative subscriptions can be bought, and from contacting their own newly acquired users to inform them about alternative pricing options after they set up an account.

The Commission found these anti-steering provisions amounted to “unfair trading conditions” in violation of Article 102 of the Treaty on the Functioning of the European Union (TFEU).  In the Commission’s view, the anti-steering provisions were neither necessary nor proportionate for the protection of Apple's commercial interests in relation to the App Store on Apple's smart mobile devices, and negatively affected the interests of users who could not make informed decisions on where and how to purchase music streaming subscriptions for use on their device.

Apple’s anti-steering provisions were in place for almost 10 years and, in the Commission’s view, may have led to users paying significantly higher prices for music streaming subscriptions because of commission fees Apple imposed on developers and which may have been passed on to consumers as higher subscription prices. The Commission also considered that Apple's anti-steering rules led to “non-monetary harm in the form of a degraded user experience” because “users either had to engage in a cumbersome search before they found their way to relevant offers outside the app, or they never subscribed to any service because they did not find the right one on their own”.

In calculating the total fine, which was in excess of €1.8 billion, the Commission decided to add to the basic amount of the fine – about €40 million – an additional lump sum of €1.8 billion to ensure that the overall fine imposed on Apple is “sufficiently deterrent”. The Commission has also ordered Apple to remove the anti-steering provisions and to not repeat the infringement or adopt equivalent practices in the future.

Tadeusz Gielas, competition law expert at Pinsent Masons, said: “In setting the third-highest penalty ever imposed for a breach of EU competition law, the Commission applied an unprecedented penalty uplift under its fining guidelines – a lump sum to account for the non-monetary harm caused to consumers and to achieve deterrence –  that multiplied the base penalty more than 40 times. This may well raise concerns among digital firms over how the Commission calculates penalties and how non-monetary harm should be quantified in this context.”

The penalty ends a nearly four-year long EU antitrust investigation into Apple’s app store practices. The Commission formally opened its investigation in June 2020, and issued two statements of objections – in April 2021 and February 2023.

Gielas said: “Abuse of dominance investigations tend to be complex, lengthy and are usually followed by appeals. Indeed, Apple has already stated that it intends to challenge the Commission’s decision in court.”

“The delays and complexities commonly associated with ex post EU antitrust investigations and enforcement were a key reason for the formation of the EU’s Digital Markets Act (DMA), which is based on and codifies EU competition law relevant to the digital sector. Although, the DMA does not change the wider competition rules under the TFEU which will continue to fully apply,” he said.

The DMA contains ex ante competition rules that expressly prohibit “gatekeepers” from implementing anti-steering provisions in respect of their designated core platform services. Apple is one of the six technology companies that last year were designated as gatekeepers under the DMA.

From 7 March 2024, gatekeepers such as Apple must comply with substantive conduct obligations in the DMA in respect of their core platform services that were designated in early September 2023.

Technology law expert Gijs van Mansfeld of Pinsent Masons said: “The rules of the DMA becoming applicable to gatekeepers must be seen in a broader trend of increased scrutiny on tech platforms, considering that this piece of legislation is a crucial part of the EU’s Digital Single Market strategy.”

“Another crucial legislative initiative in this strategy, the Digital Services Act, has already gradually become applicable – to the largest online platforms on 25 August 2023, and all other online intermediaries on 17 February 2024. Now, the first enforcement actions have already been initiated on the merits of these ‘enforcement tools’, indicating that both national regulators and the European Commission are gearing up for the enforcement phase of the new platform regulations,” he said.

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