EU Launches Antitrust Probe Into iTunes

Macthorpe writes "ABC News is reporting that the EU has started an antitrust probe into the way that Apple sells music on iTunes. As you can only purchase from the store of the country where your credit or debit card is registered, the price differences and availability differences between iTunes stores for different EU countries constitute a violation of EU competition laws which forbid territorial sales restrictions.'Apple spokesman Steve Dowling said Monday the company wanted to operate a single store for all of Europe, but music labels and publishers said there were limits to the rights that could they could grant to Apple. "We don't believe Apple did anything to violate EU law," he said. "We will continue to work with the EU to resolve this matter."'"

EU Fines

[eldavojohn]

Oh, the EU has fined so many companies for price fixing, I don't even know where to begin--Bayer & Chemtura [iht.com], Siemens [networkworld.com], Dow [cfo.com], escalator firms [bbc.co.uk], Heineken [samba.org], Aventis [in-pharmat...logist.com], animal feed companies [findarticles.com], the Deutsche Post [americanshipper.com], many vitamin producers [foodnavigator.com], Nintendo [buzzle.com] and, of course, the well known case of Microsoft [slashdot.org].

I'm not saying that none of these fines are unjustified but I am saying that, if I may opine, the EU has been issuing a lot of fines. With this recent Apple one, it does seem as though Apple had no choice and if they aren't given an alternative to losing their contracts with record companies for the sake of running one Europe encompassing store, then I don't blame them. On the surface, the EU Commissions seem to be discouraging big businesses from selling things like XBoxes, PS3s or iTunes inside all of the countries. Is this a good thing or a bad thing? I guess time will tell ...

Good

[EnglishTim]

UK iTunes customers currently pay 79p per track. That's the equivalent of around $1.50.

Re:DVD zoning

[cwgmpls]

DVD zoning puts all of the EU in one zone, so it doesn't violate EU rules.

Re:good old EU

[mikerich]

It's nothing to do with developing a competitor. Ever since the EEC was founded by the Treaty of Rome, there have been a series of binding legal agreements on member states to enforce free trade. With a few minor exceptions, it is illegal for a member state, or an organisation operating inside the EU, to create barriers against the free movement of people, goods or services. Differential pricing can be seen as an impediment to free trade between members and therefore falls under the remit of EC Law (EEC, EC and EU - yep it's complicated).

If there is thought to be a case against Apple and the record companies then the EU Commission can refer the case to the European Court of Justice for a decision. If they are found to be in breach then the EU has the power to impose penalties on the companies.

Re:EU Fines

[chrb]

This has nothing to do with discouraging businesses from selling games consoles within the EU. The fact is that the EU has a single, regulated market. Price discrimination against customers based on their nationality or location within the EU is illegal. Apple knew this very well (you think they didn't consult their lawyers before opening EU Itunes stores?), and chose to ignore the law. Whatever contracts Apple signed with the RIAA are irrelevant; contracts between companies cannot supercede the law of the land.

As an aside to the Americans who think this is an example of EU socialism bashing a successful American company, consider this: what would your government do if Apple had different stores for each state, or for people of different races, each with varying music and pricing? I doubt you would be so accepting.

Re:good old EU

[bri2000]

Despite how it's described in the summary and articles this isn't really an anti-trust/competition law case. It's a single market issue. The principle is that if you live in an EU state you should be able to buy goods and services on sale in any other EU state and import them to your home state without restriction (save for certain limited exemptions for reasons of public morality etc). The EU Commission has power to enforce this and, especially in the period following the Single Market Act coming into force in 1992 under Leon Brittan, was very aggressive at going after both governments and private companies who breached this principle. The number of cases dropped off as governments and companies realised that the Commission was serious about the single market and started to play by the rules.

