On 4 March 2024, Apple was fined €1.84bn by the European Commission for abusing its dominant position in respect of the distribution of music streaming apps to iPhone and iPad users (iOS users); specifically through the imposition of so-called "anti-steering" provisions. The fine concluded a nine-year investigation, central to which was a complaint from Spotify in 2019, with formal proceedings having been opened by the Commission in June 2020.
Since the fine was announced, a non-confidential version of the infringement decision has been published, Apple has lodged an appeal against the Commission's findings and the penalty imposed, and the Commission has opened separate enforcement proceedings against Apple, for essentially the same conduct, under the Digital Markets Act (DMA). In this article we analyse the case's implications, both for the enforcement of Article 102 TFEU,1 and the regulation of Big Tech more broadly.
The infringement
As mentioned above, the Commission's case focused on Apple's anti-steering provisions – rules imposed on app developers which prevent them from informing iOS users about alternative (often cheaper) ways of subscribing to an app's content or features outside of the Apple ecosystem.
The inclusion of such provisions in the licence agreements with which all iOS app developers must comply was found by the Commission to constitute an imposition of unfair trading conditions and therefore an abuse of Apple's dominant position in the market for the provision of platforms for the distribution of music streaming apps to iOS users (the Decision). Notable points from the Decision include following.
The market, and Apple's dominant position
The Commission defined a (relatively narrow) market for the provision of platforms for the distribution of music streaming apps to iOS users, separate from that for the distribution of all apps to iOS users (or indeed all smartphone users). In doing so the Commission:
- rejected Apple's argument that the relevant market was that for the sale of music streaming subscriptions, which included the purchase of subscriptions outside streaming apps;
- concluded that the consumer-facing side of the App Store was a separate (albeit interlinked) market to that for the developer-facing side, with different prices, conditions, competitive constraints, and substitution patterns; and
- noted that its market investigation demonstrated that it is essential for music streamers to provide a native mobile app to users for consumption of their services, and that they have no alternative but to use Apple's App Store for that purpose, as such if they were to switch to only distributing their app via Google Play Store, they would forego access to an important customer group (i.e. iOS users).
The Commission concluded that Apple – through the terms of its licence agreements, which prohibited third party app marketplaces – held an absolute monopoly in this market, as the App Store was the only platform for the distribution of music streaming apps to iOS users. Further, its market power was not constrained or disciplined by buyer power on the part of developers; by the consumer side of the app distribution market; by competition in the smartphone market (in which the Commission found Apple enjoyed a degree of market power, through the differentiation of its products and barriers to switching); or by alternative channels through which music streamers can acquire subscribers outside their iOS app. Therefore, Apple enjoyed a dominant position in the above market.
Focus on exploitative, rather than exclusionary, abuse
Somewhat unusually, the Commission concluded that Apple had committed an "exploitative" form of abuse (i.e. one that directly caused harm to consumers), with the anti-steering provisions amounting to an imposition of unfair trading conditions. Traditionally, the Commission has focused on "exclusionary" forms of abuse (practices that cause consumer harm through their effect on the competitive process), with exploitative theories of harm largely limited to a few excessive pricing cases, particularly in the pharmaceutical sector.
Notably, the Commission's case against Apple was originally broader in scope, encompassing both exclusionary and exploitative elements. The original Statement of Objections (SO) sent to Apple in April 2021 contained a separate head of abuse, in relation to the requirement for music streaming app developers to use Apple's in-app payment services for the distribution of paid digital content. The accompanying press release made clear that the Commission had preliminarily concluded that these practices were placing providers of music streaming services that competed with Apple Music at a competitive disadvantage. After Apple responded to the initial SO, it was replaced by a revised version in February 2023, which limited the alleged infringement to Apple's anti-steering provisions. This was then followed by a Letter of Facts in December 2023, which further narrowed the Commission's case, clarifying that it was no longer relying on its provisional conclusion that the anti-steering provisions were unfair vis-à-vis music streaming providers, as well as end users.
