European Borders Fracture iTunes

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The European Commission's complaint against Apple Inc. and the major record labels over a possible violation of European rules on cross-border trade has served to highlight the inconsistencies in how music is released and priced online.

Several years after e-commerce became mainstream and made international shopping for physical goods as easy as a few mouse clicks, the markets for online content, be it music, movies or other intellectual property, are still constrained by national borders.

"Consumers can only buy music from the iTunes online stores in their country of residence and are therefore restricted in their choice of where to buy music, and consequently what music is available and at what price," European Commission spokesman Jonathan Todd said at a Brussels news conference on Tuesday when the action was announced. He was referring to a restriction that lets customers use only the store of the country in which their credit card is issued -- typically the country where they live.

And that can be a hassle, especially if you're one of the 5 million EU citizens who now works in a member state other than their own or even if you just happen to be a Portuguese fan of hardcore German heavy metal music.

Take "A la faveur de l'automne" by Tete." It's currently ranked number two in iTunes France and is also on sale in the Belgium and Luxembourg stores but consumers across the Channel in the U.K. won't find it in their local store. Or try searching for "Yassou Maria" by Sarbel, the number-four ranked song on iTunes Greece, in the iTunes Music Store in Finland or Portugal. It's not there.

It's not just local acts that are affected by the restrictions. "Girlfriend," the new single from Avril Lavigne is available in multiple versions on several national iTunes stores but can't be found in iTunes Spain, Greece and Portugal. Sony BMG says that in this case it's the result of an error but even so local fans can't buy it from an alternative iTunes store and have to wait for the error to be rectified.

And whether the music is available locally or not, the restrictions also stop consumers from shopping around for the best price. Songs are priced at €0.99 (US$1.32) in euro-zone stores but cost £0.79 (US$1.56) in the U.K. and 8Kr (US$1.43) in Denmark. Both countries are in the European Union but outside of the euro zone.

That inability to buy from stores is in other member states lies at the heart of the Commission's complaint. Article 81 of the EC Treaty prohibits actions that could prevent or restrict trade between European Union member states and so the Commission contends that restrictions preventing cross-border shopping are against this law.

"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," the company said in an e-mailed statement. "We don't believe Apple did anything to violate EU law. We will continue to work with the EU to resolve this matter."

It appears the Commission's main target is not Apple but the music companies and music rights agencies, which work on a national basis and give Apple very little choice but to offer national stores.

"Our view is that the agreements were imposed on Apple by the record companies," said the Commission's Todd at Tuesday's news conference. He said Apple had also been charged because "it entered into restrictive agreements too."

The companies got the Commission's complaint in a "Statement of Objections" document, which is a formal step in European antitrust investigations. The recipients now have two months to defend themselves in writing or can request an oral hearing with the Commission. After hearing the company's defense, the Commission makes its final decision, which could include a maximum fine of 10 percent of a company's global annual turnover, should it be determined that the firm has violated antitrust laws.

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