This week, the French Competition Authority (Autorité de la Concurrence, ADLC) imposed its largest ever fine of €1.1 billion on Apple for anticompetitive practices within its distribution network. Tech Data and Ingram Micro (Apple’s two main wholesalers) were also respectively fined €76,1 million and €62,9 million for price fixing.

In France, Apple sells its products in physical stores and online, with its network divided into large generalist distributors and specialised resellers. As head of the network, Apple is prohibited from controlling competition between its wholesalers and their downstream retailers.

The ADLC’s findings

Following a complaint from eBizcuss (a premium Apple reseller) an investigation was opened by the ADLC in 2012 into alleged anticompetitive behaviour.

The ADLC found that Apple engaged in three main anticompetitive or related forms of prohibited practices:

Division of products and customers between Tech Data and Ingram Micro

Apple allocated certain quantities of specific products and certain customers to each wholesaler, meaning that companies were dependent on stocks controlled by Apple and unable to function independently in competition with each other. Wholesalers should be able to freely organise their commercial policy without interference from the head of the network. As a result, the ADLC found that Apple was effectively favouring its own distribution channel and eliminating any competition between Tech Data and Ingram Micro. Consequently, final retailers were unable to take advantage of any competition between wholesalers.

Imposition of selling prices on Premium Resellers

Premium resellers were encouraged to charge the same prices as those charged in Apple stores, with prices promoted by Apple media as ‘suggested prices’. Any applicable promotions were strictly controlled by Apple, with any non-compliance sanctioned by favouring competitors for delivery of stock. As most of the resellers concerned are SMEs, their low margins meant the commercial risk of deviating from the recommended pricing set by Apple was too high. With the exception of the iPhone, sale prices for nearly half of the market for Apple products (iPad, Macbook, etc.) became perfectly aligned, depriving consumers of effective competition.

Abuse of situation of economic dependency

As a result of various contractual provisions and conduct, Apple abused the state of economic dependency of its premium resellers, which is contrary to a separate prohibition under French law (Article L. 420-2, paragraph 2, French Commercial Code). Reseller contracts required an almost exclusive sale of Apple products, prohibiting them from exclusively selling any competing brand in Europe. In connection with stock and customer allocation, resellers faced shortages in supply, with some products unavailable despite there being stock in the physical Apple stores. Apple offered discretionary discounts and rebates, but these were strictly monitored and their unpredictability left resellers unable to satisfy the demand of their customers.

These restrictions on commercial freedom led to the exclusion from the market of many resellers, including eBizcuss which exited in 2012.

Comment

The decision acts as a further illustration of Europe’s wider competition law scrutiny of the practices of big tech companies. Unlike a number of those probes, this case concerned anti-competitive agreements rather than abuse of dominance, and resonates with another current competition authority trend of tackling resale price maintenance.  In this case (as in the vast majority to date), only the supplier has been fined and the ADLC has recognised that resale price maintenance risks harming resellers as well as final customers. It will be interesting to monitor the upcoming developments in this case, as Apple has stated that it plans to appeal the ruling.