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Apple thwarts competition in App Store, claims Spotify

Attacks mount on the iPhone vendor, from Spotify’s complaints over music updates, to new legal sniping in China

‘Never hit a man when he’s down’ is not a motto which applies in business. Apple is in a down phase – by its own standards, if nobody else’s – and the blows are flying. It is under siege from Chinese patent lawsuits, and the old issue of its in-app purchasing policies has raised its ugly head again, with Spotify leading the charge this time.

Apple has faced such problems before, but from a position of almost unquestioned dominance of the smartphone space, which gave it the freedom to behave almost as it wished. Now, with iPhone sales slowing and Chinese rivals taking market share, Apple may have to listen harder to its critics.

Music streaming service Spotify has sent a lawyer’s letter to Apple, according to Recode, accusing the iPhone maker of suppressing competition to its own Apple Music offering, by rejecting an update to the Spotify app.

The letter, sent more than a month ago, claimed Apple turned down the updated app, citing “business model rules”. In the past, Apple has faced similar accusations that it uses its long list of App Store rules to thwart direct competition to its own core services – which since a year ago today include music streaming. Spotify said in its letter that Apple “uses the App Store approval process as a weapon to harm competitors”.

Back in 2011, there was an intense war between Apple, Google and Amazon over the cuts they would take for in-app purchasing. Apple was criticized for trying to make this the only way for consumers to buy goods or services from its App Store partners – since it took a 30% cut. Some influential apps providers, led by The Financial Times and another music service, Rhapsody, started to work around the App Store by offering direct purchasing in the browser, and even initiated a preliminary antitrust probe in the US.

Now the issue is live again, even though Apple recently changed its App Store policy on subscriptions sold within iOS apps, halving the cut it takes to 15% if the subscriber keeps the service for a year. Spotify says this change has no impact on the restrictions to its ability to get new customers on iDevices.

So Apple faces the dilemma of pushing its own services aggressively – they were the main growth engine in its most recent quarterly results, with Music particularly strong – or encouraging the third parties which make iOS attractive, even when they are competitive.

At the same time, it is facing a different kind of legal attack in China. Recently, a little-known (and possibly now-defunct) handset maker, Baili, won a first-round court case, claiming the iPhone 6 infringes its design patents, which could lead to a bar on sales of the Apple flagship in Beijing. Many rounds of appeals no doubt await in the bizarre case, and consumer demand for the latest iPhones is likely to outweigh the legal process, but the Baili case shows how the IPR balance of power is shifting to China.

It may open the floodgates for further, more credible, lawsuits against Apple in the country, where the US firm already faces rising competition. CEO Tim Cook recently referred to China’s Huawei and Oppo as “headwinds”, which were partly responsible for the first ever year-on-year drop in iPhone sales last quarter. Huawei, which by contrast reported robust smartphone growth, has set itself a five-year target to become the world’s number one vendor in the sector.

Apple’s latest strange legal headache in China comes in the shape of a lawsuit filed by an arm of China’s media regulator SARFT (State Administration of Press, Publication, Radio, Film and Television) over a propaganda video from 1994, focused on the China-Japan wars of the 1930s. The Movie Satellite Channel Program Production Center claims it has exclusive online rights to the film, which is viewable via Youku HD, an app available in the App Store. This availability has caused “huge economic losses”, claims the suit, which also cites Youku’s parent firm. Heyi Information and Technology.

This is the sort of action which would normally be brushed aside by Apple – the damages demanded are about $7,500 – but it is part of a potential barrage of legal attacks in China, which threaten to inflict death by a thousand cuts by undermining the US company and emboldening its enemies. In April, SARFT shut down the iTunes Moves and Books services in China; in May Apple lost a trademark suit against Beijing accessories company which uses the brand IPHONE; the Baili suit followed in June.

All these are small fry, but given that Huawei recently filed a lawsuit against Samsung, there may be bigger problems to come, and Apple may be dreading a reversal of the smartphone patent wars earlier this decade – in which it was generally the initiator, and in a strong position to try to weaken Android competitors. Now, in China, it is becoming the object of attack.

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