Introduction

For those who head over to the continent to purchase goods, mumbling as they go about rip-off Britain, the Commission's agreement with Apple on the price of iTunes downloads, may save the iPod generation, at least, one trip. The settlement also represents another (albeit indirect) victory, and profile raising boost, for Which?- the UK's consumer watchdog.

The iTunes Settlement

Broadly, the question in iTunes was the extent to which a company can engage in geographical price differentiation between EU member states. In this case, consumers in the UK pay approximately 79p for songs on iTunes, whereas continental Europeans pay on average the equivalent of 66/67p. Consumers can only buy music from the iTunes online stores in their country of residence, established in turn by reference to their credit card details.

EU geographical price differentiation runs counter to the EU's holy grail of, and quest for, an uniform single market. Unsurprisingly, therefore, early press reports suggested that Apple could face a fine of up to €300 million as the European Commission launched its investigation. Ultimately, however, the Commission dropped its investigation after Apple announced that it would bring UK prices in line with eurozone levels within 6 months.

The lack of fine could be viewed as reflecting the fact that differential pricing reflects the very real, and continued lack, of homogeneity on matters such as tax and IP protection throughout Europe, which lead to the possibility, if not a commercial need, to price products differently depending on where the customer is based.

In this case, Apple argued the pricing differential was due to the fact that it had to pay some record labels more to distribute their music in the UK than it pays them to distribute the same music elsewhere in Europe. The Commission did not agree- its view was that the agreements between Apple and the major record companies did not determine how the iTunes store is organised in Europe. However, absent an (anti-competitive) agreement between the record companies and Apple, the Commission would have had to demonstrate that Apple was dominant in what is a fast changing (product) market. There would no doubt have been counter arguments to any dominance claim, and the lack of fine may reflect a "regulatory reward" to Apple for not turning into, potentially, a new Microsoft.

Indeed, there is a definite effort by Apple to shift the blame onto the record companies. The 6 months timeframe is attributable (it seems) to Apple's request to the leading music labels to lower their UK wholesale prices in the UK to the pan-European level within 6 months. Indeed, Apple has fired a warning shot that it would "reconsider its...relationship in the UK with any record label" that does not lower the UK wholesale prices.

Which? rattles the cage

The Commission's investigation into iTunes was triggered by a complaint by Which? to the UK's competition regulator- the OFT. In a good example of regulatory co-operation, the OFT passed the complaint onto the Commission in the light of the pan-European nature of the potential anti-competitive conduct. Which? itself has been fairly high profile over recent months: it made a super-complaint to the OFT on the Scottish legal profession in May 2007, leading to increased action by the Scottish Government, and this month settled its damages claim with JJB in relation to replica football kits. This has allowed certain consumers to obtain direct compensation for illegal cartel activity.

An Apple a Day does not keep the Regulator away...

Apple has felt the competition heat from a number of national sources. The Norwegian consumer ombudsman has deemed iTunes' DRM system - intended to prevent unauthorised copying with the result that songs cannot be downloaded from iTunes onto non-Apple devices - illegal. Court action may follow. Consumer groups in France, Germany and the Netherlands are also stoking the fire on this issue. This has led Apple to ask the music labels to drop the copy protection system...again, Apple finds itself engaged in a competition battleground as it pushes its commercial interests.