RSSEU Threatens Fines Against Apple for Staggered iTunes Prices
By Scott M. Fulton, III | Published April 3, 2007, 11:12 AM
1:05 pm CT April 3, 2007 - In a statement to BetaNews this afternoon, European Commission chief spokesperson Jonathan Todd said that both Apple and the record companies with which it has entered into agreements to sell music tracks in Europe, may be subject to fines as a result of alleged inequitable deals between them. Those deals, the European Commission claimed in a Statement of Objections issued to both Apple and major record companies today, allegedly charge varying prices per download for customers in different European member states.
"In any anti-trust case, the relevant ceiling on fines is 10% of the whole group's worldwide turnover," Todd told BetaNews. In this case, "the whole group" refers to everyone who is a party to the deal. Presumably, the ceiling applies to revenues arising specifically from the deal, though this has yet to be made clear.
"However," Todd added, "I have indicated clearly that the main focus of our case is the major record companies rather than Apple."
We asked Todd, doesn't the current state of European copyright law force a company such as Apple to be bound to the separate royalty collection rules of some independent states, despite the nationalization of music royalties in Europe last October?
"My understanding is that the fact that copyright is organised on a national basis in Europe is irrelevant," Todd responded, "in the sense that the major record companies in any case hold the rights for the vast majority of their repertoire for all European Economic Area countries (EU plus Liechtenstein, Iceland and Norway)."
In other words, it's the record companies who are claiming state-specific copyright, despite the EU's efforts to nationalize copyright on a continent-wide basis. Conceivably, if all European music copyrights applied to the nation as a whole, Apple would find it easier to open up a pan-European iTunes Music Store, as the company has stated it's wanted to do from the beginning. Instead, music industry executives may be forcing Apple to deal on a country-by-country basis due to the way they interpret their copyright holdings to apply.
In a press conference earlier today, Todd told reporters that perhaps Apple may be a victim of record company policy. "Our current view is that this is an arrangement which is imposed on Apple by the major record companies, and we do not see a justification for it," Reuters quotes Todd as saying. However, that fact may not exempt Apple from fines, due to the way current antitrust law in the EU is written - which, as Todd explained to us, refers solely and specifically to "the whole group" as the responsible party.
BetaNews' original story from this morning follows:
10:12 am CT April 3, 2007 - In a statement this morning, the European Commission confirmed it has threatened Apple with possible fines, in a formal Statement of Objections which alleges the company fails to charge equivalent prices for iTunes tracks for every European country where the iTunes Music Store does business.
Specifically, according to an EC statement, the objections point to "distribution agreements between Apple and major record companies contain territorial sales restrictions which violate Article 81 of the EC Treaty." Article 81 prohibits companies doing business in member countries from entering into contracts that fix prices to certain countries, against the EU's interests in a common market.
In a statement to Reuters this morning, EC spokesperson Jonathan Todd explained that the way Apple does business now, a customer can only purchase tracks on the Web site set up for his member state of residence. As a result, Todd said, customers "are therefore restricted in their choice of where to buy music, and consequently what music is available and at what price."
Just yesterday, in announcing its landmark DRM-free distribution deal with EMI Group, Apple CEO Steve Jobs reiterated iTunes' basic tier track price of 99 cents in the US, 99 eurocents for most European countries, and 79 pence in the UK. That fact alone points to Apple's first roadblock in addressing the EC's complaints: the UK retains its own currency. At current exchange rates, 79 pence is still a bit higher than 99 eurocents.
But beyond that hurdle lies a much higher mountain to cross: European copyright law, which today remains mired in cross-country disputes over whether member states should have the right to charge their own performance royalty fees, including for tracks that weren't even produced in their own country. While the EU formalized the creation of a Central Licensing Agreement for pan-European rights holders in 13 member states last October, it may yet take time for those states to march in lockstep, ceding their respective copyright authorities to a central body.
This issue is important because portions of iTunes' purchase price to European customers goes to performance rights holders and artists' rights holders throughout Europe. Determining who gets how much and when remains an issue of continued debate even years after iTunes started doing business in Europe.
