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The EC claims iTunes treats customers unfairly and that record labels are to blame

After a long series of investigations, the European Commission (EC) today decided to formally object to Apple and its iTunes business in European countries on anticompetitive practices. According to the EC, it has sent a Statement of Objections to Apple, indicating that the way Apple does business with its iTunes online store is in violations of EC treaty rules.  Additional complaints were sent to major record labels operating in the European Union.

The problem lies in the way that major record labels deal with the iTunes online store, allowing only limited access based on the location of the customer. Prices vary across locations and across borders, and customers in one zone may not be allowed to purchase music that's available in another zone. Worse yet, some customers end up paying higher prices simply because of their geographical location.

European Commission spokesman Jonathan Todd publically stated that the EC sees the agreement between record labels and Apple as a violation of trade treaties. "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." An official statement from the EC indicated that customers were having their credit cards scanned for location information and if for example the customer was located in Belgium, they could only purchase songs designated to Belgium.

The report states, "Apple and major record companies contain territorial sales restrictions which violate Article 81 of the EC Treaty. iTunes verifies consumers' country of residence through their credit card details. For example, in order to buy a music download from the iTunes Belgian on-line store a consumer must use a credit card issued by a bank with an address in Belgium."

An important note in the EC's statement said that while this charge is an indication of treaty violations, it is not a charge of monopolistic practices.

"The Statement of Objections does not allege that Apple is in a dominant market position and is not about Apple's use of its proprietary Digital Rights Management (DRM) to control usage rights for downloads from the iTunes on-line store," concludes the report.

Before the EC sent its formal charge to Apple, the life-style computer company already faced a number of allegations about the iTunes store. Earlier this year, a number of agencies in several European countries joined forces to threaten legal action towards Apple if it didn't change the way the iTunes store operated. Groups in Denmark, Germany, France, Norway and Sweden complained that Apple's DRM format is too restrictive and did not allow users to play music on players of their choice.

In February of this year, Apple CEO Steve Jobs said that despite the restrictions placed on songs downloaded from the iTunes store, he would rather see Digital Rights Management (DRM) completely abolished. "Through the end of 2006, customers purchased a total of 90 million iPods and 2 billion songs from the iTunes store. On average, that’s 22 songs purchased from the iTunes store for each iPod ever sold,” Jobs said. While it's difficult to ignore that iTunes does effect sales of iPods, consumers have been against DRM-enabled music from the get-go. Even Microsoft chairman Bill Gates took a stab at DRM late last year.

With the EC's latest charge on Apple, it will be interesting to see how things shape up between Apple and major record labels. While the RIAA is still going after college students and other end users, the Digital Millennium Copyright Act (DMCA) may be going through some changes thanks to updated a new FAIR USE act, which calls for reduced restrictions for both consumers and hardware developers. The dynamics between Apple, record labels and government agencies is no doubt a complex one. Despite Apple's troubles, the iTunes business is still a roaring success.

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RE: Typos and comments...
By Justin Case on 4/3/2007 5:01:37 PM , Rating: 1
The store is run by Apple. If Apple accepted illegal terms from its suppliers, that's their problem. If I decide to charge black people 50% extra at my shop, I'm objectively breaking the law. If my supplier tries to impose that condition on me, I can pick a different supplier or file a complaint (or both). If I do neither, and simply accept, that doesn't exempt me from responsibility, and doesn't mean I can continue to break the law.

I guess the EC wasn't too impressed by Jobs's hypocritical "open letter against DRM"...

RE: Typos and comments...
By Ringold on 4/3/07, Rating: -1
RE: Typos and comments...
By Phynaz on 4/3/2007 5:30:56 PM , Rating: 2
The EU is all about central planning.

If you EVER thought the EU wasn't 100% Socialist, well now you're getting the idea.

RE: Typos and comments...
By Ringold on 4/3/2007 5:40:13 PM , Rating: 3
My very last edit before posting was removing the word "communist" before "central planning". The Czech Prime Minister has apparently grumbled about aspects of the EU being too similar to communist central planning for his taste, but I try not to oughtright say it any more, merely heavily imply it. Actually saying it is a one way ticket to -1 moderation.

