France directs €1.1 billion cartel fine towards Apple

The iGiant has already said it strongly disagrees with the opinion of the French Competition Authority, though a decade-long investigation has found Apple, Tech Data and Ingram Micro guilty of price fixing.

After an investigation was launched in 2012, Apple was found guilty of fixing prices for its retailers in France as well as limiting competition. Apple is now in line to receive a record fine totalling €1,101,969,952, while Tech Data and Ingram Micro will have to find €76,107,989 and €62,972,668 respectively.

Interestingly enough, what this ruling suggests is that Apple was unfairly using contractual clauses to strangle supply and control pricing on the high street. Pricing is a very important aspect of the Apple business, allowing the company to maintain profit margin, but also retain the premium brand perception is has cultivated over so many years.

The Apple brand is the envy of many companies around the world, it allows Apple to charge a premium, but also command customer loyalty. Limiting supply could help create this sense of exclusivity to justify the pricing premium, though the French Competition Authority clearly thinks this is contrary to the law.

“Given the strong impact of these practices on competition in the distribution of Apple products via Apple premium resellers, the Authority imposes the highest penalty ever pronounced in a case (€1.24 billion),” said Isabelle de Silva, President of the French Competition Authority.

“It is also the heaviest sanction pronounced against an economic player, in this case Apple (€1.1 billion), whose extraordinary dimension has been duly taken into account. Finally, the Authority considered that, in the present case, Apple had committed an abuse of economic dependence on its premium retailers, a practice which the Authority considers to be particularly serious.”

Firstly, the French Competition Authority has said the trio sterilized the wholesale market for Apple products through an agreement where the distributors would not compete with each other. The investigation suggests Apple managed the process of product and customer allocations between its two wholesalers between 2005 and March 2013, even going as far as dictating the exact quantities of the different products to be delivered to each reseller. Through such a practice, supply could be strangled and therefore high prices maintained.

Secondly, so-called Premium distributors were not allowed to run promotions or offers which made the products cheaper that what Apple would sell. Thanks to some very strict contractual clauses, very little wiggle room remained to offer any promotions to create a more attractive competitive environment on the high street. In short, any promotion, whether related to price or not, was controlled by Apple not the resellers and retailers.

Finally, Apple has abused the economic dependence of these Premium distributors by subjecting them to unfair and unfavourable commercial conditions. The abuse of economic dependence, as it is known in France, is uncommon, but the result of a complex tangle of multiple contractual clauses and practices. In short, this effectively offered Apple unreasonable control over the businesses of its distributors and resellers.

Although the French Competition Authority has conceded Apple is free to manage its distributors and value chain in whichever way it feels necessary, it has reminded the tech giant it has to pay suitable homage to the law. For example, it is illegal to pre-assign customers to distributors, agree sales prices or disadvantage distributors with the power of its own sales channels. In short, the French Competition Authority found plenty of opportunity to poke Apple with a sharp stick.