Apple's Core Technology Fee at the center of EU's first DMA violation investigation

Posted:
in iOS edited June 24

The European Union has announced a preliminary finding that Appleis in breach of the Digital Markets Act, including how it restricts rivals, and what it charges them.

European Union flags fluttering with a backdrop of modern glass building facades.
EU flags in Brussels



In March 2024, EU officials opened an investigation into allegations that Apple was failing to comply with the Digital Markets Act (DMA). By June, antitrust executive Margrethe Vestager was describing the EU's findings against Apple as "very serious," and it has now officially told the company its preliminary conclusions regarding how it limits rivals on its App Store.

"Today is a very important day for the effective enforcement of the DMA," said Vestager in a statement. "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."

In a statement to AppleInsider, Apple said that it denies failing to comply with the DMA.

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. We are confident our plan complies with the law, and estimate more than 99% of developers would pay the same or less in fees to Apple under the new business terms we created.

All developers doing business in the EU on the App Store have the opportunity to utilize the capabilities that we have introduced, including the ability to direct app users to the web to complete purchases at a very competitive rate. As we have done routinely, we will continue to listen and engage with the European Commission.

Details of the preliminary findings



The EU's preliminary report says that while Apple now offers different business terms to developers wanting to use alternative App Stores, none of the various sets of terms allow for these firms to freely steer their customers. Where Apple allows any steering, it is via a link in the app which is subject to multiple restrictions.

Then while the EU does not dispute Apple receiving a fee for facilitating how a developer gets a new customer, it says that the current fees go too far. Specifically, it disagrees with Apple charging developers for every in-app purchase made by a user within a week after following a link in the app.

Core Technology Fee



On top of the current allegations of non-compliance, the European Commission has told Apple that it will now also investigate the Core Technology Fee it levies for the use of its systems. Apple charges a fee of 50 euro cents ($0.53) for every app install after the first million, although there are exceptions.

"We have also opened proceedings against Apple in relation to its so-called Core Technology Fee and various rules for allowing third party app stores and sideloading," continued Vestager. "The developers' community and consumers are eager to offer alternatives to the App Store."

What happens next



The purpose of sending a preliminary report is that Apple can now make a case arguing against the findings. However, should the European Commission ultimately find against Apple, the EC will then figure out what they're doing within 12 months of the announcement.

So, on or before March 25, 2025, the EU could decide to fine Apple. Under the scope of the DMA, the region has the right to daily fine the company a percentage of its average global income, which works out to around $1 billion per day.

The EU will continue to investigate the allegations while Apple prepares to defend itself. However, the EU says that it will also continue to separately investigate Apple's rules for allowing apps on the alternative app stores.

This accusation of non-compliance follows the EU previously fining Apple approximately $2 billion over allegedly favoring its own Apple Music over the more successful rival, Spotify. Following that issue, the EU is reportedly investigating whether the fine has made Apple change any of its practices.

Updated June 24, 8:00 AM ET: Updated with Apple's response.



Read on AppleInsider

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Comments

  • Reply 1 of 33
    gatorguygatorguy Posts: 24,388member
    Well aware of the arguments around the Core Technology Fee, bu I hadn't heard about this part before now:
    "Specifically, it disagrees with Apple charging developers for every in-app purchase made by a user within a week after following a link in the app." 

    ctt_zh9secondkox2
  • Reply 2 of 33
    Again, the EU is saying Apple needs to allow competitors free access to its technology and platform. At fines of a billion dollars a day, Apple would be better off abandoning the EU market. At tough pill but the EU seems determined to have a PC style market for smart phones where all manufacturers pretty much offer the same devices and services and there’s little innovation or profit.
    JaiOh81williamlondonbyronldewmewatto_cobra
  • Reply 3 of 33
    gatorguygatorguy Posts: 24,388member
    Again, the EU is saying Apple needs to allow competitors free access to its technology and platform. At fines of a billion dollars a day, Apple would be better off abandoning the EU market. At tough pill but the EU seems determined to have a PC style market for smart phones where all manufacturers pretty much offer the same devices and services and there’s little innovation or profit.
    Why? There's little chance of Apple losing customers for its AppStore. What percentage of app buyers will even consider third-party stores? Based on Google Play, which has had to deal with "not-Google" app stores for years, not many. Maybe in the low single digits. So throw away 97% of the revenues because that can't have that other 3%, too. Something about cutting off your nose comes to mind. 
    ctt_zhsphericmuthuk_vanalingambyronl9secondkox2
  • Reply 4 of 33
    Potential customers can already get information about products/pricing via the internet, social media etc. Those are also quickly accessible through the same device. Typing “cheapest music streaming app” into a search engine is not an implausible scenario in 2024.

