The European Commission says Apple Inc. and the major record companies may be guilty of violating competition regulations on Apple's iTunes Music Store.

The Commission -- the European Union's anti-trust authority -- confirmed today (April 3) that it had sent a Statement of Objections against alleged territorial restrictions in online music sales to Apple, Sony BMG, Universal Music, Warner Music and EMI.

A Statement of Objections is the Commission's "charge sheet," where it lists initial concerns about potential market abuses. It is the first step in formal antitrust proceedings. This Statement focuses on the agreements between each record company and Apple that allegedly restrict music sales.

"Consumers can only buy music from the iTunes' online store in their country of residence," the Commission said. "Consumers are thus restricted in their choice of where to buy music, and consequently what music is available, and at what price. The Commission alleges in the Statement of Objections that these agreements violate the EC Treaty's rules prohibiting restrictive business practices."

The prices charged on iTunes differ from country to country within the EU outside the 13-member Euro-zone, which contains the EU states that have adopted the Euro currency. Throughout the Euro-zone, the price per song is €0.99 ($1.32), but in the United Kingdom, for example, it is 79 pence ($1.56).

Customers can only buy songs in the country where their credit card is registered. Sources close to the EC suggest that competition commissioner Neelie Kroes sees this as a possible violation of the EU's rules against restrictive business practices.

An Apple spokesperson says: "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. We don't believe Apple did anything to violate EU law. We will continue to work with the EU to resolve this matter."

An EMI Music spokesperson says: "we do not believe we have breached European competition law, and we will be making that case strongly." Other labels contacted have not yet commented on the EC move.

The companies have two months to respond in writing to the Commission, or can request an audience to defend themselves verbally. Oral hearings usually take place about one month after a written reply has been received.

The Statement of Objections does not allege that Apple is in a dominant market position, nor is it about Apple's use of its proprietary Digital Rights Management (DRM) on downloads from the iTunes online store.

Statements of Objections are a formal step in European antitrust investigations. Only after having heard the company's defence can the EC take a final decision, which may be accompanied by fines of up to 10% of a company's worldwide annual turnover.

The investigation comes two years after the U.K. government referred a complaint by the British consumer group Which? to the Commission. Which? had complained to British regulator the Office of Fair Trading in September 2004, saying that iTunes charged U.K. customers 20% more than French and German shoppers and barred customers in the U.K. from logging on to French or German sites to get a cheaper deal.

The announcement came one day after EMI said it would offer all its currently available digital catalog for download without DRM. Apple's iTunes is the first major downloads service to sign up for that deal (Billboard.biz April 02, 2007).