Apple stands in the global antitrust crosshairs

Apple – not Facebook or Google – is rapidly emerging as the test case for how officials in Brussels, Washington and beyond clamp down on Big Tech’s digital empires spanning vast swathes of the world, according to government officials, tech rivals and lawyers representing consumers in class-action lawsuits against the iPhone maker.

Other Silicon Valley heavy-hitters are also under a renewed spotlight for allegedly unfairly promoting their services over those of rivals. But with European regulatory complaints and U.S lawsuits piling up against Apple, it’s the tech giant that now finds itself at the center of a regulatory — and increasingly political — storm over possible antitrust abuses. The U.S. Department of Justice also opened its own antitrust investigation into the dominance of tech companies' online platforms on July 23.

Rivals complain they’re unfairly treated in Apple's powerful app store. Consumers claim they’re forced to pay eye-watering premiums for basic services. Powerful government agencies, armed with new regulatory teeth, plow through its corporate records looking for wrongdoing.

“There’s a lot of pressure to act,” said Ioannis Lianos, chair of global competition law and public policy at University College London. “What we’re seeing with Apple is a significant development for antitrust actions.”

Ahead of next year’s U.S. presidential election and a new European Commission starting work in November, industry executives claim that lawmakers and officials have targeted tech firms like Apple as an easy vote winner amid a souring of the general public’s view of Silicon Valley.

“We’re in a pre-election year, they chose this topic for a reason” said Marianela López-Galdos, global competition counsel at the Computer & Communications Industry Association, a Washington DC-based trade body whose members include Facebook and Google, but not Apple. “I’m not surprised.”

But with European Union policymakers already reviewing two separate antitrust complaints against the company, and the U.S. Department of Justice pushing ahead with its own probe into online platforms, Apple is in the crosshairs of renewed regulatory actions by some of the world’s most powerful government agencies.

The company's complete control over its app store gives regulators more tools and greater ability to act compared to early-stage probes into other tech giants.

The iPhone maker declined to answer a list of detailed questions from POLITICO on the record about its legal and regulatory challenges, or to comment on any specific antitrust charges.

It has previously denied that it unfairly favored its own services over those of rivals. The tech giant has also fought lengthy battles to stop class-action lawsuits brought by consumers who claimed they were overcharged in Apple’s app store because they could not buy digital goods in rival online marketplaces.

“I don't think anybody reasonable is going come to the conclusion that Apple's a monopoly,” Tim Cook, the company’s chief executive, told CBS News in June. “We don't have a dominant position in any market.”

Antitrust Spotlight

Viktor Yevpak was Apple’s biggest fan – until he wasn’t.

Five years ago, the developer built a digital service to allow parents to keep tabs on their kids’ mobile habits, relying heavily on the iPhone maker’s popular app store to reach customers worldwide.

But when Apple told him in September it was removing his product from the online marketplace for violating the company’s privacy polices – just as the tech giant released a rival parental control service – Yevpak went from one of Apple’s biggest fans to one of the company’s most vocal critics.

“I definitely believe Apple targeted us when it brought out its own service,” he said after filing a competition complaint with Europe’s powerful antitrust officials in April over claims the tech company unfairly favored its own products over those of competitors.

“Apple is acting as judge and jury within its own market,” added Yevpak. “Our business has been extremely affected.”

Yevpak’s complaints are only the tip of the iceberg.

In recent months, the U.S. Supreme Court ruled that consumers could file class-action lawsuits against the iPhone maker for potential price gouging on its app store. Spotify, the Swedish music-streaming service, submitted a separate competition complaint with Brussels against the company’s alleged dirty tricks. Alongside the U.S. Department of Justice, the Dutch competition authority is also investigating the tech giant for possible wrongdoing.

At the center of this transatlantic tussle is the company’s total control of its app store.

Created a year after the release of its original iPhone in 2007, the digital marketplace is the only way that people can download apps onto their Apple devices. Developers also overwhelmingly rely on it to sell their wares to customers from Boston to Berlin.

The iPhone maker takes up to a 30 percent commission on purchases through its online store, often offers its own services alongside those provided by rivals, and faces accusations that it unfairly uses this dominance to thwart competitors and push up prices.

