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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 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.

"I'd be pissed too, but you didn't have to go all Minority Report on his ass!" -- Jon Stewart on police raiding Gizmodo editor Jason Chen's home

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