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EU Tipped To Hit Apple Hard After Store Rule Breaches

The European Commission has come down hard on Apple this week after they found its App Store rules to be in breach of the newly-introduced Digital Markets Act (DMA).

While presenting those preliminary findings stemming from an investigation that it began in March, the Commission also added that it had opened another new non-compliance investigation against Apple over concerns that its new contractual requirements for third-party app developers and app stores, including Apple’s new “Core Technology Fee”, do not comply with Apple’s obligations under the DMA.

In the case of the first investigation whose preliminary findings were presented to Apple, the EC found that Apple broke so-called anti-steering rules. Under the DMA, major tech companies must let third-party developers inform users about alternative ways to make purchases without charging developers to do so.

EU officials determined that none of Apple’s updated terms let developers nudge customers toward alternative payment options and also doesn’t let developers tell users how much less they could pay elsewhere.

Apple mainly only allows developers to use link-outs, the Commission said – they can include a link to a web page to carry out a payment. “The link-out process is subject to several restrictions imposed by Apple that prevent app developers from communicating, promoting offers and concluding contracts through the distribution channel of their choice,” the EC said.

Regulators added that although Apple is entitled to receive a payment for helping developers find new customers through the App Store, “the fees charged by Apple go beyond what is strictly necessary for such remuneration.” For example, they noted, developers have to pay Apple a fee for any purchase of digital services or goods that someone makes within seven days of an app link-out.

Developers have to pay up to 30 per cent of any purchases made via the App Store (Google charges similar fees for Play Store purchases). Developers would in theory be able to offer cheaper prices to consumers if they are allowed to make purchases away from the App Store.

“We are confident our plan complies with the law, and estimate more than 99 per cent of developers would pay the same or less in fees to Apple under the new business terms we created,” Apple countered in a statement in response to the EU announcement.

Under the DMA, it’s illegal for certain services operated by the likes of Apple, Google, Meta, Microsoft, and Amazon to favour their own services over those of rivals.

They cannot combine personal data across their different services, and are prohibited from using data they collect from third-party merchants to compete against them, and must allow users to download apps from rival platforms.

Although at this stage the EU has only presented its preliminary findings in the first investigation, if Apple is eventually found guilty, it could face a fine of tens of billions of dollars under the DMA’s severe penalties which would require it to pay up to 10 per cent of its global revenue. Should a DMA violation be repeated, fines can reach up to 20 per cent of global annual revenue. The EU has 12 months from the time of beginning that investigation on 25 March 2024 to finalise its findings.

As for the new investigation into Apple announced today, the EC has taken issue with new fees Apple is charging developers “to access some of the new features enabled by the DMA,” such as the ability to offer a third-party app marketplace as well as app downloads through other means, such as the web.

“We have also opened proceedings against Apple in relation to its so-called core technology fee and various rules for allowing third-party app stores and sideloading. The developers’ community and consumers are eager to offer alternatives to the App Store. We will investigate to ensure Apple does not undermine these efforts,” said Margrethe Vestager Executive Vice-President in charge of competition policy.

Apple has fallen foul of the rules of the EU previously as well. Not only was it handed a €1.8 billion (A$2.9 billion) EU penalty for stifling music app rivals earlier this year, but Vestager also ordered Apple to repay €13 billion (A$20.96 billion) in allegedly unfair tax breaks from Ireland, as part of a case that it being fought in the EU courts.

Further problems are cropping up for Apple as it declared on Friday that due to the DMA, it would halt the rollout of its artificial intelligence technologies in the 27-nation EU this year.

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