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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: Their what location?
By Justin Case on 4/5/2007 12:24:36 AM , Rating: 3
quote:
If the answer is "yes" that ALL sellers of everything MUST sell internationally within the EU, and that the international buyer must be charged the same price as a local buyer, then I've no point and I've wasted everybody's time.


You have wasted everybody's time.

Shops aren't required to ship goods internationally (or even nationally), of course. But every shop in the EU is required to sell to any EU citizen, under the same terms, with no discrimination based on nationality.

Imagine that you were about to walk into a shop in California and they told you "You're from Oregon, so we refuse to let you in. Go to our shop in Oregon instead, and pay 50% extra". Perhaps that's legal in the USA. In the EU it is not.


RE: Their what location?
By Oregonian2 on 4/6/2007 1:49:26 PM , Rating: 2
Might I suggest reading the allegations about the Apple case again? I think you've missed the point entirely.

The point you are making about discrimination is a good one, but is entirely unrelated to the Apple case or my postings (which have to do with Apple's topic).

The allegations about Apple have nothing whatsoever to do with nationalities of the buyer, sex of the buyer, age of the buyer, what credit card the buyer has (or who issued the credit card, etc). It has only to do with WHERE the buyer is PHYSICALLY when the purchase is being made. In other words, the EU wants to force Apple to "ship internationally", exactly what you say isn't required.

Apple has individual web-stores in many EU countries where each is only allowed (due to contracts with record companies) to sell to customers in the same country as the store. In other words, can't "ship internationally". People in those other countries are being forced to buy from "their" Apple web store ("buy local"). A Frenchman who is visiting London and wants to buy a song from Apple is required to buy from the UK store because that's where he is. When he goes back home, he's required to buy from the French store as would a German visiting Paris. If anything, it's anti-discriminatory, and is the same thing required of normal walk-in stores (that I know of) where you need to be IN the shop to buy things (and therefore be in the same country as the shop). Which has been my point.


RE: Their what location?
By Oregonian2 on 4/6/2007 2:05:34 PM , Rating: 2
quote:
Imagine that you were about to walk into a shop in California and they told you "You're from Oregon, so we refuse to let you in. Go to our shop in Oregon instead, and pay 50% extra". Perhaps that's legal in the USA. In the EU it is not.


P.S.- To address your example more directly, what you say above is NOT the case. When I got to the shop in California, they'd happily sell me goods from their shop at their prices. When I complained that prices at their Oregon store are lower, they'd tell me "Go back to Oregon and buy there to get Oregon prices!" rather than giving me Oregon prices while shopping in California. This is perfectly legal here and astounded that it's not in the EU.


RE: Their what location?
By Justin Case on 4/6/2007 8:42:10 PM , Rating: 2
quote:
When I got to the shop in California, they'd happily sell me goods from their shop at their prices.


And that is precisely what Apple is required to do. They are free to have different shops in different languages for different countries, with different prices.

But they cannot forbid an EU citizen whose connection happens to be through an italian ISP from entering the "french" or "german" shop.

Here's an example of a web shop that gets it right:

http://www.nomatica.fr/group.aspx

No matter which country you're in, you can visit any of their shops, compare prices, and buy from the one that you want (the prices are usually very close, but there are differences).

Since these shops sell physical goods, they could say "our UK shop doesn't ship to Portugal", and use that to force different people to pay different prices, but they don't even do that (and in some cases national and international shipping actually costs the same, so it definitely pays to check out multiple shops). But even if shop A didn't ship to country X, it would still need to be accessible by citizens from country X.

Is this really so hard to understand...??


RE: Their what location?
By Oregonian2 on 4/9/2007 6:17:22 PM , Rating: 2
quote:
And that is precisely what Apple is required to do. They are free to have different shops in different languages for different countries, with different prices.


This is EXACTLY what Apple does and is being found unacceptable by the EU.

quote:
But even if shop A didn't ship to country X, it would still need to be accessible by citizens from country X.


And that IS what apple does. Any person whatsoever who is in the UK can buy from their UK store. Any person whatsoever who is in France can buy from their French store. Any person whatsoever who is in Germany can buy from their German store. It matters nothing whatsoever as to what country the buyer is from, they have access and can buy from Apple's shop so long as they are in the shop's country (which is true of most anybody's normal walk-in stores as well).

