Apple's App Store rules breach EU competition law, European Commission says

By Louis Goss

The European Commission on Monday said it had reached a "preliminary view" that the rules Apple uses to manage its App Store were in breach of EU competition law, just months after the tech was slapped with a hefty fine for a similar violation.

The EU body, which acts as the bloc's competition regulator, said Apple's rules that block app developers from "steering" customers towards cheaper alternative platforms could be in breach of the European bloc's sweeping Digital Markets Act, which first came into force in 2022.

The executive body said it had also opened a new investigation into Apple over the contractual terms it uses with third-party developers, including the fees it changes to app developers for facilitating sales on rival platforms.

"Our preliminary position is that Apple does not fully allow steering. Steering is key to ensure that app developers are less dependent on gatekeepers' app stores and for consumers to be aware of better offers," Margrethe Vestager, the commission's executive vice-president, said.

In September 2023, Apple (AAPL) was one of six major tech companies designated as "gatekeepers" by the European Commission - alongside Alphabet, Amazon, ByteDance, Meta and Microsoft - meaning it is now subject to additional scrutiny under the Digital Markets Act.

In March, the EU fined Apple EUR1.8 billion for preventing app developers from informing iPhone users about cheaper alternatives to the tech giant's own music streaming service Apple Music.

Apple, which now has an opportunity to respond to the European Commission's findings, could face similar fines if the bloc's competition regulator's assessment is confirmed. The competition regulator is expected to issue a final decision by March 2025.

The European Commission's new investigation into Apple's terms of service will now also seek to assess whether the new contractual terms the tech giant set out in order to comply with the EU's Digital Markets Act are actually in compliance with the sweeping competition law.

The EU watchdog said it will investigate whether the structure of Apple's core technology fee, which sees it charge EUR0.50 on every app sale over a one million threshold, complies with the powerful Digital Market Act that has seen the bloc clash with the world's top tech companies.

The commission's investigation will also look at whether the "multi-step user journey" Apple forces its customers to undergo in order to install alternative apps and app stores on iPhones complies with its competition rules.

"The developers' community and consumers are eager to offer alternatives to the App Store. We will investigate to ensure Apple does not undermine these efforts," Vestager, the Danish politician who is in charge of the commission's competition policy, said in a statement.

Apple was approached by MarketWatch for comment.

-Louis Goss

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06-24-24 0555ET

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