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A $6 Billion Record Fine Could Melt Apple’s Earnings

In March, Spotify announced that it filed a complaint against Apple with the European Commission.

Because of the complaint, the Commission could impose a fine on Apple. Theoretically, this fine could be the highest fine ever.

If the Commission gives Apple the maximum possible fine in 2019, this would be more than 2 percent of Apple’s total turnover and almost 9 percent of Apple’s earnings.

The current investigations are expected to take some time. Hence, a decision in 2019 is not likely. But in the meantime, the risk of even higher fines also is increasing.

It’s possible that this risk will weigh on the share price like a sword of Damocles. A certain downside risk must therefore be taken into account.

I. Introduction

In March, Spotify (SPOT) announced that it has filed a complaint against Apple (AAPL) with the European Commission. Simultaneously, Spotify launched a “time to play fair call.” Spotify claims that Apple harms consumers and other companies because it uses power to gain an unfair advantage. After Spotify announced it filed an antitrust complaint with the European Commission over unfair App Store practices, Apple responded two days later with a statement.

As I said before, I cannot foresee what the Commission will decide in the end. That depends on how it will interpret Article 102 TFEU. Apple has good arguments, which also are found in the case law as justifications. However, the defensive line remains a very weak spot that could be detrimental to the company’s future business model and growth engine. Given that, the Commission could impose a fine on Apple. Theoretically, this fine could be the highest fine ever.

As I may have some better understanding of the legal background, I want to provide you some input which is not that easy to extract from the publicly-available sources of information.

II. Purpose of fines and assessment

EU law has increasingly shifted toward penalizing companies with high fines. The Commission’s fining policy has two goals:

1. punishment

2. deterrence.―Seeking Alpha

 

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