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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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Calm down
By Yaponvezos on 4/3/2007 8:37:31 PM , Rating: 2
The way this issue has turned into politics is beyond this world.

The issue is simple. Every European citizen has the right to buy goods from any european outlet, be it physical or virtual. But, just because I live in Greece I can't log on to another european iTunes Store and buy music or what have you. I only have the choice to use the greek iTunes Store.

Why on earth would anyone think that, by this whole objection thing, that it has anything to do with foreign policy or the right of any European to buy or not from a local store?

RE: Calm down
By Ringold on 4/3/2007 10:44:26 PM , Rating: 2
I find it dangerous due to precedent.

Let's say this time the EU gets its way. Okay, now like a US Supreme Court decision, it becomes legal precedent, making all future issues open-and-closed cases.

In this case it's probably not a big problem for it to be offered in all of the EU states, and that's precisely why the EC probably chose to pick a bone with this particular case. It's not a huge demand so they'll likely get their way.

Fast forward to a future online bank that offers great rates to Eastern Europeans. Now Western Europe wants in on the action, but the bank has no internal experience with western finance laws. Or an insurance company that wants to serve some parts of a market, like auto insurance, but not homeowners, because it doesn't want to or can't afford the extra risk. Or a telecom that wants to serve the inner city because it's profitable, but not the outskirts because it's be financially ruinous. (And trust me, government doesn't care if it's ruinous, Florida is proving that every day these days)

Beyond large efficiency problems, it infringes on property rights; why run a business if the government is going to tell you increasingly how to operate it? Why not let the government run them? That final question is the end-game goal of socialism anyway -- why not indeed?

Perhaps people in Europe don't get it that way due to cultural differences; as an American, I view the property rights of an individuals material assets just as strongly as their biological ones. Therefore, this argument from the EC, "If you offer mp3's to France, why not Greece?" easily can be translated to talking to a hot babe, "If you have sex with Antonio, why not with all of us, or at least me?" Why not? Because she/Apple doesn't want to. That should be the end of it. I'd like to legislate my way in to her pants, too, but that'd be rather socialist of me.

Something to ponder:

When will the world learn that a million men are of no importance compared with one man? [Henry David Thoreau]

"We’re Apple. We don’t wear suits. We don’t even own suits." -- Apple CEO Steve Jobs
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