With the company’s hardware sales falling flat, in part because of ongoing trade tensions between the U.S. and China, it is pushing aggressively into new online markets, including the creation of a movie and television online streaming service that will rival Netflix, HBO and others.

This shift to digital is expected to increase scrutiny on Apple’s control over its app store because it both controls the marketplace and offers products that compete directly with smaller rivals. Both U.S. and European authorities have focused their renewed antitrust push on this dual role for many Big Tech firms.

EU competition officials, for instance, recently opened a separate competition investigation into Amazon’s position as both an online marketplace and digital seller. They also fined Google €4.3 billion, a record penalty, in 2018 for antitrust charges linked to its favoring of some of its mobile services like maps and its browser on the search giant’s own app store. Google is appealing that decision.

“The power they have over the ecosystem is immense,” said José van Dijck, a professor at Utrecht University in The Netherlands, who provided expert commentary for a recent report by the Dutch competition authority into Google and Apple’s dominance of app stores worldwide. “They have become real gatekeepers between consumers and apps.”

Apple loses its shine

This is not the first time Apple has faced accusations of not playing by the rules.

In 2016, the European Commission ordered the iPhone maker to repay €13 billion, or $14.3 billion, to the Irish government in unpaid taxes related to charges that it had secured a sweetheart deal with Dublin, which allowed the company to sidestep years of tax liabilities. Both Ireland and Apple are appealing that decision.

Cook, the company’s chief, also did not earn himself many friends with the region’s antitrust authorities after a fractious meeting with Margrethe Vestager, the European Union’s competition chief who oversees the new antitrust complaints against Apple, ahead of the 2016 tax ruling.

In Vestager’s glass-paneled office in central Brussels, Cook repeatedly spoke over the senior EU official, according to two people with knowledge of the discussions who spoke on the condition of anonymity because the meeting was private. Apple insiders also claimed potential political interference in how the case was developed. Vestager, a Danish politician, is expected to retain a leading role in the new EU Commission later this Fall.

The Commission and Apple declined to comment about the incident.

The iPhone maker similarly has fallen out of favor in the U.S. ahead of next year’s presidential election amid a growing backlash in Washington against Big Tech.

In recent hearings on Capitol Hill, Kyle Andeer, Apple’s vice president of corporate law and a former Department of Justice official, recently faced lawmakers’ questions, alongside his counterparts from Google, Amazon and Facebook, about possible competition abuses. Elizabeth Warren, a potential Democratic Party nominee for the White House, also called for the company to be broken up over fears it held too much sway over its popular app store.

“You’ve got to break it apart from their app store,” Warren told The Verge in reference to Apple. “Either they run the platform or they play in the store. They don’t get to do both at the same time.”

Industry executives reject these accusations, claiming that competition between Silicon Valley’s biggest names means that no single company will ever become overly dominant. Others question if the break-up of Silicon Valley companies will allow tech startups to compete with the likes of Google and Facebook, which often buy smaller rivals before they become a threat.

“It’s true that they’re competing against each other, it’s very fierce,” said Jacques Crémer, an antitrust expert who co-authored a recent review of Europe’s digital competition policies sponsored by the Commission. “But I don’t think we should be satisfied by a world where the likes of Apple, Facebook and Google are only constrained by other large tech companies.”

Time of Reckoning

Mark Rifkin has been waiting a long time for his day in court with Apple.

As a senior partner at Wolf Haldenstein, a New York law firm, he represents plaintiffs in a U.S. class-action lawsuit against the company filed almost a decade ago – well before the recent pushback against Silicon Valley.

His clients claimed they were overcharged for apps because the iPhone maker unfairly drove up prices in its online store by imposing a 30 percent commission on digital purchases. Developers, the lawsuit alleged, then passed on this cost to consumers who were unable to buy apps elsewhere online. The iPhone maker denied the accusations.

After years of legal wrangling, Rifkin and his clients won a major victory in May when the U.S. Supreme Court ruled 5-4 in their favor. Led by Brett Kavanaugh, the justices ruled that consumers had bought their apps directly from Apple, and not from third-party developers, a position that the company had strongly advocated against.

The decision sent shockwaves through the tech industry. It created a legal precedent for consumers to potentially sue other platforms owned by the likes of Amazon, Facebook and Google on similar grounds linked to alleged price gouging.