So.. yes, I'm right there with ya phynaz, heh.

RE: Typos and comments...
By Ringold on 4/3/2007 5:32:57 PM , Rating: 1

I don't see why ..decision making.. should nt be left with the private owners of the company in question.

Left off the 'nt'. It ought to be their choice to accept or refuse customers business.

I guess maybe in the EU's 300+ page constitution, they perhaps forgot to include the same protections for property rights and free will than we enshrined in our mere 20 pages? ;)

RE: Typos and comments...
By Justin Case on 4/3/2007 11:41:05 PM , Rating: 5
It has to do with this little thing called "law".

Just as you can't discriminate between black people, white people, and so on, you cannot discriminate between different countries in the EU when you don't actually have different distribution costs. If there's shipping involved, or local representatives with their own costs, etc., that's fine. But Apple's online store is exactly the same for every country. Selling the same thing at different prices based on the client's nationality is discrimination, and against the law.

Judging from your posts in this and other threads, you seem to suffer from extreme ignorance about european law (and US law too, if you think US commercial law fits in 20 pages...), as well as a serious inferiority complex.

You don't have to agree with EU law, but I really don't think it's that hard to understand it.

RE: Typos and comments...
By Ringold on 4/4/2007 1:29:22 AM , Rating: 1
I said the constitution of America is 20 pages, not commercial law, and I never said that any of that wasnt the law, so perhaps the one with a trouble with powers of perception is you, not me.

Law doesn't mean that a given subject is right or wrong, or efficient or inefficient, it merely means that it is what was decided upon by officials elected by apathetic voters of which half or less typically bother to even vote in any given election, laws that these politicians know the masses will never pay much attention to, but their contributors will. That's what a law is, and I'm under no disillusion of that at all.

Really, all I was stating was disagreement and why, such as efficiency issues and liberty issues. Things that here in the US we consider inalienable rights, given by god, according to our founding fathers.

And for the record, as I stated, companies CAN and DO price discriminate amongst population groups and geographical locations (that have nothing to do with distribution costs)-- even within countries. Check your local movie theatre for senior citizen price discrimination, and check gas stations near an airport or theme park and then just a couple miles down the road where the locals get their gas. Illegal? Not here. Efficient? Absolutely. At least, here in the US. If thats legal or not in the EU I don't know but if the EC gets its way here then there is no reason why it wouldn't be in the EU.

RE: Typos and comments...
By Justin Case on 4/4/2007 1:37:41 PM , Rating: 3
Of course different shops (or gas stations, etc.) have different prices. It's called competition. [sarcasm] Naturally, you living in a communist federation wouldn't understand that... [/scarcasm]

But shop "A" cannot forbid certain customers from buying there, and force them to go to shop "B" instead ("sorry but you're [black / female / texan], we refuse to serve you, go to a different shop we prepared just for your kind").

That's what's at stake here. Apple is banning all greek customers from accessing their irish shop, all their spanish customers from accessing the german shop, and so on. That is illegal. You cannot run a shop inside the EU and discriminate against people based on their nationality. To make matters worse, Apple's "shops" actually run the same software, on the same servers, so they can't even claim that their running costs are different, or that shipping costs are different (not that they even tried that; they just say "the evil record labels made us do it").

Apple is free to have a "greek" shop and a "german" shop and so on, but all EU citizens must be allowed access to any of them.

And guess what, discrimination by age is perfectly legal. People under 18 aren't allowed into some movie theatres, can't get a driver's licence, etc.. People under 5 get free entry anywhere as long as they're with an adult. And people over 65 get some discounts in museums and public transportation and so on.

The question here isn't if you or I agree with that, it's simply a matter of law. I find it hard to buy that you "disagree with the EU law" when you don't even seem to understand the issue (repeatedly giving nonsensical "examples"), let alone know the laws in question.

It's extremely unlikely that Apple's legal department (or Microsoft's, or Merck's, or that of any other company that been in trouble with the EC before) doesn't know the law that applies to them, in the markets where they choose to operate.

Ignorance might excuse some silly internet posts, but I don't think it works very well in trade court.

