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Apple is first company charged under new EU competition law

REUTERS/MIKE SEGAR/FILE PHOTO
                                An Apple logo hangs above the entrance to the Apple store on 5th Avenue in the Manhattan borough of New York City, in July 2015.
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REUTERS/MIKE SEGAR/FILE PHOTO

An Apple logo hangs above the entrance to the Apple store on 5th Avenue in the Manhattan borough of New York City, in July 2015.

LONDON >> Apple is imposing unfair restrictions on developers of applications for its App Store in violation of a new European Union law meant to encourage competition in the tech industry, regulators in Brussels said Monday.

Apple is the first company to be charged with violating the Digital Markets Act, a law passed in 2022 that gives European regulators wide authority to force the largest “online gatekeepers” to change their business practices.

The charges signal that the EU, already known as an aggressive regulator of the tech industry, plans to intensify its crackdown. Amazon, Google and Meta are also facing investigations under the new competition rules, while TikTok and X are facing probes under another law intended to force internet companies to more aggressively police their platforms for illicit content.

The EU rules threaten to fragment the global tech market as companies delay the releases of certain products and services because of regulatory concerns. Last week, Apple said it would not release a software update for iPhone users in the EU that included new artificial intelligence features because of “regulatory uncertainty.” Meta did not release Threads, its Twitter-like service, in the bloc until five months after it was available in the United States for similar reasons.

The charges brought Monday further escalated a tussle between Apple, which says its products are designed in the best interest of customers, and EU regulators, who say the company is unfairly using its size and considerable resources to stifle competition.

After initiating an investigation in March, EU regulators said Apple was putting unlawful restrictions on companies that make games, music services and other applications. Under the law, also known as the DMA, Apple cannot limit how companies communicate with customers about sales and other offers and content available outside the App Store. The company faces a penalty of up to 10% of global revenue, a fine that could go up to 20% for repeat infringements, regulators said. Apple reported $383 billion in revenue last year.

“Today is a very important day for the effective enforcement of the DMA,” said Margrethe Vestager, the European Commission executive vice president in charge of competition policy. She said Apple’s App Store policies make developers more dependent on the company and prevent consumers from being aware of better offers.

EU regulators said the charges were preliminary and gave Apple a chance to respond. A final decision will be announced by next March.

Apple defended its practices, saying its rules and fees are a fair trade for providing such a large platform to reach consumers. Developers can point consumers to websites to make purchases outside the App Store, the company said.

“Throughout the past several months, Apple has made a number of changes to comply with the DMA in response to feedback from developers and the European Commission,” Apple said in a statement. “We are confident our plan complies with the law.”

Tommaso Valletti, a former top economist for the European Commission on cases involving the tech industry, said regulators were “trying to establish a reputation for being tough,” but faced a challenge when it came to forcing companies like Apple to change business practices. They could be heading toward a legal fight that could take years to conclude, but may set a precedent for future regulation of the tech industry and the digital economy.

“The European Commission would like Apple to open its ecosystem, and Apple is saying no way,” said Valletti, now an economics professor at Imperial College London. “Apple is basically saying ‘see you in court.’”

Apple’s regulatory woes show how government scrutiny of the tech industry is growing worldwide. In the United States, Apple is being sued by the Justice Department over claims that it has an illegal monopoly in the smartphone market. It also is arguing in U.S. federal court that it has the right to take up to 27% of certain app sales through third-party payment systems, which developers argue violates a 2021 judicial ruling.

Japan and Britain, which is no longer part of the EU, have advanced rules to curb Apple’s control of the App Store, as well.

The EU has long been at the center of regulatory efforts to clamp down on the world’s largest tech companies, but the DMA gives officials new powers to intervene without the drawn-out process of filing traditional antitrust lawsuits, which can take years to resolve.

Another new law, called the Digital Services Act, gives regulators more power to govern social media platforms and illicit online content, including material that is harmful to children. Meta, TikTok and X are under investigation for possible violations.

In January, Apple announced a list of changes to its App Store policies in an effort to comply with the DMA, including allowing users to download rival app stores for the first time. Apple also reduced the service fees it charges companies for sales through the App Store to up to 17%, from 30%.

Apple has made other changes that have upset developers, including charging them a “core technology fee” of 50 euro cents ($0.54) for every download of their app after it has been downloaded 1 million times or more within 12 months. Spotify and Epic Games, the maker of Fortnite, were among the companies that said the changes amounted to a new anticompetitive tax and called for regulators to intervene.

The European Commission said it was initiating a separate investigation into Apple’s technology fee, saying it may “fall short of ensuring effective compliance with Apple’s obligations under the DMA.”

This article originally appeared in The New York Times.

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