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Tuesday, February 15, 2011, 05:00 pm PT (08:00 pm ET)

Apple's App Store subscription rules spark anti-trust concerns, irk developers

A new report claims Apple's just announced iOS App Store subscription policy may expose the company to an antitrust investigation, even as developers, publishers and distributors have responded negatively to the terms, with one company hinting at possible legal action.

After announcing App Store subscription services at a media event with News Corporation earlier this month, Apple revealed the details and terms of the new service on Tuesday. Apple's terms forbid publishers from including links to external websites to purchase content or subscriptions and require publishers to offer in-app deals equal to or better than the same deals offered outside of the app.

Apple CEO Steve Jobs explained the new subscription rules. "Our philosophy is simple — when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing," said Jobs. "All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app."

Antitrust issues

According to several law professors contacted by The Wall Street Journal, Apple's new subscription service could "draw antitrust scrutiny."

Antitrust professor Shubha Ghosh told The Journal that his "inclination is to be suspect" about the new service. At stake is whether Apple has a sufficiently dominant market position to block competitors and whether it is exerting "anticompetitive pressures on price," Ghosh said.

However, proving Apple is indeed a dominant market player could be a difficult task. Publishers could claim that Apple's share of the tablet market makes its subscription service terms anticompetitive. In response, Apple could argue that the market includes all digital and print media and the disgruntled publishers are free to utilize other outlets to reach their customers.

"Millions will be spent litigating how broad the market is," said Herbert Hovenkamp, an antitrust professor at the University of Iowa College of Law, adding that the most likely definition of the market would be digital media.

Though Hovenkamp doubts Apple has enough of a dominant position in that market to prompt an antitrust investigation, he noted that if Apple reaches 60 percent or more of all digital subscriptions, "an antitrust challenge would seem feasible."

According to Ghosh, Apple could defend itself by coming up with a "business justification" for its subscription terms, as courts often look for legitimate business reasons for actions that are accused of being anticompetitive.

Developer, publisher ire

Meanwhile, initial developer, distributor and publisher response to Apple's subscription details announcement has been overwhelmingly negative, with some publishers objecting to Apple's 30 percent revenue share, while others have expressed frustration over Apple's terms that require subscriptions to be sold through Apple for the same price or less as that of third-party websites.

Digital music subscription service Rhapsody issued a statement Tuesday calling Apple's 30 percent cut of subscription revenue "economically untenable," Engadget reports.

"The bottom line is we would not be able to offer our service through the iTunes store if subjected to Apple's 30 percent monthly fee vs. a typical 2.5 percent credit card fee," the statement read.

Rhapsody also hinted at potential legal action in response to Apple's policy. "We will be collaborating with our market peers in determining an appropriate legal and business response to this latest development."

Responding to Apple's announcement, Marco Arment, creator of the popular Instapaper app, called Apple's requirement of matching subscription prices through iTunes "a huge dick move" in a post to Twitter on Tuesday.

Forbes reports that the Online Publishers Association, which includes publishers such as Time, Hearst, Conde Nast, Bloomberg and Forbes, is worried that Apple's policies don't provide sufficient flexibility for both publishers and consumers.

Apple has reportedly issued a compliance deadline of June 30 for apps already available in the iOS App Store. Earlier this month, Sony revealed that an e-reader application it had submitted to Apple's App Store had been denied, prompting speculation that Apple had changed its rules regarding in-app purchases. Apple denied the claim by saying that it was merely enforcing pre-existing guidelines.

Prior to Apple's announcement offering details of its subscription service, several consortiums of European publishers had expressed concerns over Apple's subscription service, with some publishers feeling "betrayed" by Apple's policies. Last month, Belgian economy minister Vincent Van Quickenborne requested an antitrust investigation of Apple over possible anticompetitive maneuvers in the newspaper market.