Apple cured its big tax headache in Europe. It’s now facing far bigger antitrust problems on both sides of the Atlantic.
In a rare piece of unalloyed good news for an American tech giant, an EU court on Wednesday overturned a landmark $15 billion tax bill slapped on Apple by European authorities. But this notable setback for regulators and tech’s political antagonists will likely be brief.
Less than two weeks from now, CEO Tim Cook is set to join his counterparts at Facebook, Google and Amazon in a congressional hearing focused on the companies’ alleged antitrust abuses — an arena where Apple’s cash-cow App Store is emerging as one of its biggest vulnerabilities.
Even worse for Apple, both the Trump administration and the EU’s antitrust authorities appear to be of similar mindsets in examining the company’s ironclad control of its app platform. POLITICO reported last month that the U.S. Justice Department and a coalition of state attorneys general have taken the first steps toward an antitrust case against Apple, just after European competition officials announced two investigations of the company.
Some national authorities in Europe, including in the Netherlands, have also begun probes of Apple’s treatment of news media apps.
Apps and related subscription services represent Apple’s second largest source of revenue, after iPhone sales, as well as its biggest growth area. So any successful antitrust case over the App Store “would have a huge impact,” said Shili Shao, who wrote two recent papers on antitrust concerns about Apple.
“Tens of billions of dollars are at stake,” Shao added.
Apple didn’t respond to a request for comment on the ongoing antitrust probes or an opportunity to interview Cook. The company said it was pleased with the decision on its tax bill, noting that it paid more than $100 billion in corporate taxes worldwide over the past decade.
At its annual developers conference last month, Apple announced that it would make some changes to its App Store later this summer to assuage some developer concerns, including the ability to appeal the company’s guidelines for app approvals. The company hasn’t yet said how those appeals will work or when they will begin.
Wednesday’s tax decision was a setback for EU competition czar Margrethe Vestager, who ruled four years ago that Ireland must claw back €13 billion in unpaid levies plus interest that it had failed to impose on Apple. Vestager’s crusade against Apple inspired objections from the Obama administration and friction with President Donald Trump, who has dismissed her as the “tax lady” who “really hates the U.S.”
The European Commission can still appeal the tax case to Europe’s highest court, the European Court of Justice. Vestager said in a statement that the Commission would “carefully study the judgment and reflect on possible next steps.”
In contrast with those trans-Atlantic tax tensions, antitrust authorities in both the U.S. and Europe have expressed interest in developers’ complaints that Apple imposes unfair restrictions on how they can access the company’s popular operating system. In particular, companies have complained about Apple’s in-app payment system, which takes a 30 percent cut of most transactions, including app downloads and services like music and dating app subscriptions.
Apple is also in the crosshairs of a July 27 hearing of the House Judiciary antitrust subcommittee, where Cook, Facebook’s Mark Zuckerberg, Amazon’s Jeff Bezos and Google’s Sundar Pichai have all agreed to testify virtually in a first-of-its kind joint appearance of tech’s most powerful CEOs.
Unlike with Google’s rival Android platform, developers must get Apple’s approval to offer their applications on Apple’s App Store. Apple also makes it impossible for typical users to install apps from sources outside the App Store.
“It is very difficult for developers and apps to speak out because Apple is the only way for them to reach Apple users. The power that they have is enormous,” said Melissa Newham, one of Shao’s co-authors and a Ph.D. candidate in economics at KU Leuven University in Belgium.
Apple’s control of the App Store also gives the company unmatched access to data, she said.
“They can learn about the performance of rival apps,” said Newham, who focuses on competition policy and worked as a trainee at the European Commission’s competition unit. “They can see which apps consumers are using and paying for, and which apps are likely to be successful in future. This is incredibly valuable information which can be used to build their own apps going forward. Rival apps do not have access to this data.”
Shao, who recently graduated from Yale Law School, has more than an academic interest in Apple: He previously ran an online education start-up in China and helped develop the company’s iOS app. As an app developer, Shao experienced firsthand how Apple’s policies can impact smaller companies.
Shao, Newham and four other Yale Law students researched the antitrust case against Apple as part of Yale’s Thurman Arnold Project, which is funded by the nonprofit Knight Foundation and Omidyar Network, a foundation by eBay founder Pierre Omidyar. The project aims to study competition in the digital economy, with a particular focus on major tech platforms like Google, Facebook and Amazon. In mid-May, they presented their findings on Apple to a group of officials at the Federal Trade Commission, including Democratic Commissioner Rohit Chopra.
Aside from any immediate change to Apple revenue, an antitrust suit would also have a long-term strategic impact on the company as it seeks to pivot from selling smartphones and tablets to offering more services like music, video and games. In 2019, Apple brought in $260 billion in revenue. Of that, services — which includes the money made from the App Store and subscriptions like Apple Music and Apple TV — accounted for $54.2 billion, the second largest category after iPhone sales.
“The App Store is their biggest growth area,” said Sally Hubbard, director of enforcement strategy at Open Markets Institute, an advocacy group that has called for tougher antitrust action against big tech companies. “The ability to put a thumb on the scale in favor of their own services on their platform is an easy path to growth that all the tech giants have been using.”
Hubbard, whose forthcoming book, “Monopolies Suck,” explores the iPhone-maker’s market power, said regulators have focused less on Apple because the company has historically been viewed as the maker of luxury goods and its conduct creates fewer immediate harms than the other tech giants. She dubbed the company everyone’s “favorite monopolist.”
“We’re not seeing some of the huge democracy harms we’ve seen with Facebook and Google in terms of speech, and elections, disinformation, and we’re not seeing the really aggressive bullying tactics that we see out of Amazon,” she said. “It’s important to protect economic liberty and entrepreneurialism, but that’s not quite the same as disinformation and elections. It’s more a question of prioritization than actually the merits. … But I think there’s a strong case there.”
Simon van Dorpe contributed to this report.
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