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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 4/9/2007 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.


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