What Apple has been doing with iTMS in Europe is so flagrantly in breach of the principles underlying the single market I'm frankly amazed it's taken the commission this long to get round to investigating them. I'd love to know who's been giving Apple their legal advice - I assume they're going to try to run an argument that they're providing a service rather than selling goods and therefore aren't caught in the single market rules - and will be very interested to see how this one turns out. We've not had a good free movement of goods case for a while...

Lots of misunderstandings here

[Budenny]

1) Its not about coding. Having different release dates in different languages would be fine, even within the EU.

2) Its not about DRM. Locking to players may or may not be OK in the EU, but its a different issue.

3) Its not about having the same price. No-one says you have to sell for the same price everywhere.

4) Its not about Apple being forced to do things by the record companies. It doesn't matter who wanted it or didn't.

5) It is not the same as buying stuff in Japan and the US, because, you see, Japan and the US are not part of a single market established by treaty and with a transnational body, the Commission, regulating conduct of companies.

What is it about then?

It is unlawful in the EU to restrict imports and exports from one country to another, because that is in restraint of trade and anti competitive. You can sell it for 600 in Germany and 300 in France. But what you cannot do is prevent the Germans from buying the stuff in France.

Consequently, it makes no difference what the record companies or Apple think or say to each other. Apple cannot enter into an agreement to restrict sales from its UK sites to UK cardholders. If it did sign such an agreement, it is unlawful. It will have entered into a conspiracy to commit anti competitive behaviour. Along with whoever it signed the agreement with. They will both be fried for it. If it just did it off its own initiative, only it committed the unlawful acts. If it really did.

So please guys, stop blaming the record companies and exonerating Apple, its all irrelevant. We have, allegedly, one or more parties engaged in anti competitive practices which are unlawful in the EU. If so, one or both are going to get busted. Whoever instigated it is irrelevant.

If you want to get a better handle on it, think violating FTC rules on interstate commerce in the US.

EU Launches Antitrust Probe against major music c

[Lars T.]

Update: [forbes.com]

The European Commission said the focus of its antitrust inquiry into the pricing of songs on Apple Inc's iTunes online music store will be major music companies.

The emphasis on the groups was outlined by a spokesman for EU competition commissioner Neelie Kroes to reporters here.

However, he added that Apple (nasdaq: AAPL - news - people ) is also included in the investigation as the 'operator' of the service.

Re:good old EU

[Halo1]

I think you'll find that the labels are the ones that have set the regional limits and pricing standards. Apple is bound by the contracts the labels were willing to negotiate, and the labels didn't want to negotiate liberal contracts when the iTunes stores were first being set up.

The coverage by the Belgian/Flemish national news service [vrtnieuws.net] says indeed that the price differences are reportedly required by the labels, and that (according to the Financial Times) the probe specifically targets EMI, Sony and Warner, who have two months to formulate an answer. And if the Commission doesn't like their answer, it reserves the right to confiscate 10% of the labels' revenue (from Internet sales, presumably). It doesn't say anything about sanctions against Apple.

Re:good old EU

[dkf]

And if the Commission doesn't like their answer, it reserves the right to confiscate 10% of the labels' revenue (from Internet sales, presumably).

Actually, the EU can fine them up to 10% of total global income, not just the directly related market segment. That's a lot of money.

Re:EU Fines

[rapiddescent]

in terms of "what is wrong", there is a big political debate in the UK at the moment about "rip off britain" where many commodity items and digital products are typically charged 50% more than other countries. This is the reason why there are so many stories like this going around. The BBC managed to really embarass Bill Gates on Microsoft Vista launch day asking why Vista was twice the price compared to the USA and (illegally) more expensive than France. Bill Gates was obviously poorly informed by his staff and answered poorly.

Also, from a legal point of view; EU member states have a trade agreement that used to be called the "common market". This means that a consumer in Italy, should not be prevented from buying a product at the same price as a German or a Brit. This is why Europpeans can shop around the EU looking for the cheapest prices for products - e.g. Italians buying Mercedes in Germany, Brits buying fags (cigarettes. please!) from France and Spaniards buying mobile phones from the UK.