    The anti-steering focus of the DMA doesn’t really make much sense from a technology standpoint. 
    edited June 24 ihatescreennameswilliamlondonradarthekatwatto_cobra
  • Reply 5 of 33
    It is increasingly clear that the target for Vestager is Apple itself. Not its policies. Next she will announce the maximum price that Apple can charge for an iPhone. A fine of 1B per day is obviously not sustainable and Apple would be out of business within 6 months if it paid. It is noteworthy that she decided on 'global revenue' and not from the EU countries as that would be about 100M per day. In contrast Japan has introduced potential fines based on revenue from Japan which is more fair.  The EU has backed Apple into a corner and the only option may be to leave the EU. 
    williamlondonlotonesJanNLwatto_cobra
  • Reply 6 of 33
    GabyGaby Posts: 193member
    To me it seems obvious that the European Union’s fixation on Apple and its policies have little to nothing to do with competition, developer and consumer rights or any other such issue. It is simply about them wanting a large helping of Apple pie without needing to modify the tax system and all the resultant complications that may cause. They should be honest and transparent about this rather than looking increasingly foolish and dishonest for using the DMA as a pretext to claw in revenue. 
    williamlondonchasmwatto_cobra
  • Reply 7 of 33
    gatorguygatorguy Posts: 24,388member
    Gaby said:
    To me it seems obvious that the European Union’s fixation on Apple and its policies have little to nothing to do with competition, developer and consumer rights or any other such issue. It is simply about them wanting a large helping of Apple pie without needing to modify the tax system and all the resultant complications that may cause. They should be honest and transparent about this rather than looking increasingly foolish and dishonest for using the DMA as a pretext to claw in revenue. 
    What revenue? If Apple complies then there are no fines. Both Google and Microsoft have already dealt with this in the past. In fact I seem to remember cheers from the grandstands here. For Apple, it's all new, but not different from the fines levied against others for non-compliance.

    It's entirely up to Apple how far they want to push "malicious" compliance. 
    edited June 24 ctt_zhspheric9secondkox2
  • Reply 8 of 33
    gatorguy said: What revenue? If Apple complies then there are no fines. Both Google and Microsoft have already dealt with this. For Apple, it's all new. 
    The $1.8 billion fine per supposed "abusive" rules for music streaming in the App Store. If you actually look at the history of music streaming on iOS, the level of the fine is totally ridiculous. Spotify, the main complainant, only offered IAP for a total of two years on the App Store and only one of those years involved Apple Music as a competitor. The reality is that Spotify's preferred approach to the App Store was available to them right from the start: have the free ad-supported version available to download from the App Store and have the premium subscription version only available for sign-up online. Apple didn't receive any commission from that approach and Spotify was able to successfully grow their business using it. 

    Look at these stats for the United States alone...Spotify's business started a dramatic upward curve in 2016. Abuse? It has no basis in reality. 
    https://www.statista.com/statistics/293749/spotify-pandora-number-active-users/



    edited June 24 ihatescreennamestmayteejay2012radarthekatlotonesNickoTTbyronldewmewatto_cobra
  • Reply 9 of 33
    eriamjheriamjh Posts: 1,689member
    So the EU wants to fine Apple for charging too much for the privilege of using Apple’s ecosystem?  