Apple spokespersons told the press this morning that the company always had intentions of opening a pan-European iTunes Music Store, but the restrictive agreements with which music publishers are currently bound with member countries, may be among the legal restrictions preventing those publishers from permitting Apple to do so.
In other words, the music industry might actually want Apple to open a pan-European iTunes store, but the same lawmaking body that is ordering Apple to do so today may be preventing Apple from doing so in another regard.
Most daunting for Apple, on the day after what history may perceive as a milestone date for the company, is the threat of fines - and as was the case with the EC's Statement of Objections against Microsoft in late 2005, the methodology for determining how much Apple could be fined seems cloudy.
According to the EC's statement this morning, Apple will be given two months in which to present a formal defense of the claims against it. "Only after having heard the company's defence," the statement concluded, "can the Commission take a final decision, which may be accompanied by fines of up to ten per cent of a company's worldwide annual turnover."
The fuzziness of that final phrase may be daunting. For instance, the adjacency of "a company" and "worldwide" appears to indicate that the EC may attempt to fine Apple not just for iTunes sales within countries where non-equivalent prices are allegedly charged (for instance, Britain and Belgium) but also in the US. A Forrester Research report estimates that as many as 500 million iTunes tracks were sold worldwide just between February and September of last year.
Jonathan Todd's clarification this afternoon appeared to indicate that the EU's current ceiling on fines for Article 81 violations is limited to revenue from the specific business in question, although that's admittedly difficult to tell from a layperson's read of the actual article. In any event, any EU fines levied against Apple may be limited to iTunes business worldwide, and not Macintosh or AppleTV business as we earlier speculated.
However, Todd's clarification appears to open up the door for the EU to levy fines against the major record labels, which could conceivably apply to 10% of their worldwide revenue for music downloads through iTunes.
But how far back would these fines be retroactive? For an example, we may be able to point to the EC's threatened fines against Microsoft, which date back to the issuance of the initial Statement of Objections. If history applies to this case, then the clock on Apple's fines started ticking just this morning.
Join a newsgroup and download all the non DRM free songs you could ever want. Then use SharePod instead of that bloated crap called iTunes to move songs to (and from) your iPod to anyone elses library.
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|as far as i understand it capitalism works like this: company charges what they want for their product, and the people decide whether it is worth it or not to buy it. i dont remember anywhere in there where the government steps in and says, that's an unfair price, lets sue so we get money....
and yes i know the US does this too, but that doesnt make it right...
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|I find it hard to respect for the EU. They are quite contradictive in their policies.. For instance here they talk about anti-competitive pricing of itunes... then on the other hand they are quite happy to foster anti-competitive practices such as tariffs on imports etc that prevent free trade (eg international trade of agricultural commodities etc).
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|Errr. Where is the contradiction?
They are protecting themselves from extra-EU countries with those "tariffs on imports".
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|EU is just as money and power abusive as the UN.
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|"However," Todd added, "I have indicated clearly that the main focus of our case is the major record companies rather than Apple."
As long as this is about those scumbags, fine. Apple is doing miracles in opening the industry.
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|The Eu needs to go back to school and learn some common sense or something....nice to see certain comments are now being removed thanks bn!
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|You're kidding, right?
Apple is not allowed to decide how much their products cost now?
That's it. The EC has officially lost it. They do not determine pricing, the manufacturer and/or seller of the product does.
Where did they find these idiots?
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|you're kidding right?
you know that i'm a tool and a loser?
that's it. i've officially lost it. i really am a microshaft fanboi and i'm so mad that my boys stevie can't get the EC to bend over. ouch my bum!
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|The issue is that people in the UK for example can not buy music from the iTunes store in another EU country. You can only buy music from the iTunes store for your own country, the country where your credit card is registered to be exact. This is not the EU dictating what Apple should charge, they are simply saying that we should be able to purchase from the iTunes store of any EU country we want.
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|your inane comments have absolutely nothing to do with the topic. what does Microsoft have anything to do with this?
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|This is not the EU dictating what Apple should charge
Yes, it is. If Apple wants to restrict access based on country, that's their right. If Apple wants to charge {insert country here} more than they charge {insert country here} that is also their right.
