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In this newsletter, we focus on the European Commission’s recent EUR 1.8 billion fine to Apple over abusive App Store terms. We also look into the Digital Markets Act which is now fully in force as well as the Commission’s upcoming guidelines on exclusionary abuses.
In a decision of 4 March 2024, the European Commission has fined Apple over EUR 1.8 billion for abusing its dominant position on the market for the distribution of music streaming apps to iPhone and iPad users (“iOS users”) through its App Store. The fine stems from a five-year long investigation following a complaint by the music streaming company Spotify.
The investigation focused on Apple’s restrictions on music streaming app developers preventing them from fully informing iOS users about alternative and cheaper music subscription services available outside of the app.
The Commission found that these measures, referred to as so-called “anti-steering provisions”, amounted to unfair trading conditions under Article 102(a) of the Treaty on the Functioning of the European Union (“TFEU”).
The infringement
The Commission found that Apple holds a dominant position in the market for the distribution of music streaming apps through its App Store. According to the Commission, as the sole provider of the App Store, Apple controls every aspect of the iOS user experience and establishes the terms and conditions that developers must adhere to in order to access users on the platform.
The anti-steering provisions consisted of, inter alia, provisions restricting music app developers’ ability to inform iOS users about subscription prices available on the internet, as well as price differences between in-app music subscriptions and those available elsewhere.
According to the Commission, the anti-steering provisions negatively impacted iOS users, as many ended up paying considerably higher prices for music streaming subscriptions due to the high commission fee (30 %) imposed by Apple on developers which was passed on to consumers. Furthermore, iOS users were hindered in making informed decisions regarding all available options. The Commission found that this caused non-monetary harm in the form of a diminished user experience as iOS users had to undergo a “cumbersome” search process to find alternative offers outside the app.
On this basis, the Commission held that Apple had abused its dominant position on the market for the distribution of music streaming apps through its App Store by imposing the anti-steering provisions in its contracts with third-party music streaming app developers. Considering the harm to consumers, the Commission found that the anti-steering provisions were neither necessary nor proportionate for the protection of Apple’s commercial interests.
The fine
The fine was set on the basis of the Commission’s 2006 Guidelines on fines (Link). Thus, the Commission took into account the duration and gravity of the infringement as well as Apple’s total turnover and market capitalization.
Initially, the Commission had landed on a sum of EUR 40 million. However, the Commission decided to add a “lump-sum” of EUR 1.8 billion as a deterrent to Apple. The use of a “lump-sum” is particularly known from cartel cases and has generally not been used in abuse of dominance cases. However, Executive Vice-President Margrethe Vestager noted that the Commission has learned from its use of “lump sum” fines in cartel cases, also adding that a fine any smaller would have been like a “parking ticket” to Apple considering this company’s size. The Commission also ordered Apple to remove the necessary provisions and to refrain from similar practices in the future.
Apple to appeal
On the same day as the Commission’s decision, Apple announced its intention to appeal the decision. According to Apple, the Commission has, inter alia, failed to disclose any credible evidence of consumer harm and have ignored the realities of a thriving, competitive, and rapidly growing market.
As of 7 March 2024, large digital platforms designated as “gatekeepers” by the European Commission are required to fully comply with all obligations set out in the Digital Markets Act (“DMA”).
On 1 November 2022, the DMA entered into force, aiming to ensure more fair and transparent competition within digital markets. One of the primary objectives of the act is to provide consumers and businesses with expanded choices and greater freedom when using online platforms.
The Commission has designated six gatekeepers, which are large digital platforms providing so-called core platform services, such as online search engines, app stores, and messenger services.
The six gatekeepers include Apple, Alphabet, Meta, Amazon, Microsoft, and ByteDance which in total operate 22 core platform services. In the beginning of March 2024, Booking and X (formerly known as Twitter) have also notified their potential gatekeeper status to the Commission, which now have 45 working days to decide whether to designate these companies as gatekeepers.
As of 7 March 2024, the six abovementioned gatekeepers were obliged to comply with all of the do’s and don’ts listed in the DMA in regard to their core platform services and to provide the Commission with a compliance report outlining the measures undertaken by them in order to effectively comply with the act.
At the end of March 2024, the Commission opened non-compliance investigations into core platform services operated by Alphabet, Apple and Meta. The Commission suspects that the measures put in place by these gatekeepers fall short of effective compliance of their obligations under the DMA. In case of infringement, the Commission can impose fines of up to 10 % of a gatekeeper’s total worldwide turnover (up to 20 % in case of repeated infringements) or other non-financial remedies such as behavioral and structural remedies.
The European Commission intends to publish a new set of draft guidelines on exclusionary abuses under Article 102 TFEU in mid-2024, with the aim of adopting them in 2025.
This is the first major initiative by the Commission in the area of abuse of dominance enforcement since 2008. The initiative is highly welcome as there are currently – contrary to other areas of EU competition law – no official guidelines clarifying the application of Article 102 TFEU. So far, the Commission has only issued a guidance on its enforcement priorities in applying Article 102 TFEU to abusive exclusionary conduct by dominant undertakings (the “2008 Enforcement Guidance”: Link). However, the 2008 Enforcement Guidance is not intended to be a statement of the law in this area, nor does it bind the EU Courts, national courts or national competition authorities.
Exclusionary abuses relate to anticompetitive practices where a dominant undertaking seeks to exclude or remove its competitors from the market and include practices such as exclusivity clauses, loyalty rebates, predatory pricing, and refusal to deal.
Since 2008, the European Courts have rendered more than 30 judgments on exclusionary abuses. The objective of the upcoming guidelines is to codify this case law based on the Commission’s understanding of Article 102 TFEU, thereby enhancing legal certainty for undertakings with significant market power. The upcoming guidelines is also intended to contribute to a more consistent enforcement among the Commission, national courts, and national competition authorities.
Upon adoption of the new guidelines, the Commission intends to withdraw the 2008 Enforcement Guidance, including the amendments made to this paper by the Commission in 2023.