    Seems… wrong.  
    lotonesdanoxmike1watto_cobra
  • Reply 10 of 33
    gatorguygatorguy Posts: 24,388member
    gatorguy said: What revenue? If Apple complies then there are no fines. Both Google and Microsoft have already dealt with this. For Apple, it's all new. 
    The $1.8 billion fine per supposed "abusive" rules for music streaming in the App Store. If you actually look at the history of music streaming on iOS, the level of the fine is totally ridiculous. Spotify, the main complainant, only offered IAP for a total of two years on the App Store and only one of those years involved Apple Music as a competitor. The reality is that Spotify's preferred approach to the App Store was available to them right from the start: have the free ad-supported version available to download from the App Store and have the premium subscription version only available for sign-up online. Apple didn't receive any commission from that approach and Spotify was able to successfully grow their business using it. 

    Look at these stats for the United States alone...Spotify's business started a dramatic upward curve in 2016. Abuse? It has no basis in reality. 
    https://www.statista.com/statistics/293749/spotify-pandora-number-active-users/

    "In setting the level of the fine, the Commission took into account the duration and gravity of the infringement as well as Apple's total turnover and market capitalization. It also factored in that Apple submitted incorrect (aka untruthful) information in the framework of the administrative procedure.

    In addition, the Commission decided to add to the basic amount of the fine an additional lump sum of €1.8 billion to ensure that the overall fine imposed on Apple is sufficiently deterrent. Such lump sum fine was necessary in this case because a significant part of the harm caused by the infringement consists of non-monetary harm, which cannot be properly accounted for under the revenue-based methodology as set out in the Commission's 2006 Guidelines on Fines. In addition, the fine must be sufficient to deter Apple from repeating the present or a similar infringement; and to deter other companies of a similar size and with similar resources from committing the same or a similar infringement.

    The Commission has concluded that the total amount of the fine of over €1.8 billion is proportionate to Apple's global revenues and is necessary to achieve deterrence."

    As I said in the earlier post, Google and Microsoft fines were not solely dependent on the monetary damages to others for breaking competition law and fined $Billions for it. They've been there and learned that fines are sometimes meant to discourage a repeat of the same behavior.  Apple is pushing the limits to see how it applies to its own practices, and they're certainly rich enough to test the waters. 


    Edit: Heck, take that piddling amount of money out of its stock buyback program since no one would notice it anyway. It will have a near zero impact on Apple's wealth, IMHO. 

    sphericctt_zh
  • Reply 11 of 33
    jimh2jimh2 Posts: 642member
    Apparently the EU places no value on Xcode and the costs associated with it. I would think we could see a model where companies have to pay significant amounts to use Xcode if they are pursuing other selling options. 

    I still think Apple should pour resources into Apple Music and give it away to bleed Spotify. For many free is a major determining factor.
    radarthekatwilliamlondonwatto_cobra
  • Reply 12 of 33
    sphericspheric Posts: 2,626member
    jimh2 said:
    Apparently the EU places no value on Xcode and the costs associated with it. I would think we could see a model where companies have to pay significant amounts to use Xcode if they are pursuing other selling options. 

    I still think Apple should pour resources into Apple Music and give it away to bleed Spotify. For many free is a major determining factor.
    Yes, using your market position and financial power to give away a formerly paid service just to bankrupt the main competitor is an excellent response to antitrust investigations! 

    Seriously: how do people with that kind of logic even manage to stay out of jail for long enough to write a comment like that? 
    ctt_zhmuthuk_vanalingamchasmIreneWbyronlwilliamlondon
  • Reply 13 of 33
    tmaytmay Posts: 6,439member
    gatorguy said:
    gatorguy said: What revenue? If Apple complies then there are no fines. Both Google and Microsoft have already dealt with this. For Apple, it's all new. 
    The $1.8 billion fine per supposed "abusive" rules for music streaming in the App Store. If you actually look at the history of music streaming on iOS, the level of the fine is totally ridiculous. Spotify, the main complainant, only offered IAP for a total of two years on the App Store and only one of those years involved Apple Music as a competitor. The reality is that Spotify's preferred approach to the App Store was available to them right from the start: have the free ad-supported version available to download from the App Store and have the premium subscription version only available for sign-up online. Apple didn't receive any commission from that approach and Spotify was able to successfully grow their business using it. 

