Apple hit with giant €1.1 billion fine by French competition watchdog

Apple accused of having implemented anti-competitive practices within its distribution network in France, but plans to appeal.
Written by Daphne Leprince-Ringuet, Contributor

Apple has been issued with a €1.1 billion ($1.23 billion) fine by the French competition watchdog, which found that the company had carried out anti-competitive practices within its distribution network.

The fine is the largest ever imposed by the French organization against a single company. Two global distributors of Apple's products, Tech Data and Micro, were also fined an additional €76.1 million ($85 million) and €62.9 million ($70.2) respectively, bringing the total in fines to €1.24 billion ($1.38 billion). Apple said it would appeal.

The competition watchdog said that it had found that Apple and its two wholesalers had agreed not to compete and to prevent distributors from competing with each other. It found Apple's 'Premium' distributors could not risk promoting or lowering prices, which led to an alignment of retail prices between Apple's integrated distributors and independent premium distributors. Finally, it said Apple has subjected premium distributors to unfair and unfavorable commercial conditions compared to its network of integrated distributors.

Isabelle de Silva, president of the Competition Authority, said: "In light of the strong impact these practices have on competition in the distribution of Apple products via Apple resellers, the authority inflicts the highest sanction ever imposed in a case (€1.24 billion)."

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The complaint was brought in 2012 by one of Apple's Premium Resellers (APRs), eBizcuss, and involved Apple's failure to supply enough products to re-sellers to satisfy client demand, which placed smaller distributors at a disadvantage in the face of Apple Stores. Unable to compete on pricing and services, eBizcuss's turnover dropped by 15%, and by 2012 the company had to leave the French market.

The Cupertino giant's distribution network differentiates between different types of sellers. Apple has its own integrated sellers – Apple Stores and the Apple website – and also sells its products to international wholesale groups, Micro and Tech Data. Wholesalers then redistribute products to a network of about 2,000 smaller re-sellers in France, which include supermarkets, as well as small and medium tech businesses, including APRs like eBizcuss. 

The investigation found that Apple and wholesalers Micro and Tech Data had reached an agreement between 2005 and 2013, by which Apple divided up products and allocated re-sellers to Micro and Tech Data, in order to control exactly how much of each product could be sold and to whom. 

Not only did this stem competition between Micro and Tech Data, according to the competition watchdog, but it also meant that re-sellers were dependent on stocks decided by Apple. The French authorities recognized that producers are allowed, to a certain degree, to manage their distribution network, but only under the condition that this does not bring about anti-competitive practices.

"Apple and its two re-sellers agreed to not compete with each other," said De Silva, "thus sterilizing the wholesale market for Apple products."

In addition, the investigation found that Apple has been imposing selling prices on APRs to make sure that the prices found in smaller re-seller shops aligned with those established by the tech giant within its own stores and website.  

Particularly, APRs were given very little freedom to launch promotion campaigns for products. Apple implemented strict rules on promotions, and kept a close eye on APRs' pricing strategies. Resellers feared that their competitors would be favoured for deliveries if they cut their prices too much.

An eBizcuss representative said: "We note that Apple practices price-policing for consumers. If prices are inferior to Apple's public prices, we are contacted by Apple Sales local representatives to ask us to push prices back up."

The French authorities noted that the company's close surveillance of pricing was also detrimental to consumers: it is estimated that prices for Apple products were aligned on half of the retail market. 

Finally, the Competition Authority condemned the iPhone maker for abusing re-sellers' economic dependence on Apple products. With most of these re-sellers being small and medium businesses, De Silva indicated that this practice was, in the Authority's view, "particularly serious".

Lack of appropriate supply, discriminatory treatments and unstable remuneration were all cited as harms inflicted by Apple on APRs. For example, many re-sellers were left without stock when new products launched, which meant they were unable to meet peaks in demand from customers. 

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In a statement to ZDNet, Apple said: "The French Competition Authority's decision is disheartening. It relates to practices from over a decade ago and discards thirty years of legal precedent that all companies in France rely on with an order that will cause chaos for companies all across industries."

"We strongly disagree with them and plan to appeal. We are extremely proud to serve our French customers and believe they should be allowed to choose the product they want, either through Apple Retail or our large network of re-sellers across the country."

Earlier this year, the French watchdog for competition and fraud levied another, albeit much smaller, €25 million ($27.4 million) fine against Apple for failing to warn customers that updating some versions of iOS would slow down their iPhone, sometimes to the point that users would have to purchase new devices. Apple accepted the fine and said it was happy to have resolved the case with the French authorities. 

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