RE: Typos and comments...
By Ringold on 4/4/2007 2:46:53 PM , Rating: 1
It's called competition.

It's called price discrimination across regional markets. Unless, of course, you consider one store owned by the same firm/franchisee to actually be in competition with sister locations.

The concept can further be illustrated (the exclusion part) with gas stations like this. One station has diesel, the other doesn't. One's located near an area full of truck-loving cowboys, and has it, while the same firm decided it's not worth it in the inner city, full of Prius-driving, regular-unleaded swilling girly men. Greece's argument here would be that it's market is unfairly not being served because there happens to be some potential customers there. The gas station would say "Not enough to make it worth it to me". The EU would apparently say "Too bad". In the case of Apple, service can't be quite as easy as driving a short distance to a location to make the purchase due to the law, which you love to refer to as gospel so much. A company either has to be prepared to fully engage in business in a market or not at all; being in each additional national market has extra costs, and if they don't think the revenue is worth it, service must be denied entirely. The concept remains the same, and I still assert business should be able to choose when and where it wants to do business as a matter of the inalienable god-given right of liberty and free choice, not what some EU lawyer says. (Yes, I invoked the vague concept of god -- can't win now! :P)

Plus, the fact Apple sells data and not shoes shouldn't matter; if some firms price discriminate, why can't they all? But of course, the liberal answer to all problems is micromanagement from the government level, so lets just write some laws just for Apple.

Though, to address the "law", I'll admit that if Apple broke it, knowingly or not, then they ought to pay the fine. But the EU ought to be aware that a) It's a socialist policy that b) makes EU less attractive to do business in, which is important because c) the EU is already economically in crisis ("crisis" being European leaders words describing themselves, not me), and shouldn't be surprised if d) some companies choose not to engage the EU market because the risk of government implementing controls over how they operate is above their tolerance (similar to Venezeula). All those points are documented and not just my speculation, too, but the actual state of affairs, which can be found in countless studies as well as current statistics, and this merely adds to the problem.

RE: Typos and comments...
By Justin Case on 4/4/2007 8:49:36 PM , Rating: 2
> It's called price discrimination across regional markets.

No, it's called competition. Do you think that if a given shop had no competition in its area, it would lower its prices? A Repsol gas station in Barcelona is obviously not competing with Repsol gas stations in Paris; it's competing with all the other gas stations in Barcelona. That is why gas is cheaper in some places than others. Because there is competition. If there was only one gas station in Barcelona, or if all the gas stations in Barcelona were owned by Repsol, do you think they'd "discriminate price across that regional market"...?

Your "theories" about european economy and law (in this and pretty much any other discussion where the word "Europe" is mentioned) make it pretty clear that you don't have a clue what you're talking about. Maybe you'll sound like an expert to other ignorant xeonophobes with an inferiority complex, eager to pounce on anything "foreign" and unknown, but to anyone with an actual law or economy degree (or a bit of common sense), you sound like a 14 year old who has never been out of his basement, let alone his country.

I for one am through feeding the troll.

RE: Typos and comments...
By Ringold on 4/4/2007 10:36:16 PM , Rating: 2
To anyone with an economics degree (like me), I'd sound like someone trying to make a constructive argument against government regulating a companies capacity to make decisions for itself. You'd sound like the troll, with your picking and choosing parts of which arguments you want to take on and stacking the rest of your posts full of filthy personal attacks.

For reference, when I say "Europe" I refer broadly the Eurozone, those states under control of the European Central Bank, but "Europe"'s shorter and everybody knows what I'm talking about. Is that good enough for you, ass?

Anyway, if you ever climb/fall off your high horse, try and crack open an economics text not written for children. You'll see there are several reasons for discriminating across regions and that discrimination is more efficient in that it can minimize the deadweight loss, and that your examples are just skirting the issue.

With the insults being stacked about 10:1 against me here, I'm the one done feeding the troll.

"This is about the Internet.  Everything on the Internet is encrypted. This is not a BlackBerry-only issue. If they can't deal with the Internet, they should shut it off." -- RIM co-CEO Michael Lazaridis
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