Apple fine reduced but French ‘Davids’ might have found a new slingshot against digital 'Goliaths' as tort of economic dependency is upheld
In a ruling dated 6 October 2022, the Paris Court of Appeal partially annulled a 2020 decision by the French competition authority (the Autorité) against Apple and two Apple products wholesalers, Tech Data and Ingram Micro. This ruling struck a blow to the Autorité, as the period for one infringement was halved whilst a second was completely scrapped, reducing the fine against Apple substantively from €1.1 billion to €372 million. Nevertheless, there is a silver lining for claimants as the finding of abuse of economic dependency, a French tort similar to abuse of dominance, was upheld and may prove an effective option for claimants in the context of digital markets.
eBizscuss was an Apple Premium Reseller (APR), a chain of independent brick-and-mortar stores who specialised in selling Apple products. In the noughties, Apple became a fully vertically-integrated company as it (i) produced the Apple products, and sold them to (ii) wholesalers, (iii) retailers and (iv) eventually directly to consumers.
Only three years after the first Apple Store was opened in Paris, eBizscuss filed for bankruptcy in 2012. eBizscuss alleges this bankruptcy was caused by Apple which it alleged used scarcities in the supply of Apple products at the expense of APRs and for the benefit of other stores, including Apple Stores.
eBizscuss then commenced damages proceedings against Apple and lodged a complaint with the Autorité, which led to a decision by the Autorité in 2020. On 6 October 2022, the Paris Court of Appeal partially annulled the decision, in particular in relation to Resale Price Maintenance (RPM), and dropped the fine against Apple from €1.1 billion to €372 million.
The Court reduces fine based on Article 101 TFEU
In 2020, the Autorité found that Apple and wholesalers Tech Data and Ingram Micro colluded to apportion their customer base. In a quiet yet effective customer allocation mechanism, retailers, including APRs, were often left with only one provider for their Apple products, thereby greatly reducing intra-brand competition.
The Paris Court of Appeal upheld this finding, which represented the most substantial share of the initial fine. Yet, it also found there was no evidence proving that this infringement started as early as 2005 as the Autorité initially held, and instead ruled that the companies maintained their unlawful allocation scheme from 2009 to 2013 only. The Court also reduced the penalty rate applied to the fines from 90% to 50%.
Resale Price Maintenance
In 2020, the Autorité found that Apple vertically colluded with APRs and was guilty of Resale Price Maintenance, an infringement by object pursuant to Article 101 TFEU.
The Paris Court of Appeal quashed this finding, mostly because there was no evidence that parallel behaviours amounted to implicit collusion. It was insufficient that the APRs could not charge a higher price than those advertised to consumers by Apple and did not charge lower prices because their margin levels did not allow it. There was also little evidence that Apple coerced the APRs either formally by applying rigorous T&Cs or by using their operating margins.
In theory, the Autorité could have pursued Apple for abuse of a dominance via margin squeeze but chose not to do so.
Abuse of economic dependency
Rather than seeking to demonstrate a dominant position in the market of retail IT products, given the reference by the Autorité to a 25% share by Apple in that market, the Autorité resorted to an old tool which exists in French law only: abuse of economic dependency.
This tort was introduced in 1986 but was yet to be used by the Autorité. An abuse of economic dependency is characterised by:
- a relative state of dependency of downstream clients towards upstream producers or suppliers
- such state being exploitatively abused by the upstream player and
- at least potentially affecting competition.
The Autorité, upheld by the Paris Court of Appeal, found those three conditions were fulfilled here:
APRs were economically dependent on Apple because:
- Apple products have such a specific status within the market of IT products: captive customer base, notorious products
- Apple is the main source of income for APRs, mostly because Apple insisted that at least 75% of their revenue be made selling Apple products
- APRs had little alternative as their whole business model was geared towards selling Apple products.
The abuse is demonstrated because of the significant imbalance between the obligations of the APRs with Apple’s.
Competition was negatively affected, both:
- intra-brand as APRs could not compete as efficiently with other Apple product retailers, including Apple
- inter-brand as APRs, which should have probably been considered franchisees – a much more protective and regulated regime – were disadvantaged compared to other IT products retailers.
In a nutshell, because Apple’s business model is so specific, abuse of economic dependency seemed tailor-made for Apple’s misconduct here. The Court of Appeal wholeheartedly sided with the Autorité and details at length the regime applicable to this tort, thereby reaffirming its usefulness in digital markets.
This is a valuable decision in the public enforcement space in France, given the potential for asserting the tort of abuse of economic dependency in future cases. This route for enforcement does not require the Autorité to prove that there is a dominant position and therefore it may be a new (and effective) slingshot for French corporate Davids against digital Goliaths.