But the EU says this is NOT acceptable (read the article). They are saying that anyone IN the UK must be able to buy from Apple's France store or Apple's German Store, etc. Yes, it would be better if Apple's suppliers allowed this, but I can't see it unacceptable that they do what they do (see above).

Is this so hard to understand?


RE: Their what location?
By Yaponvezos on 4/9/2007 7:45:18 PM , Rating: 2
What you fail to understand is that this is required by european trade law, regardless of the field it applies to.

You might think it would be better if the companies allow that, but the companies doing business within the EU KNOW IT BEFORE THEY ENTER THE MARKET. Either that or they should know it as this is the way it is.

What you find or not find unacceptable is irrelevant as the law is set. If every other company can comply and not make a fuss about it, so can Apple.


RE: Their what location?
By Justin Case on 4/6/2007 8:20:02 PM , Rating: 2
> the EU wants to force Apple to "ship
> internationally", exactly what you
> say isn't required.

You're right, the EC are a bunch of morons who know nothing about european law. I'll be sure to point them towards your posts, and I'm positive they'll reverse their decision... sigh...

The iTunes shop doesn't sell physical goods. There is no shipping involved (nor is Apple so stupid that it'll try that line of "defence"); sending a file over the internet to a greek IP is exactly the same as sending it to an irish IP, as far as Apple is concerned (the connections over which the data travels aren't even owned by Apple).

They are discriminating based on the country that each user is registered in, and denying users access to the "shops" meant for other countries. That is illegal, plain and simply. Doesn't matter where an EU citizen is (physically) or which country he was born in. He cannot be denied access to shops in other EU countries, period. It's irrelevant if Apple is forbidding entry based on the person's nationality or residence; both are illegal.

Have you stopped to consider the remote possibility that maybe europeans (and the European Commission in particular) might have a slightly better grasp on european trade law than you do...?


RE: Their what location?
By geddarkstorm on 4/6/2007 6:18:40 PM , Rating: 2
So you mean that if I was from France and walked into a Norway backery and told that bakery, "In France, that bagette is only 0.10 euros" that, despite having their bread priced at 0.11 euros, they'd have to sell it to me for 0.10 because that's what it was in Frace? Otherwise, it'd be price discrimination, and the exact same case we have here with Apple!


RE: Their what location?
By Justin Case on 4/6/2007 8:47:16 PM , Rating: 2
quote:
So you mean that if I was from France and walked into a Norway backery and told that bakery, "In France, that bagette is only 0.10 euros" that, despite having their bread priced at 0.11 euros, they'd have to sell it to me for 0.10 because that's what it was in Frace?


Did anyone say that? If you shop at "Shop A" you pay shop A's prices. Doesn't matter if it's owned by the same person as "Shop B" or by someone else. Every shop is free to set its prices. What it cannot do is say "this shop is only for italians" or "this shop doesn't sell to italians".

The EU is not Royston Vasey.

Apple is free to have 100 different shops with completely different prices. But as long as those shops are doing business in the EU, they cannot discriminate between citizens of different EU countries. In other words, they must allow any EU citizen to visit any of their shops.

Is this so complicated that you really can't understand it...??


RE: Their what location?
By Yaponvezos on 4/7/2007 12:37:57 AM , Rating: 2
Apparently, it is. After all, what would we, Europeans, know about what european trade law actually means? Especially if it's law that's been in force for years, in every field and experienced in full by hundreds of millions of people.

But how would I know?!

Pardon my sarcasm but we keep saying the same simple things and it's like some actually try not to understand.


RE: Their what location?
By Justin Case on 4/8/2007 3:02:35 PM , Rating: 2
To quote Terry Pratchett [ http://en.wikiquote.org/wiki/Terry_Pratchett ]:

quote:

That seems to point up a significant difference between Europeans and Americans:
A European says: I can't understand this, what's wrong with me? An American says: I can't understand this, what's wrong with him?
I make no suggestion that one side or other is right, but observation over many years leads me to believe it is true.


RE: Their what location?
By Oregonian2 on 4/9/2007 6:27:56 PM , Rating: 2
quote:
Apple is free to have 100 different shops with completely different prices. But as long as those shops are doing business in the EU, they cannot discriminate between citizens of different EU countries. In other words, they must allow any EU citizen to visit any of their shops.


