Pricing Probe Could Keep Apple in Legal Spotlight for Long Haul

The UK-based consumer watchdog group Which, formerly known as the Consumers' Association, first made the allegations against Apple, saying that the Cupertino, Calif.-based company charged 79 British pence (US$1.38) per song downloaded from the Internet in the UK but only 99 euros ($1.19) on the continent. The latter is 20 percent cheaper.

What is more, UK residents can't download songs from the non-UK Web page to avail themselves of the savings. The group requested an investigation into the matter through the UK's Office of Fair Trading in December 2004, and the case remains open.

The probe probably was launched for a variety of reasons, according to James W. Kolka, an attorney and expert in European Commission regulations.

"There are a lot of motivations there," said Kolka, founder of Q-Lex International, an Atlanta-based international legal consulting company. "One might fear that 'The Americans are coming and they are going to dominate us,'" he suggested.

Aggressive Track Record

The EC is very aggressive in investigating complaints against American companies, Kolka noted. "To them, the American market seems very open, very liberal," he said, adding, "too liberal and too open, perhaps."

For example, regulators in Europe a few years ago prevented GE (NYSE: GE) from merging with Honeywell (NYSE: HON), the computer and systems integration company, he observed. The European Commission has also been tougher with Microsoft (Nasdaq: MSFT) , in some respects, than American antitrust officials have been.

One of the reasons for this scrutiny of technology companies is that telecommunications and communications throughout Europe were generally controlled by the government until quite recently. "They have been divesting themselves of that control," said Kolka, "but that is still part of the mindset."

Some of the regulatory heavy handedness has actually benefited consumers in Europe, however.

European Union regulations are more consumer-oriented than company-focused, according to Catharine Biggs Arrowood, a Charlotte, N.C.-based attorney with Parker Poe Adams & Bernstein, who has appeared before the European Commission on behalf of clients in Europe. "They are very concerned about consumers and consumer access to technology," she said.

For instance, said Arrowood, "in telecommunications, they started out with a telecom directive and a satellite directive. Now, they've pulled them together and issued a common regulation. That's part of an effort to create standards to have cell phones operate throughout Europe."

As a result, many believe that cell phone networks work better there than here, she said.

American Targets?

The Europeans are not targeting Apple just because it is an American company in Arrowood's view. "They're not singling out U.S. businesses -- it just happens that much of the very desired and popular technology is that which is developed by American companies," she said.

The possible probe by the European Commission looms as the French Parliament is also targeting Apple with a proposed law that would force the company to open its digital rights management technology, thereby allowing songs purchased via iTunes to be playable on devices other than iPods. Though Apple initially was mum about the conflict, the company last week began publicly commenting on it.

In addition to navigating the troubled waters in France, Apple may have to brace itself for a long investigation by the European Commission.

"The commission is very sophisticated and deliberative," said Arrowood. "They will spend a lot of time deliberating before they open an investigation. This is obviously something they have been looking at for a while -- and not a kneejerk reaction to what is happening in France."

The EC has been aggressive in the past against American companies, according to London-based Maury Shenk, an attorney and managing partner of law firm Steptoe & Johnson. However, in the face of rejection of some of their cases by the European Court of Justice, EC officials have become more circumspect. The current head of the competition bureau there, Nellie Kroes, is considered to be less aggressive than predecessor Mario Monti, but has been critical of Microsoft of late.

There are those who believe that the case against Apple flies in the face of free market principles, however. The EC is trying to "level the playing field" with its moves against Apple, "which has created a dominant position in the portable music player arena," maintains Rita Gunther McGrath, a professor at Columbia University's School of Business in New York City and the author of "MarketBusters: 40 Strategic Moves that Drive Exceptional Business Growth."