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Apple Legal Woes Mount As EU Watchdog Files Antitrust Charges

The European Commission on Friday accused Apple (AAPL) of distorting competition in the music streaming market by abusing its dominant position in the distribution of apps through its App Store. Apple stock edged down in afternoon trading.




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The EU watchdog issued its preliminary charges from an investigation sparked by an antitrust complaint from rival Spotify Technology (SPOT). The commission took issue with the mandatory use of Apple’s in-app purchase mechanism imposed on app developers who distribute their apps via Apple’s App Store. The commission also said it is concerned about restrictions on app developers that prevent them from informing iPhone and iPad users of alternative, cheaper purchasing possibilities.

Apple’s own music streaming service, Apple Music, has a competitive edge over rival services. It doesn’t have to pay commission fees for using the App Store. Apple takes a 30% commission fee from third-party subscription services during the first year and 15% thereafter.

“By setting strict rules on the App Store that disadvantage competing music streaming services, Apple deprives users of cheaper music streaming choices and distorts competition,” said Margrethe Vestager, executive vice president in charge of competition policy at the commission.

Apple Stock Slips On EU News

Apple denied any wrongdoing. “At the core of this case is Spotify’s demand they should be able to advertise alternative deals on their iOS app, a practice that no store in the world allows,” Apple said in a written statement. “Once again, they want all the benefits of the App Store but don’t think they should have to pay anything for that. The Commission’s argument on Spotify’s behalf is the opposite of fair competition.”

In afternoon action on the stock market today, Apple stock dipped 0.4%, near 133.

On Thursday, Apple stock dipped a fraction following the company’s March-quarter earnings report.

The European Commission’s “statement of objections” is a formal step in its investigations, as the body is probing suspected violations of European Union antitrust rules. Apple can now respond to the charges in writing and request an oral hearing. Then it would present comments on the case before representatives of the commission and national competition authorities.

Bradley Gastwirth, chief technology strategist with Wedbush Securities, said the concern for Apple stock is expanding legal problems.

“The larger question is whether other regulatory bodies follow suit and if this becomes more widespread and forces Apple to change its practices,” he said in a note to clients.

Epic Games Lawsuit Heads To Trial

The European Commission report comes just days before Apple heads to court in the U.S. It plans to defend its App Store policies in a case brought by Epic Games.

Publisher of the popular game “Fortnite,” Epic has accused Apple of anticompetitive behavior with its App Store rules. Epic has argued that Apple exercises monopoly power with its installed base of more than 1 billion iPhone users.

The court case began last year after Epic tried to implement its own in-app payment system. It did so in its “Fortnite” game and Apple subsequently banned the game from its App Store.

A trial in the case is set to begin Monday in federal court in Oakland, Calif.

In other legal news, Russia’s Federal Antimonopoly Service on Tuesday fined Apple $12 million for abusing its dominance in the mobile applications market, Reuters reported. Apple disagrees with the ruling and has vowed to appeal it.

Apple stock has been trending sideways for months amid heightened regulatory scrutiny of its business practices.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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