Apple's App Store policies are subject to new European competition law

Apple is imposing unfair restrictions on application developers for its App Store in violation of a new European Union law intended to encourage competition in the technology sector, regulators in Brussels said Monday.

The allegations have further intensified the tussle between Apple, which says its products are designed in the best interests of customers, and EU regulators, who say the company is unfairly using its size and considerable resources to stifle competition.

Apple is the first company to be accused of violating the Digital Markets Act, a law passed in 2022 that gives European regulators broad authority to force the largest “online gatekeepers” to change their business practices.

After launching an investigation in March, EU regulators said Apple was imposing illegal restrictions on companies that make games, music services and other applications. Under the law, also known as DMA, Apple cannot limit how companies communicate with customers about sales and other offers and content available outside the App Store. The company faces a fine of up to 10% of global revenue, a fine that could reach up to 20% for repeat violations, regulators said. Apple reported revenue of $383 billion last year.

“Today is a very important day for the effective implementation of the DMA,” said Margrethe Vestager, Executive Vice President of the European Commission in charge of competition policy. She said Apple's App Store policies make developers more dependent on the company and prevent consumers from being aware of better deals.

EU regulators said the allegations were preliminary and gave Apple a chance to respond. The final decision will be announced by next March.

Apple has defended its practices, saying its rules and fees are a fair trade for providing such a broad platform to reach consumers. Developers can direct consumers to websites to make purchases outside of the App Store, the company said.

“Over the past few months, Apple has made a number of changes to comply with the DMA in response to feedback from developers and the European Commission,” Apple said in a statement. “We are confident that our plan complies with the law.”

The allegations highlight the risk to the company's business from increased regulatory scrutiny around the world. In the United States, Apple was sued by the Department of Justice over claims it had an illegal monopoly in the smartphone market. It is also arguing in US federal court that it has the right to take up to 27% of sales of certain apps through third-party payment systems, which developers say violates a 2021 court ruling.

Japan and Britain, which is no longer part of the European Union, have also adopted enhanced rules to curb Apple's control of the App Store.

The European Union has long been at the center of regulatory efforts to crack down on the world's biggest tech companies, but the Digital Markets Act gives officials new powers to intervene without the lengthy process of filing traditional antitrust lawsuits, which can take years to be completed. solve. Amazon, Google and Meta are also under investigation for violating the law.

Another new law, called the Digital Services Act, gives regulators more power to govern social media platforms and illicit online content. Meta, TikTok and X are under investigation for possible violations.

The intensified scrutiny appears to be causing companies to consider which products and services to release in the 27-nation bloc. On Friday, Apple said it will not release a software update for iPhone users in the European Union that includes new artificial intelligence features due to “regulatory uncertainty.” Meta didn't release its Threads service to the block until five months after it became available in the United States, citing regulatory issues.

But the European Union is one of the largest markets for Apple and other tech companies, giving them few options other than to make changes to comply with new laws.

In January, Apple announced a list of changes to App Store policies in an effort to comply with the Digital Markets Act, including allowing users to download rival app stores for the first time. Apple also reduced the service fees it charges companies for sales through the App Store from 30 percent to 17 percent.

Apple has made other changes that have upset developers, including charging a 50 cent “core technology fee” for each download of their app after it has been downloaded a million times or more within 12 months . Spotify and Epic Games, the maker of Fortnite, were among the companies that said the changes amounted to a new anti-competitive tax and called for regulators to intervene.

The European Commission said it is launching a separate investigation into Apple's technology tariff, saying it may “fail to ensure effective compliance with Apple's obligations under the DMA”

Apple and other companies are expected to seek to limit the reach of the Digital Markets Act in court. The outcome may take years, but it is likely to set a precedent for future regulation of the tech sector and digital economy.

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