    Look at these stats for the United States alone...Spotify's business started a dramatic upward curve in 2016. Abuse? It has no basis in reality. 
    https://www.statista.com/statistics/293749/spotify-pandora-number-active-users/

    "In setting the level of the fine, the Commission took into account the duration and gravity of the infringement as well as Apple's total turnover and market capitalization. It also factored in that Apple submitted incorrect (aka untruthful) information in the framework of the administrative procedure.

    In addition, the Commission decided to add to the basic amount of the fine an additional lump sum of €1.8 billion to ensure that the overall fine imposed on Apple is sufficiently deterrent. Such lump sum fine was necessary in this case because a significant part of the harm caused by the infringement consists of non-monetary harm, which cannot be properly accounted for under the revenue-based methodology as set out in the Commission's 2006 Guidelines on Fines. In addition, the fine must be sufficient to deter Apple from repeating the present or a similar infringement; and to deter other companies of a similar size and with similar resources from committing the same or a similar infringement.

    The Commission has concluded that the total amount of the fine of over €1.8 billion is proportionate to Apple's global revenues and is necessary to achieve deterrence."

    As I said in the earlier post, Google and Microsoft fines were not solely dependent on the monetary damages to others for breaking competition law and fined $Billions for it. They've been there and learned that fines are sometimes meant to discourage a repeat of the same behavior.  Apple is pushing the limits to see how it applies to its own practices, and they're certainly rich enough to test the waters. 


    Edit: Heck, take that piddling amount of money out of its stock buyback program since no one would notice it anyway. It will have a near zero impact on Apple's wealth, IMHO. 


    Spotify is a nominally $60B European based company, 

    https://www.statista.com/statistics/244990/spotifys-revenue-and-net-income/

    Spotify doesn't seem to make any profit, or a best, infrequently and barely noticeable

    On top of that, Spotify doesn't seem to be able to pay fairly for content;

    https://variety.com/2024/music/news/music-publishers-complaint-against-spotify-with-ftc-1236035604/

    “Spotify has deceived consumers by converting millions of its subscribers without their consent from music-only subscriptions into ‘bundled; audiobook-and-music subscriptions, publicly announcing increased prices for those subscriptions, failing to offer an option for subscribers to revert to a music-only subscription, and thwarting attempts to cancel through dark patterns and confusing website interfaces,” the letter reads in part. “This bait-and-switch subscription scheme is ‘saddling shoppers with recurring payments for products and services they did not intend to purchase or did not want to continue to purchase.’ Indeed, it has all the red flags of problematic negative-option practices that the FTC has consistently warned companies about: (1) Spotify has failed to give consumers all material information about its subscription plans up front; (2) Spotify has billed consumers without their informed consent; and (3) Spotify has made it hard for consumers to cancel.

    The EU supporting Spotify as their "consumer tech champion" is certainly a questionable goal that needs to be reevaluated.

    Fining Apple 1.8B euro for anti-steering, which hasn't had any effect on Spotify for years, and with Apple's 25% EU marketshare being half of Spotifies, seems, at best, misplaced, but sure, deep pockets.
    edited June 24 radarthekatlotoneskiltedgreenbyronlwatto_cobra
  • Reply 14 of 33
    teejay2012teejay2012 Posts: 398member
    They are just making it up as they go along. In what world was Spotify with its music monopoly going to be the poster child of abuse by Apple's policies? One can only hope that Vestager's 'commission' of pencil pushing, fine generating EU bureaucrats is still constrained by actual laws, precedents and impartial judges. Yes, the DMA is 'law' but the arbitrary nature of fines and lack of clearly defined details as to what would be non compliance, is not lawful. Nor is it business friendly. Vestager is done as chair in the fall, and she will not be involved in the court challenges by Apple and other US tech companies. However her name will come up when hopefully Apple wins... just as it did with the Irish-tax case that she lost...  And yes I do know that is under appeal, but it is going nowhere. Vestager is out of control with her personal vendetta against Apple.
    tmaywatto_cobra
  • Reply 15 of 33
    Apple should just shut down the App Store in the EU and have side loading be the exclusive way to install apps. Wipe their hands of it all and let companies figure out the logistics of marketing, hosting, payment processing, etc themselves.