The reasons for this narrowing of the case were not made clear in the Decision. It may be that the Commission concluded it would be difficult to maintain the assertion that Apple's practices were foreclosing rival music streaming providers, when the evidence gathered in its investigation shows that Spotify was able to maintain a very high (>60%) market share during the infringement period, and that others including Amazon and YouTube had substantially grown their shares.2
Anti-steering as a form of exploitative abuse of dominance
In summing up the legal basis for its finding of abuse in this case, the Commission drew upon historic cases; noting that whilst "case law on the concept of unfair trading conditions is rather limited to date", the concept of abuse covers practices which cause direct damage to consumers and/or to other undertakings (irrespective of whether those other undertakings compete with the dominant company or not).
According to the Commission, it can be inferred from the case law that, to be qualified as unfair under Article 102 TFEU, trading conditions must: (i) be imposed by a dominant undertaking on its trading partners; (ii) be unfavourable or detrimental to the interests of the undertaking's trading partners or third parties; and (iii) not be necessary and proportionate for the achievement of a legitimate objective. A finding of unfair trading conditions is sufficient to establish a breach of Article 102 TFEU, without needing to consider whether the object or effect of the practice was to restrict competition in the relevant market. The Commission rejected arguments from Apple that it was also necessary to establish a causal link between the dominant position and the ability to impose the alleged unfair terms. Dominant companies have a special responsibility not to abuse their position; the fact that other, non-dominant firms also engage in a particular practice does not preclude it from being abusive.
With respect to the anti-steering provisions, the Commission found that all three of the above criteria were met:
- Apple was able to unilaterally impose the provisions through its App Store licence agreements, which music streaming providers must accept to offer their apps to iOS users;
- they were detrimental to the interests of third parties, in the form of iOS music streaming users who were prevented from making informed decisions on where and how to purchase subscriptions. This caused monetary harm in the form of significantly higher prices for subscriptions (since Apple charged developers a 30% fee, which was typically passed on to end-users) and a degraded user experience (given certain app developers resorted to disabling in-app purchasing of subscriptions because Apple's fee made it economically unviable); and
- the anti-steering provisions were not necessary to prevent free-riding by developers and/or the circumvention of Apple's fee policy with respect to content subscriptions (since Apple's policies explicitly allowed end-users to freely access content via an app that they have subscribed for outside of the Apple ecosystem3), nor to monetise the App Store. Further, the provisions were disproportionate as they did not respect a proper balance between Apple's commercial interests and those of music streaming providers and iOS users.
The penalty
The basic amount of the fine was calculated based on the Commissions' 2006 Guidelines on Fines (Guidelines). This took into account the revenues generated by Apple in the EEA and UK from App Store commission fees paid by the main music streaming service providers in its last full business year, as well as the aggravating circumstance of Apple having submitted incorrect information during the administrative procedure. This resulted in a basic amount of €40m.
The Commission then went one step further, imposing an unprecedented additional lump sum of €1.8bn on top of the basic amount. This multiplied the base penalty more than 40 times, resulting in the third largest fine ever imposed by the Commission. According to the Commission, this was justified as:
- the €1.8bn fine was the amount necessary to ensure the overall fine was sufficient to deter Apple and other companies of a similar size and with similar resources from committing the same or a similar infringement;
- the "harm" to iOS users was largely non-monetary in nature, and therefore was not accounted for by the usual methodology in the Guidelines, which is largely revenue-based; and
- at only 0.5% of Apple's global revenue, the total amount of the fine was proportionate.
Although the overall size of the penalty is commensurate with other fines imposed on large tech companies for abuse of dominance in recent years, the scale of the deterrence uplift is unprecedented. For example, the €1.49bn fine in Google (AdSense) incorporated a deterrence uplift of x1.5, whilst the €2.42bn fine in Google (Shopping), incorporated a x1.3 uplift.
Appeal against the Decision
Apple contested the Commission's findings, and on 16 May 2024 it formally appealed the Decision to the EU General Court. Such appeals are heard on a judicial review basis (as opposed to a merits basis). Accordingly, Apple is arguing that the Commission:
- erred in its findings of market definition and dominance;
- erred in finding the anti-steering provisions to be abusive;
- erred in its imposition and calculation of the penalty;
- imposed a remedy which is disproportionate, without stating reasons; and
- violated Apple's rights of defence.
