Apple's Core Technology Fee at the center of EU's first DMA violation investigation
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.
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
Comments
"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."
The anti-steering focus of the DMA doesn’t really make much sense from a technology standpoint.
It's entirely up to Apple how far they want to push "malicious" compliance.
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.
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.
"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/
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.
Apple Intelligence is only the start of features that the EU will be left behind on.
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.
If there are enough Apple Users who Throw a Fit, maybe the EU Cheeseheads will Cave and get out of the way of Commerce.
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!