EU Officially Smacks Apple With Antitrust Violation After Spotify Apple Tax Outrage

A preliminary investigation into a complaint raised by Spotify over Apple's App Store polices has led the European Commission to issue a 'Statement of Objections' against Apple, saying the company "is in breach of EU competition law." It essentially amounts to an antitrust violation, with Apple having 12 weeks to issue a response to the charges.

These charges come a little over two years after Spotify filed an antitrust complaint with the European Union. The streaming music service cried foul over Apple's 30 percent royalty rate for purchases made through its payment system, including when users upgrade from Spotify's free tier to a premium subscription. That was not the only gripe, however.

Spotify also bemoaned certain technical limitations Apple imposes, like preventing the company from sending emails to its customers. It also claimed Apple "routinely blocks our experience-enhancing upgrades," giving Apple's own music streaming service an unfair advantage.

The EU seems to be in agreement with many of Spotify's complaints. In a Twitter post, Margrethe Vestager, executive vice president of the European Commission, said "Apple charges high commission fees on rivals in the App Store and forbids them to inform of alternative subscription options," resulting in "consumers losing out."

We said earlier this week that it was expected the EU would finalize antitrust charges against Apple, with an announcement likely coming this week. And that is what has now happened. In its announcement, the EU said its preliminary view is that Apple "distorted competition in the music streaming market" and "abused its dominant position for the distribution of music streaming apps through its App Store."

"Apple is a gatekeeper to users of iPhones and iPads via the App Store. With Apple Music, Apple also competes with music streaming providers. By setting strict rules on the App store that disadvantage competing music streaming services, Apple deprives users of cheaper music streaming choices and distorts competition. This is done by charging high commission fees on each transaction in the App store for rivals and by forbidding them from informing their customers of alternative subscription options," Vestager said in a statement.

Interestingly, the Commission also pointed to Apple device owners are "very loyal to the brand and they do not switch easily." The Commission found this finding relevant, because it forces the hands of developers to distribute their apps through the App Store, making them subject to rules that are mandatory and non-negotiable, including the 30 percent royalty Apple collects.

In the past, Apple has responded to Spotify's complaints multiple times. In one of the responses, Apple pointed out that the 30 percent cut is for the first year of an annual subscription, after which it gets cut in half to 15 percent. Apple also criticized Spotify suing music creators after a decision by the US Copyright Royalty Board required the service to increase its royalty payments, and responded to Spotify's claims that it routinely blocks updates.

"Let’s clear this one up right away. We’ve approved and distributed nearly 200 app updates on Spotify’s behalf, resulting in over 300 million downloaded copies of the Spotify app. The only time we have requested adjustments is when Spotify has tried to sidestep the same rules that every other app follows," Apple said two years ago.

Nevertheless, the European Commission found merit in Spotify's complaints, and Apple faces a fine of up to 10 percent of its annual revenue—tens of billions of dollars—if the antitrust charges stick.

Apple obviously disagrees with the findings, and issued a statement on the matter.

"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 percent of their subscribers, and only pays a 15 percent 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 said.

Apple must now convince the EU of its stance, and it has three months to do it.