Apple's App Store policies are enforced under new EU competition law

Apple Inc is imposing unfair restrictions on developers of its App Store apps in violation of a new European Union law aimed at encouraging competition in the technology industry, regulators in Brussels said on Monday.

These accusations have escalated a conflict between Apple, which says its products are designed in the best interest of customers, and European Union regulators, who say the company is unfairly using its size and large resources to stifle competition.

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

After launching an investigation in March, European Union regulators said Apple was placing illegal restrictions on companies that make games, music services and other apps. Under the law, also known as the DMA, Apple cannot restrict how companies communicate with customers about sales, other offers and content available outside of the App Store. Regulators said the company faces a penalty of 10% of global revenue, a fine that could reach 20% in case of repeated violations. Apple generated revenue of $383 billion he won last year.

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

European Union regulators said the accusations 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 represent a fair trade for providing such a large platform for developers 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 developer feedback and the European Commission,” Apple said in a statement. “We are confident that our plan complies with the law.”

The fine highlights the risks to the company's business as a result of increased regulatory scrutiny around the world. In the United States, the Department of Justice filed a lawsuit against Apple over allegations that it illegally monopolizes the smartphone market. It is also arguing in US federal court that it has the right to take 27 percent of app sales through third-party payment systems, which developers say violates a 2021 court ruling.

Japan and Britain, which are no longer part of the European Union, have advanced rules to limit Apple's control over the App Store as well.

The European Union has long been at the center of regulatory efforts to clamp down on the world's largest technology companies, but authorities in Brussels are going further. The Digital Markets Act gives officials new powers to intervene without the lengthy 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 control social media platforms and illicit online content. Meta, TikTok, and X are under investigation for potential violations.

The intense scrutiny appears to be making companies think about what products and services they will export across the 27-nation bloc. Apple said on Friday that it will not issue a software update to iPhone users in the European Union that includes new artificial intelligence features due to “regulatory uncertainty.” Meta did not launch its Threads services on the block until five months after it was available in the US, due to regulatory concerns.

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

In January Apple Announce List of changes to its app store policies in an attempt to comply with the Digital Markets Act, including allowing users to download competing app stores for the first time. Apple also reduced the service fees it charges companies for all sales through the App Store to 17 percent, from 30 percent.

Apple made other changes that upset developers, including charging them a “core technology fee” of 50 euro cents for each download of their app after it has been downloaded a million or more times in 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 on regulators to intervene.

The European Commission said it had launched a separate investigation into Apple's technology fees, saying they 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 Digital Markets Act in court. The outcome may take years, but is likely to set a precedent for future regulation of the technology industry and the digital economy.