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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 Oregonian2 on 4/6/2007 2:05:34 PM , Rating: 2
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
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:

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
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.

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.

"So, I think the same thing of the music industry. They can't say that they're losing money, you know what I'm saying. They just probably don't have the same surplus that they had." -- Wu-Tang Clan founder RZA
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