Apple is first company charged under new EU competition law

The charge against Apple is the first by the Commission under its landmark Digital Markets Act which seeks to rein in the power of Big Tech and ensure a level playing field for smaller rivals.

London: Apple is imposing unfair restrictions on developers of applications for its App Store in violation of a new European Union law meant to encourage competition in the tech industry, regulators in Brussels said Monday.

The charges further escalated a tussle between Apple, which says its products are designed in the best interest 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 charged for violating the Digital Markets Act, a law passed in 2022 that gives European regulators wide authority to force the largest "online gatekeepers" to change their business practices.

After initiating an investigation in March, EU regulators said Apple was putting unlawful restrictions on companies that make games, music services and other applications.

Under the law, also known as the 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 penalty of up to 10 per cent of global revenue, a fine that could go up to 20 per cent for repeat infringements, regulators said. Apple reported $383 billion in revenue last year.

"Today is a very important day for the effective enforcement of the DMA," said Margrethe Vestager, the European Commission executive vice president 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 offers.

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

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

"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," Apple said in a statement. "We are confident our plan complies with the law."

The charges underscore the risk to the company's business from increased regulatory scrutiny around the world. In the United States, Apple is being sued by the Justice Department over claims that it has an illegal monopoly in the smartphone market.

It also is arguing in US federal court that it has the right to take up to 27 per cent of certain app sales through third-party payment systems, which developers argue violates a 2021 judicial ruling.

Japan and Britain, which is no longer part of the EU, have advanced rules to curb Apple's control of the App Store, as well.

The EU has long been at the center of regulatory efforts to clamp down on the world's largest tech companies, but the DMA gives officials new powers to intervene without the drawn-out process of filing traditional antitrust lawsuits, which can take years to resolve. 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 intensifying scrutiny appears to be causing companies to consider what products and services to release across the 27-nation bloc. On Friday, Apple said it would not release a software update for iPhone users in the EU that includes new artificial intelligence features because of "regulatory uncertainty."

Meta did not release its Threads service in the bloc until five months after it was available in the United States, citing regulatory concerns.

But the EU is one of the largest markets for Apple and other technology firms, giving them few options other than to make changes to comply with new laws.

In January, Apple announced a list of changes to its App Store policies in an effort to comply with the DMA, 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 to up to 17 per cent, from 30 per cent.

Apple has made other changes that have upset developers, including charging them a "core technology fee" of 50 euro cents ($0.54) for every download of their app after it has been downloaded 1 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 anticompetitive tax and called for regulators to intervene.

The European Commission said it was initiating a separate investigation into Apple's technology fee, saying it may "fall short of ensuring effective compliance with Apple's obligations under the DMA."

Apple and other companies are expected to try to limit the scope of the DMA in court. The outcome could take years but is likely to set a precedent for future regulation of the tech industry and digital economy.