Any company that prevents cross border trading, is breaking the law. The problem with iTunes, is that it does not allow a Brit to buy at French prices and so on because the user is registered in their home country and is forced to buy at the domicile prices. This restriction only happens on digital products because physical products can easily be purchased in the country of ones choosing by showing up and buying the stuff over the counter.

I don't see this as an Anti-USA argument - it is an EU problem with the subsidiuaries of Apple, such as Apple UK and Apple DE etc not co-operating and profiteering in an illegally segmented market.

hope that helps,

rd

Re:Since no ones seems to grasp what this is about

[99BottlesOfBeerInMyF]

What the commission is complaining about, and what may very well be determined illegal under EU law, is restricting the sale of French priced tracks only to people with credit cards issued in France.

This is called "due diligence" to prevent contributory copyright infringement charges leveled against Apple.

The EU garuntees free movement of goods, services and people between its member states. Shutting out consumers based on where their cards are issued may well be in violation of this.

So here's the problem. The right to copy a song onto your personal computer in France is considered, under EU law, a different service than the right to download that same song onto your personal computer in Germany because the right to copy it (copyright) is enforced separately in each country. So if Apple did not restrict the sale of a song from the French store to people with a French credit card, then sure a German could purchase the copyright with their German card, but assuming they are in Germany, it would be illegal for them to actually download the song in Germany, because their license to copy only applies in France and they aren't in France.

Your mistake is trying to equate a download with a CD, when those two things are treated completely differently by EU law. Under EU law, you cannot transfer a copyright (download license) in one country to another, while you can transfer a copy itself (CD).

Now, you may disagree, and think that imposing this restriction is not in violation of EU law. Fine. But you are grossly misrepresenting the situaton by claiming the EU commission wants Apple to charge the same amount in every country.

The EU commission is bringing charges against Apple for selling what EU law defines as different services, for different prices. The problem is most of the people involved only understand things in terms of analogies, like CDs and don't understand that the problem is with EU law and the recording industry's exploitation thereof. Apple has exactly zero power to solve this. If they did as you suggest, they'd simply be misleading people into thinking they had a legal right to download a song, when they almost certainly did not, and as a result Apple would be liable for damages because of their knowingly profiting from this illegal behavior.

Incidently, I agree with the commission on this one. I think refusing to process a credit card tranaction because the card was issued in a different EU state is probably a violation of the single market regulations.

It is entirely probable that it is a violation, technically. The problem is that accepting payments from foreign cards is also probably illegal. The EU has created a situation where selling music downloads online, is probably illegal no matter which way Apple chooses to do business. All of this, however, would be a moot point if the EU would simply enforce their own edict that requires the recording companies to offer to sell Apple and everyone else a single license at a single price that applies across Europe, so that the copyright license in Germany and in France were the same service. Right now, under EU law, they are not.

Re:Lots of misunderstandings here

[meringuoid]

Okay, suppose you're Apple. BMG agrees to license you to make a copy of a Frank Sinatra song within France, providing you pay the $0.30 every time you do so. They agree to let you make a copy of the same Frank Sinatra song within Germany for $0.40 every time you do so. The act of making a copy is the act of allowing a person to download it and is dependent upon where the person doing the downloading is located. EU law enforces copyright separately in each country and just because you licensed the right to make a copy in France for $0.30 each copy, that does not grant you any right to do the same thing in Germany at any price.

Only because BMG says it doesn't grant the right. The EU says nothing on the matter. BMG can say 'We sell this licence which is good for all EU territories. In Germany we sell it at $0.40. In France we sell it at $0.30.' That would be legal. Of course savvy Germans would then buy the cheaper French licences, which is the point of having the single market and the single currency.

If the licence sold in France is not valid in Germany, that is entirely the record company's doing. Hence this investigation into these companies, and Apple for contributory infringement of the EU citizens' rights.