This follows a public statement issued by Apple shortly after the announcement of the Decision, which stated that the latter had "failed to uncover any credible evidence of consumer harm, and ignores the realities of a market that is thriving, competitive and growing fast" and represented "an effort by the Commission to enforce the DMA before the DMA becomes law."4
Further developments in respect of Apple's anti-steering provisions
Since the adoption of the Decision, Apple has also seen its anti-steering provisions challenged under the ambit of the DMA. Apple was designated by the Commission as one of the six initial "gatekeepers" under the DMA, with iOS and the App Store identified as "core platform services" which act as important gateways for business users to access end-users.5
On 25 March 2024 the Commission began a non-compliance investigation into Apple's steering rules. On 24 June 2024 it issued its preliminary findings, informing Apple that it had provisionally concluded that the App Store rules are in breach of the DMA's prohibition on anti-steering provisions6 as they prevent app developers from freely steering consumers to alternative channels for offers and content. Nonetheless, these findings are preliminary, and Apple has the right to exercise its rights of defence and review the case files and respond. The investigation is expected to conclude by 24 March 2025.
Also on 24 June the Commission closed a broader antitrust investigation into the App Store rules, in particular those relating to steering by app developers and mandating the use of Apple's proprietary in-app purchase system. According to the Commission, it decided to close the investigation "in view of [the DMA's] clear prohibitions and to avoid multiple investigations into the very same conduct". Nevertheless, an investigation concerning similar App Store terms in relation to e-books/audiobooks remains open.
Commentary
The Decision is a significant one, and likely to have wide-reaching implications – both in the field of antitrust enforcement in the digital economy and for the application of Article 102 TFEU more broadly.
With a very large penalty at stake (and Apple's first in the EU), Apple can be expected to pursue its appeal all the way to the Court of Justice if it is unable to achieve resolution in the General Court. The outcome of the appeal should provide important guidance on the concept of exploitative abuse through the imposition of unfair trading conditions – arguably a flexible concept which has the potential for very broad application by the Commission in future cases. It should also clarify the limits of the Commission's margin of discretion when uplifting penalties for deterrence, considering that the uplift in this case effectively rendered the prior calculation of the basic amount irrelevant. Further, following the issuing of the Commission's new market definition Notice,7 its approach to identifying relevant markets when examining two-sided digital platforms will also be tested.
Finally, the Decision is illustrative of the benefits for the Commission of pursuing conduct of concern under the DMA rather than through the application of the antitrust rules. The summary of the procedure outlined in the Decision shows that this was a long and hard-fought process, in which Apple appears to have successfully narrowed the scope of the allegations against it and alleged procedural shortcomings on the part of the Commission, including by way of appeal to the EU's Hearing Officer. By way of contrast, the Commission formally opened its DMA non-compliance proceedings against Apple within days of the conduct obligations coming into force on 7 March and was able to issue its preliminary findings (equivalent to an antitrust Statement of Objections) in less than three months. Additionally – and perhaps ominously for Apple – penalties under the DMA can be just as high as those for antitrust breaches (and even higher for repeat offenders).
Footnotes
1. Article 102 prohibits the abuse of a dominant position, which generally sanctions dominant companies who have foreclosed rivals and exploited customers.
2. In particular, the Commission may have taken the view that the evidence was insufficiently commensurate with the "effects-based" approach to exclusionary abuses of dominance endorsed by the Commission and EU courts in recent years. This generally requires that potentially exclusionary conduct must be "likely" to give rise an anti-competitive effect to be categorised as an abuse.
3 In this regard the Commission said: "Once Apple has decided to allow iOS users to purchase digital content outside of their iOS app and access and consume this content within their iOS apps, it cannot legitimately prevent that those users are fully informed about this possibility and are put in a position to exercise an effective choice."
4. The App Store, Spotify, and Europe's thriving digital music market - Apple (UK).
5. For further information, see our September 2023 update.
6. DMA Article 5(4).
7.Commission Notice on the definition of the relevant market for the purposes of Union competition law – see this article for further information.
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