Apple absolutely AGREES with you! Apple does exactly what you say they should do. However the EU officials disagree with you! Read what they say in the article!

What's hard to understand is that your posting seems to sound like you disagree with Apple's business practices, but the letter of what you actually say agrees with them completely -- and disagrees with what the EU officials are saying.

Any EU citizen (probably anybody from anywhere in the world too) can buy from the Apple shop associated with the country that they physically are in at the time -- just like any pastry shop where the buyer has to be in the shop (and therefore be in the same country). The person's nationality is completely irrelevant, and in fact may not even be knowable by Apple (probably only know the reverse-DNS lookup of the IP address being used).

Even Apple's restrictions can probably be gotten around by using a proxy in the store's country.


RE: Their what location?
By Yaponvezos on 4/9/2007 7:50:50 PM , Rating: 2
You just don't get it.

It's simple. If I have access to a european store, in any way, physical or electronic and I'm a european citizen or anyone legally staying within the EU no one has the right to tell me I can't buy.

And since I can be in one country and the technology gives me the ability to log on to any of the european stores, no company has the right to tell where I can or I cannot log on and buy whatever I like.

So Apple does not agree with what we are saying. And it has nothing to do with the record labels. If that was the case the labels would try to block international orders of goods that have not officially launched in another european country. But they don't, do they?


RE: Their what location?
By Oregonian2 on 4/10/2007 6:09:24 PM , Rating: 2
quote:
It's simple. If I have access to a european store, in any way, physical or electronic and I'm a european citizen or anyone legally staying within the EU no one has the right to tell me I can't buy.

And since I can be in one country and the technology gives me the ability to log on to any of the european stores, no company has the right to tell where I can or I cannot log on and buy whatever I like.


You seem to say confusing things. You say that Apple MUST sell internationally (even if they get sued by their labels) if one has access to their store in another country. And then you seem to complain that Apple does NOT let one log on to gain access internationally.

So, if they don't give the access that you say requires them to sell internationally by not letting someone outside the country login, I don't see the problem. No access so no sale. Don't you say this is fine?

You seem to say that if one has access then they must sell. If access is denied then selling can be denied. Doesn't Apple follow this or do they allow international buyers to log in and just refuse selling when "checking out" of the shopping cart?

quote:
So Apple does not agree with what we are saying. And it has nothing to do with the record labels. If that was the case the labels would try to block international orders of goods that have not officially launched in another european country. But they don't, do they?


You can choose to not believe the reports that Apple is contractually limited to sell the way they do and that Apple would prefer to have only one store that sells everywhere (which would be a lot more profitable for them, more efficient use of resources) but I've given the reporters the benefit of the doubt and assumed the reports are accurate. If you've better information on their contracts, or just choose to think the reports are wrong, that's your choice.


RE: Their what location?
By Yaponvezos on 4/10/2007 7:36:33 PM , Rating: 2
Here we go again. The labels CAN'T SUE on such a basis because european trade law does not allow them to. That is why I am sure it has nothing to do with contracts. Even if there are such contracts they are illegal according to european trade law, hence invalid. So I am allowed to not care about these contracts.

Let me give you an example. Nortec is a greek company and the exclusive distributor of Nintendo products in Greece, Cyprus and the balkan states. But there are other companies importing Nintendo products from other parts of the EU. Now Nortec's contract of exclusivity with Nintendo, the way you see it, would give Nortec the ability to sue other importers to oblivion but IT DOES NOT. Why? Because international trade withing the EU is free of any such restriction. The only thing that matters is if the goods got in the EU legally. From that point on it's a free for all situation.
Again, you may not like it. But that is the european law. You either realize that or you don't.

Additionally it's only logical to complain for the fact that Apple won't let me use another european store because they are obligated to sell internationally, since the infrastructure for such sales is already there. The company just chose to impose certain restrictions.

It's funny that you say that if there is no access, there can be no sale hence there is no problem. That is the part you don't get. Apple HAS to give me access because it is technically possible with no added cost. All they have to do is accept credit card numbers and IP addresses from different countries withing the EU.

This whole mess stems from the fact that Apple denies me access when they have no right to do so. So you are the confused one. I never said IF one gives me access. I said if access is technically possible.


"We shipped it on Saturday. Then on Sunday, we rested." -- Steve Jobs on the iPad launch

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