EC accuses Apple of iTunes violations

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BRUSSELS -- The European Commission has accused Apple and the four major record companies of a possible violation of competition rules via Apple's iTunes online music store.

The commission -- the European Union's antitrust authority -- confirmed Tuesday that it has sent a Statement of Objections regarding alleged territorial restrictions in the sale of online music to Apple, Sony BMG Music Entertainment, Universal Music Group, Warner Music and EMI Group. The statement lists initial concerns about potential market abuses and is the first step of formal antitrust proceedings.

The statement focuses on the agreements between each record label and Apple that allegedly restrict music sales.

European consumers are able to download music from the iTunes site only in their country of residence, and prices differ from country to country within the 27-nation EU. Customers can buy songs only in the country where their credit card is registered. EU competition commissioner Neelie Kroes is thought to see this as a possible violation of the EU's rules against restrictive business practices.

"Consumers can only buy music from the iTunes' online store in their country of residence," the EC said. "Consumers are thus restricted in their choice of where to buy music, and consequently what music is available, and at what price. The commission alleges in the Statement of Objections that these agreements violate the EC Treaty's rules prohibiting restrictive business practices."

The statement points out that iTunes verifies consumers' country of residence through their credit card details. For example, in order to buy a music download from the iTunes' Belgian online store, a consumer must use a credit card issued by a bank with an address in Belgium. For the 13 EU countries in the Euro-zone, the price per song is €0.99 ($1.32), but in the U.K. it is 79 pence ($1.56). Conversely, at current exchange rates, that works out at 67 pence per song in the Euro-zone or €1.17 in the U.K.

The companies have two months to respond in writing to the commission, or can request an audience to defend themselves verbally.

Only after having heard the company's defense can the EC make a final decision, which may be accompanied by fines of up to 10% of a company's worldwide annual profits.

The investigation comes two years after the U.K. government referred to the commission a complaint by the British consumer group Which?

Which? had complained to the British regulator -- the Office of Fair Trading -- in September 2004, saying that iTunes charged U.K. customers 20% more than French and German shoppers and barred customers in the U.K. from logging on to the French and German sites to get a cheaper deal.

The announcement came just a day after music giant EMI said it would offer songs from its vast stable of artists for download without copy protection as part of a deal with Apple. But the Statement of Objections does not deal with Apple's use of its proprietary Digital Rights Management software to control usage rights for downloads from the iTunes online store.

European consumer groups, regulators and legislators have already made Apple the biggest target of their efforts to open the digital music market so that consumers can play songs from online sites on any portable music device.

Last month, EU consumer commissioner Meglena Kuneva hit out at Apple's bundling of its iPod and its iTunes online music store. "Do you think it's fine that a CD plays in all CD players but that an iTunes song only plays in an iPod? I don't," she said.

Norway, a European country that is not in the EU, is battling Apple for the same reason. In January, it said the computer and software giant must liberalize its music download system by Oct. 1 or face legal action.
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