It's their product, their store.
Unless the countries who are members of the EC have specific laws about pricing (which they don't), the ED has no leg to stand on.
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|"You can only buy music from the iTunes store for your own country"
Derrr Yeah. Thats how it works in any county. Economic boundaries SHOULD follow Geographic boundaries. Thats how its done.
"they are simply saying that we should be able to purchase from the iTunes store of any EU country we want."
-So move to the country of your choice and buy a track. ;)
This is what you get for grouping your economic power to slam the all mighty dollar. We always new we would get back at you. lol
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|"Derrr Yeah. Thats how it works in any county. Economic boundaries SHOULD follow Geographic boundaries. Thats how its done."
You comment makes no sense... I can buy CDs and DVDs from other EU countries. So I don't understand your point... I don't see what economic and geographic boundaries have to do with buying music. And for your information... The boundaries between most EU countries are political not geographic ;)
"So move to the country of your choice and buy a track."
I don't have to move to another country to buy a CD, so why would I have to move to buy a song from iTunes ;-)
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|Thing is they don't... It's the record labels, not Apple, who want to restrict access based on country, or so says Apple...
Re: "Yes, it is."
No it isn't. Read my full comment. This is not about setting prices. First you say yes it is about setting prices then you go on to say it's about restricting access to a specific country... Make up your mind.
"If Apple wants to charge {insert country here} more than they charge {insert country here} that is also their right."
Again, nobody said how much they should charge. It would be like restricting you to the iTunes store of a specific US State. The EU has a common market, and all other goods can be purchased from any country. Why should digital music be any different than a CD?
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|Apple chose to sign the agreements with the labels even though it was obvious they were breaking EU law. Let the EU nail Apple to the wall for abusing its consumers and charging people more for the same content. Hopefully, other companies will get the message.
In other words, you Apple fans can go jump off a bridge. The EU isn't going to allow its consumers to be ripped off just because Apple zealots think Apple can do no wrong.
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|Those customers who think they are getting ripped off have other options.
If it's so expensive, why are they using the service?
Since when does the consumer, watchgroup, or government get to determine the pricing of products on the free market? That's the manufacturer or reseller's right, not yours, mine, or anyone else's.
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|Free market? We're talking EU, not the US.
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|those customers who think they are getting ripped off have other options, like switching to linux. my boys stevie love getting customers to bend over to give them the microshaft.
we're expensive but boy do we ever ream our customers really good!
as a microshaft fanboi, we have the right to boomshakalakaboom everyone right up the o-ring.
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|I didn't capitalize it, did I? If it helps you understand, just ignore the free.
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|I just don't understand how pc_fool hasn't been banned from BN yet?? Does this site have any moderators at all?
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|but the sense of humor is very amusing! XD
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|They are not determining prices (the EU) just telling them to respect EU law. They should sell by the same price they decide in every country of the European Union (federation of European countries which acts as a group to protect their interests) because there is a law that says so.
If you break the law, you pay for it. Just as simple.
Don't like it... don't sell there. They have that option.
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|the very idea of not allowing them to do that goes against the policy of free capitalism, that the eu supposedly stands for.
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|To a 3 year old...
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|Obviously there is a lot of money at stake. I'd be a terrible CEO cause I'd just say screw the EU and pull out all together just to give them something to complain about!!
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|And then you won't be a CEO anymore. ;)
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|I think iTunes is the poster child in this. The recording labels are the ones calling the shots, not iTunes or Apple for that matter. We just saw an example with EMI allowing iTunes to sell digital music DRM free at a higher bit rate and cost. Shouldn't the EU be probing EMI, Sony BMG, Warner Music and Universal Music?
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|Why is it only Apple is getting in trouble? Why don't they go after the people who Apple made the agreement with? I'm so glad I live in the USA.
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|In our update, lvthunder and midfingr, you'll see that the EC is going after the parties with whom Apple made the deals.
-SF3
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|Antitrust policy goes only after companies against which complaints were filed by competitors pursuant to a certain procedure. Antitrust authorities are like courts.
Antitrust policy aims to ensure 'free market' competition. free market is not laissez-faire but free market order needs to get defended.
