Apple’s App Store Draws Antitrust Scrutiny in European Union

LONDON — Apple’s App Store helped usher in the smartphone economy, leading to the birth of now-ubiquitous services such as Instagram, Uber and Candy Crush, and providing a transformative new way for people to shop from their phones.

But for companies that wanted to offer their products through Apple’s digital store, there has always been a catch: To reach customers, they had to agree to Apple’s terms and conditions, including sharing certain data with the company and giving it a percentage of any future sales made through the iPhone or iPad app.

Now European regulators are questioning whether Apple’s terms go too far.

On Tuesday, the European Commission, the executive body of the European Union, said it had opened a formal antitrust investigation to determine if the terms that Apple imposes on app developers violate competition rules. The commission said it had also started a separate investigation to see whether Apple was boxing out rivals to its mobile payments system, Apple Pay.

In both Brussels and Washington, officials have been scrutinizing the power of the world’s largest technology platforms. Apple, Amazon, Facebook and Google are being investigated by antitrust authorities over their growing power, particularly their position as gatekeepers upon which other companies depend on to reach customers.

“Apple obtained a ‘gatekeeper’ role when it comes to the distribution of apps and content to users of Apple’s popular devices,” said Margrethe Vestager, the European Commission executive vice president in charge of competition policy. “We need to ensure that Apple’s rules do not distort competition in markets where Apple is competing with other app developers.”

The case against Apple arises from a complaint made last year by Spotify, whose music-streaming service competes with Apple Music. Spotify and others have criticized Apple for imposing rules and charging a fee of up to 30 percent on digital services sold through its App Store. Spotify argued that the fee constituted a tax that violated competition laws and merited an investigation. In March, the European Commission said an e-book and audiobook distributor, which it didn’t identify, had filed a similar complaint.

“At the heart of our case is the fact that Apple acts as the stadium owner, referee and player, and tilts the playing field in favor of its own services,” Horacio Gutierrez, Spotify’s chief legal officer, told reporters on Tuesday. “This case is not just about Spotify. The commission’s decision to take on this case against Apple is an important first step toward developing new rules of the road that will govern the conduct of online platforms for years to come.”

On Tuesday, European authorities said a preliminary investigation showed the complaints had merit.

Josh Rosenstock, a spokesman for Apple, said the company disagreed with the European Commission’s decision to start the investigations, describing the complaints that it is breaking antitrust laws as “baseless.” The company has defended its tight control of the App Store as a means to preserve quality, privacy and security.

“Throughout our history, Apple has created groundbreaking new products and services in some of the most fiercely competitive markets in the world,” he said. “We follow the law in everything we do, and we embrace competition at every stage because we believe it pushes us to deliver even better results.”

American investigations of Big Tech’s power, including those by the Justice Department, Federal Trade Commission and state attorneys general, have tended to lump Apple in with Google, Facebook and Amazon. But Apple was thought to be at the least risk of punishment there because its business practices appeared to be less problematic than its closest peers.

But now Europe’s formal investigations show Apple still faces at least one big regulatory fight.

In Europe, the world’s largest technology companies have long been viewed with suspicion as they have consolidated power over the digital economy. In 2016, the European Commission ordered Ireland to collect 13 billion euros in unpaid taxes from Apple, worth about $14.7 billion today. The antitrust authorities have also issued billions of dollars in fines against Google for antitrust violations in recent years, while Amazon and Facebook are also facing fresh scrutiny.

Spotify has been discussing Apple’s practices with European regulators for about five years, according to a person involved in the talks, who spoke on the condition of anonymity because they were private. Tuesday’s announcement is a major milestone, yet the commission could still spend a year or more investigating the company’s practices before determining whether to bring charges.

Since Spotify made its formal complaint in Europe in March 2019, regulators have been considering how to show harm from Apple’s actions, according to the person involved. They eventually concluded that Apple’s 30 percent share of some revenues collected via the App Store raised competitors’ costs, eventually leading to higher prices for consumers, this person said.

Spotify said it had raised its monthly subscription price to $13 from $10 in 2014 to make up for Apple’s cut. A year later, Apple introduced its streaming-music competitor, Apple Music, priced at $10 a month. Spotify then decided to pull out of the App Store payment system, restricting Apple from taking a share and prompting Spotify to drop its price back to $10 a month. It then became more complicated to sign up for Spotify’s paid service; customers now have to go to a website instead of simply tapping a button in the app.

Apple has faced other scrutiny of how it uses its influence over the App Store. For years it has packed the top of many App Store search results with its own apps, even when they were less popular or relevant than competitors’ offerings, according to an investigation by The New York Times. In 2018, Apple also began restricting or removing many popular apps that helped people limit the time they and their children spent on their iPhones, just after Apple released competing tools. After the makers of two parental-control apps complained to European regulators and The Times reported on Apple’s moves, Apple quietly reversed its policy and let the apps back into the App Store.

In addition to App Store policies, European authorities are investigating Apple Pay, which allows people to make purchases within apps or in shops with an iPhone or Apple Watch. The questions surround requirements companies must agree to when integrating Apple Pay into apps or websites. The commission said it would review how the company controlled access to “tap and go” technology for rival payment systems on Apple devices.

“It is important that Apple’s measures do not deny consumers the benefits of new payment technologies, including better choice, quality, innovation and competitive prices,” Ms. Vestager said.

The Apple investigations are part of a multifront challenge that the biggest tech companies are grappling with around the world.

In Germany and Britain, lawmakers are debating changes to antitrust laws that would make it easier for the authorities to bring tech cases. European Union officials are exploring a digital services law with wide-ranging implications, including potential liability rules for harmful content spread on social media, as well as expanded powers for regulators to quickly step in against what they conclude are unfair business practices. Australia, India and Brazil are also cracking down.

Spotify said that federal and state regulators in the United States had approached the company about Apple and that it had provided information, but that it expects real action to come in Europe.

Gene Kimmelman, a former chief counsel of the Justice Department’s antitrust division, said Europe continued to lead on enforcement.

“Europe is moving much more quickly and much more aggressively with both antitrust and regulation,” said Mr. Kimmelman, now a senior fellow at the German Marshall Fund. “I think the U.S. will respond to that.”

Adam Satariano reported from London, and Jack Nicas from Centerville, Mass.