Music labels, Apple hit on iTunes restrictions

Steve Goldstein
MarketWatch (MCT)

LONDON - The European Commission on Tuesday took the first step toward bringing an antitrust lawsuit against Apple Inc. and major record companies, objecting to territorial restrictions applied to online music sales.

The E.C. issued a "statement of objections," a formal step in European antitrust investigations that give respondents two months to defend themselves in writing. Companies also have the right to an oral hearing.

If found guilty, companies face a fine of up to 10 percent of annual global revenue. In Apple's case, that would be $1.99 billion of its $19.93 billion in revenue for the year to Sept. 30.

Still, E.C. competition spokesman Jonathan Todd admitted that Cupertino, Calif.-based Apple wasn't the company predominately to blame.

"Apple are the operators of the iTunes stores. But it is true that the main focus of our attention is the major record companies," he said at a press conference.

The commission maintains that Apple and the major record companies - the joint venture between Sony and Bertelsmann, the Universal Music arm of Vivendi, Warner Music and EMI Group - are restricting the ability of consumers to choose where to buy music, what music is available and at what price.

For example, to buy a music download from iTunes' Belgian store, one must have a credit card issued by a bank with an address in Belgium, the E.C. noted.

Todd said Britons are paying 1.17 euros ($1.56) per song, rather than the 0.99 euro charged in France, Germany and other euro-zone member countries. Danes pay about 8 percent more, he added.

Apple, in a statement, said the record companies were to blame.

"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. We don't believe Apple did anything to violate E.U. law," the company said.

The labels typically negotiate digital music rights with musicians on a national level, resulting in them asking Apple to set up stores in each country.

EMI said it doesn't believe it has violated European law and will make that case "strongly." The other labels haven't commented.

The commission noted that it wasn't alleging Apple had a dominant position, nor was it objecting to its proprietary digital-rights management.

Apple and EMI on Monday announced a pact to sell music without that protection.

In early U.S. trading, Apple edged up 32 cents to change hands at $93.97.

EMI shares slipped 2 percent in London, Sony rose 2.4 percent in Tokyo and Vivendi rose 0.6 percent in Paris.





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