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|Exactly, program86. The EU complained about removing DRM from itunes and itunes finally responded by providing higher quality DRM-free music at a slightly higher price that was acceptable by EMI, and hopefully other companies will soon follow, and now the EU wants to complain over the price of the music??
It's not apple's fault that the currency rates are so high in the european region but they want to place the blame on someone. The fault should be pointed at the music industry in europe because their the one's fighting over who gets the cuts from profit. Like Mr. Fulton said, this issue "continued debate even years after iTunes started doing business in Europe."
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|"It's not Apple's fault that the currency rates are so high in the European region"
That's not the issue at stake here. It's that even given the currency rates there is no reason to charge more than the USA dollar to UK pound ratio.
If you convert the € to the £, as I stated below, the UK is paying 12p more than the rest of Europe.
Apple get the money, they transfer it back into $ and oops, they have more than $0.99 per track.
Why?
The iPod itself is shocking. 80GB version would cost £176.62 if I could buy it from America and import it (plus some import taxes on top). In the UK version of the Apple store it's £239. Where's that £62.38 extra come from? I could understand it if it were around the £30 mark because of all the taxes involved, but £62? That's about $122.
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|they aren't complaining about the drm-free tier pricing. they are complaining that the same song/file costs different prices in different areas of the eu. Shouldn't be a big deal, I work for Cingular and they sell phones at different prices based on area in same country let alone different countries with different currency.
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|Indeed, we call it the single market. Price differences are unwanted from an efficiency perspective.
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|"In the UK version of the Apple store it's £239. Where's that £62.38 extra come from?"
Every country has different prices, not just the UK, so stop acting like some kind of victim. I can get electronics in Hong Kong or China for half what I can buy it for at the US...you don't hear me crying foul over it....and you don't see the US government suing manufacturers for charging more for the same product.
But the EU, they're special...they're looking out for their citizens...you can thank them for the Medialess version of Windows XP, consumers OBVIOUSLY wanted that!
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|I understood your point. If you read the article it's not apple who is setting the prices for the songs, it's the members of the pan-European store with the record companies in their respective regions settling on an acceptable price for selling their music. Apple DOES get a part of the cut but that could be a smaller percentage what is going to the record industry and the artist.
As far as your ipod comment goes...
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|Sure, I agree with your comment that many people would like to pay the same price for songs as we do here. I'm sure the people in japan who pay 200 yen per song (around $1.70 per song according to google's currency conversion) would like to pay 99 cents (or 116 yen) for the songs their artists produce. But Apple america didn't set the price for them, it was the record industries in japan settling on a reasonable price. Unfortunately the markets are different in every country and it shouldn't be apple's fault for the prices in those countries.
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|I know, this article is about the priceing of the songs. I was just mentioning the DRM issues in order of events. First the DRM issue of not supporting players other than ipod and now the EUs complaint about pricing.
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|Japan = 1 country
EU = many countries
I don't see what you're discussing as this article is not about liking the same price but following a law for all the EU countries.
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|EU = EU single market.
Apple sets different prices for each national market within the EU.
And true: it clearly shows the need for pan-European licensing without special national provisions.
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|each country in the eu functions as a independant country still.
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|"I can get electronics in Hong Kong or China for half what I can buy it for at the US...you don't hear me crying foul over it"
The iPod comes from one supplier: Apple.
Your electronics components are being bought from two different stores which have two different prices which is called competition.
"But the EU, they're special...they're looking out for their citizens...you can thank them for the Medialess version of Windows XP, consumers OBVIOUSLY wanted that!"
Yeah, you're right. That's why I said below that they're doing something sensible *for a change*.
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|Like 4421 is saying, The EU has it's own market similar to Japan (yes, a single country) having it's own market (they're just cool like that). That's the way the markets are set up.
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|Stuff a sock in it, EU.
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|Good. It's nice to see the EC do something sensible for a change.
€0.99 is equal to 67p. 12p per song more than the rest of Europe for Britain equates to quite a lot when you think how many songs people buy.
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|deleted and moved.
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|that's right, i'm a tool that should be deleted and moved lol.
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|yes YOU are
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