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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: Before you all start..
By geddarkstorm on 4/6/2007 5:53:05 PM , Rating: 2
Actually, he hasn't shown much of a lack of understanding in socialism or economics as far as I've seen, and yes, I've taken courses in economics, and especially in microeconomics (meaning the economy within a country or given region).

Let us remember, the EU is not a country but a union of countries. Each individual nation has it's own laws, constitution equivilant, and leadership. The EU attempts to bridge all the different laws, currancies, and practices to make it a more uniform and compatible whole (i.e. you can use the Euro anywhere in any EU nation and don't have to bother with constantly exchanging your currancy).

With that said, for the EU to demand of a company that it cannot engage in different business practices with different, soveriegn, independent nations, is a bit socialistic in nature. Each country has its own business laws, irregardless of the EU!, and it's own taxes, so demanding absolutely identical business practices by any company in all EU members is rather ludicris.

Of course, I have not studied how the different companies based in say France as treated by the EU on their pricing of products that they sell in France verses those they sell in Norway (subtracting out distribution costs and such), but I doubt the EU demands such fidelity elsewhere. That does not mean what it's doing is anti-American! But, it seems a reflection of a "this is the internet, no countries or regions exist on it, the internet is it's own self contained location" mentality, and a case of the EU trying to overstep its bounds of power.

In summery, each country must be tailored to price wise by a company for effective business (likewise a company tailors its practices differently in every state in the United States due to different State based laws and taxes!), so it seems the EU is very wrong in this matter from a rational and economic standpoint (unless it is true that the internet modifies these facts and negates them, then the EU is right and Apple is entirely wrong for discrimination).

"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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