It also allowed Rifkin’s clients to restart their antitrust lawsuit against Apple in California, its home state. That could eventually lead to billions of dollars in damages if the judge eventually rules in their favor. Weeks after the U.S. Supreme Court ruling, two developers also filed a separate class-action lawsuit against the iPhone maker over similar antitrust concerns.

"The big cats always want to be the biggest cats in the jungle,” said Rifkin, who wants his clients to be able to buy apps through rival online stores not controlled by Apple. The court case may resume later this year, and the plaintiffs must still convince the judge that they are unfairly treated by Apple.

“They believe the economy works best when they can grow as big as they want to be,” he added. “But it’s competition, not monopolization, that encourages growth.”

Spotify's call to arms

Rifkin and his clients are not alone.

Across the Atlantic, Daniel Ek, the co-founder of Spotify, the Swedish music-streaming service now worth more than $28 billion, has spent years lobbying European officials to break Apple’s dominance over its app store.

In 2016, Ek started laying the groundwork for a competition complaint, only to change tack a year later to push for legislation to keep dominant online platforms like Apple at bay.

When that lobbying effort failed, Spotify finally submitted an antitrust complaint in March to Brussels.

It chose to take its fight to Europe, and not to the U.S., because of EU officials’ track record of levying hefty fines and demanding significant business changes from tech firms like Google, Microsoft and Intel, according to two people with knowledge of the matter. The tech company also has kept U.S. officials updated on its claims, they added. The people spoke on the condition of anonymity because they were not authorized to speak publicly. The Commission declined to comment on the potential investigation.

In a full-court press in Brussels earlier this year, Ek claimed, among other things, that Apple had forced Spotify to raise its prices because of the commission that the iPhone maker levied on some customer purchases in its app store. The Swede also said Apple had unfairly restricted how his company communicated with its customers, in part to favor its own rival music service.

“Apple has introduced rules to the app store that purposely limit choice and stifle innovation at the expense of the user experience,” Ek said in an open letter to EU officials. A Spotify spokesman declined to comment on the ongoing EU complaint procedure.

In response, Apple – which often shied away from public fights with its rivals – came out with guns blazing.

In a letter published a day after Spotify submitted its antitrust complaint, Apple rebuked the Swedish company’s accusations. It claimed that its smaller rival was trying to take advantage of Apple’s app store without paying for its upkeep. Spotify rejected those accusations.

"Spotify seeks to keep all the benefits of the App Store ecosystem — including the substantial revenue that they draw from the App Store’s customers — without making any contributions to that marketplace," the iPhone maker said.

In recent months, several senior executives have travelled to Brussels to put their case to the region’s competition authorities, according to another person with direct knowledge of the matter.

Apple also followed up in late June with a further rebuttal to EU officials that claimed the financial impact of its actions against Spotify in the app store was negligible to its rival’s finances, according to the company's submission obtained by POLITICO.

Brussels may soon decide who’s right.

After previous antitrust investigations into tech giants dragged on for years – often allowing them to cement themselves in new markets — Vestager, the EU's competition chief, may open an investigation into Apple as soon as September, according to an official who spoke on the condition of anonymity because the timing had yet to be finalized.

That would represent a significantly fast-tracked timetable compared to previous cases, according to competition experts. It also highlights how officials in both Europe and the U.S. are trying to keep up with the changing political winds that have quickly turned against Silicon Valley.

For Viktor Yevpak, the app developer whose parental control service came under Apple’s scrutiny, such greater regulatory action cannot come soon enough.

After meeting with EU competition officials twice in the last three months, including Thomas Kramler who heads the Commission's competition task force on the data economy, the developer said that Apple had contacted him to reinstate his app in its online marketplace.

But, according to Yevpak, the iPhone maker set onerous conditions, including the requirement that his app be approved each year to remain available to customers, that has not allowed him to update his product in more than a year to compete with Apple’s rival parental-control service. Currently, his app is still available in the digital marketplace.

“Europe is much more sympathetic to such cases, and we didn’t want to fight Apple on its own turf,” said Yevpak. “But if there’s an avenue to visit with the Department of Justice, I would jump on a plane tomorrow.”