    Apple Intelligence is only the start of features that the EU will be left behind on.
    edited June 24 williamlondondanoxblastdoorwatto_cobra
  • Reply 16 of 33
    avon b7avon b7 Posts: 7,897member
    Apple should just shut down the App Store in the EU and have side loading be the exclusive way to install apps. Wipe their hands of it all and let companies figure out the logistics of marketing, hosting, payment processing, etc themselves.

    Apple Intelligence is only the start of features that the EU will be left behind on.
    Sounds like a very reasonable proposal although the EU isn't actually asking for that. 

    The EU is asking for competition and even in that scenario Apple has a lot on its side because those who don't want to use the other options can choose not to if they are happy with the existing setup. 

    Your 'teach them a lesson' suggestion would force users into alternative app stores for which I wouldn't consider the term 'sideloading' to be appropriate as the installation process wouldn't be bypassing anything.

    Don't forget that hosting, processing etc would be covered by store revenues and very possibly direct downloads from software vendors. 

    There is no secret sauce to any of those processes which are all easily catered to in the digital age and new fintech advances. 

    Currently, Apple takes the entire revenue stream all for itself and we know it is a multi billion dollar industry. Even when accounting for an EU percentage, I'm sure there is money to be made but the number one concern isn't money, it's competition. 


    spheric
  • Reply 17 of 33
    robin huberrobin huber Posts: 3,993member
    Why doesn’t Apple just sit down with the appropriate EU regulatory agency and work out an historical average of fines paid to be automatically deposited in their coffers on a weekly or monthly basis? In return the EU will protect them from all these ongoing litigation expenses. Win-win. After all “it’d be a shame to see something bad happen to your nice European business.” 
    watto_cobra
  • Reply 18 of 33
    aijwsaijws Posts: 13member
    Apple should withdraw from the EU!

    If there are enough Apple Users who Throw a Fit, maybe the EU Cheeseheads will Cave and get out of the way of Commerce. 

    Couple Years using Android and they may change their (i)Tune(s)!
    edited June 24 macxpresswatto_cobra
  • Reply 19 of 33
    dee_deedee_dee Posts: 122member
    Apple should just shut down the App Store in the EU and have side loading be the exclusive way to install apps. Wipe their hands of it all and let companies figure out the logistics of marketing, hosting, payment processing, etc themselves.

    Apple Intelligence is only the start of features that the EU will be left behind on.
    I don’t think they will shut it down, but what it does seem they are doing is making EU users second class citizens by holding back features from the EU version of iOS to limit their blast radius. 
    danoxwilliamlondonwatto_cobra
  • Reply 20 of 33
    ppochppoch Posts: 1member
    From my own standpoint of view, here EU is trying to help small developers, not users, to help grow their own app industry. Using Apple’s worldwide app Store as a free platform for EU developers is an invaluable sales channel for them. But wait, get all that for free is not fair for any company around the world. It would be an under-covered subsidy from EU to developers using Apple’s resources, technology and workers.

    Clearly abandon EU is not an option, nor EU wants that, I believe. It would be unfair in any ways and EU shooting themselves.

    What means: “ Under the scope of the DMA, the region has the right to daily fine the company a percentage of its average global income, which works out to around $1 billion per day.” ?

    Net Income for the six months ended March 30, 2024, was $57,552 millions. That would be $315 million per day. $1 billion per day would be more than three times that. The fine, it says, would be a percentage of the (net) income, so it can’t be $1 billion per day it should be a much smaller amount. And of course, over global income is insane. Why have to pay a fine over global income?, how are They calculating the impact on EU app developers of Apple’s App Store rules? At most it would be framed to EU countries only, not all the planet!
    tmaywatto_cobra
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