Euro Commission sues Apple, others over iTunes pricing

The European Commission has charged Apple and several big record companies with restrictive pricing practices in the European Union, a spokesman for the Commission confirmed on Tuesday.

Customers in Europe pay different prices for songs bought from Apple’s iTunes store depending on which country they live in. Two years ago a British consumer group complained to the Commission that the price people pay in the U.K. is higher than in other countries, and that the iTunes Web site does not allow consumers to shop around for a cheaper price abroad.

“Consumers can only buy music from the iTunes online stores in their country of residence and are therefore restricted in their choice of where to buy music, and consequently what music is available and at what price,” said Jonathan Todd, the European Commission spokesman for competition matters.

Apple’s iTunes verifies consumers’ country of residence through their credit-card details, the Commission said, giving the example of a consumer wanting to purchase music from iTunes’ Belgian store. In order to make the purchase, the consumer must use a credit card issued by a bank with an address in Belgium.

In the single European market, the distribution agreements between the record companies and Apple could amount to restrictive practices, Todd said. The Commission declined to name the record companies involved.

“Apple has always wanted to operate a single, pan-European iTunes store accessible by anyone from any member state, but we were advised by the music labels and publishers that there were certain legal limits to the rights they could grant us,” Apple said in a statement. “We don’t believe Apple did anything to violate EU law. We will continue to work with the EU to resolve this matter.”

In a press conference Tuesday, Todd said that while the main focus of the antitrust case is the record companies, Apple is also charged because “it entered into restrictive agreements too.”

“Our view is that the agreements were imposed on Apple by the record companies,” he added.

But the effect on the consumer is what counts, he said. British music buyers pay £0.79 (US$1.56), or €1.17 (US$1.56) per song, while people living in the 13 countries in the euro zone pay just €0.99 — 15.4 percent less. Consumers in Denmark, which like the U.K. lies outside the euro zone, pay eight percent more than neighbors in the zone, Todd said.

In addition to being forced to pay more for the same songs, consumers in some countries have to make do with narrower selections of music to choose from, he added.

Apple isn’t considered a dominant player in the market for music downloads onto portable players. “Many people load their CDs onto players,” Todd said, adding, “This market is not dominated by Apple.”

It isn’t illegal to be dominant, but under European antitrust laws a dominant company is not allowed to use certain competitive tactics that would enhance its dominant position. These include pricing goods at below cost, in order to ward off rivals, and striking exclusive deals with retailers to the detriment of rivals.

Apple has sparked the concerns of consumer groups and governments in several European countries because of the way it prevents songs bought from iTunes from being played on music players that compete with Apple’s iPod. Apple moved to address those concerns Monday when it signed a deal with EMI Group, which will offer songs through iTunes and other Web sites that do not carry restrictive copy protection technologies.

However, that issue is not part of the current antitrust case, the Commission said. “The statement of objections … is not about Apple’s use of its proprietary Digital Rights Management (DRM) to control usage rights for downloads from the iTunes online store,” it said.

Apple joins the ranks of Microsoft and Intel, which have both been under investigation by the Commission for many years. Microsoft was found guilty of monopoly abuse and failing to honor a 2004 antitrust ruling. Meanwhile Intel is being investigated for abusing its dominance in the microprocessor market. The Intel probe has not yet resulted in any formal charges.

The Commission aired its concerns about Apple’s iTunes in a so-called Statement of Objections document. Statement of Objections are a formal step in European antitrust investigations.

Once a company receives the statement, it has two months to defend itself in writing or it can request an oral hearing with the Commission. After having heard the company’s defense, the Commission makes its final decision, which could include a maximum fine of 10 percent of a company’s global annual turnover, should the organization determine the firm has violated antitrust laws.

(China Martens in Boston contributed to this story.)

Editor’s note: Updated with comment from Apple and more comments from European Commission spokesman.

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