Understanding France’s $1.2 billion fine on Apple

Last week, the French antitrust authorities levied upon Apple the greatest fine it ever has imposed on any company in the 67-year history of the French agency. The total exceeds $1.2 billion. Two wholesalers who distributed Apple products were also fined: Tech Data $84 million and Ingram Micro $69 million. Apple is appealing the decision.

In creating the European Union, individual countries did not surrender their own authority to bring antitrust actions to prevent harm done to consumers and companies within their own boundaries. Nevertheless, the bureau within the European Union dealing with antitrust (Directorate General for Competition) normally takes the lead on the larger cases. That France proceeded on its own indicates a resurgence of national authority in a post-Brexit EU. It does not signal any lack of energy on the part of the EU, which is conducting its own investigation of Apple practices (especially the favoritism Apple offers its own products within its app store). The lesson, rather, is that it is not sufficient for an American company to satisfy just the EU antitrust authority. Out of the 44 member countries, 27 have their own antitrust agencies, and each one of them could conceivably do what France just did.

This is not unlike the antitrust enforcement in the United States, where there are two federal agencies, and 50 state attorneys general, each empowered to apply the federal and state antitrust laws. The reason our system does not lead to 52 different interpretations of the antitrust laws is because our states overwhelmingly follow federal precedent, even in interpreting their own laws, and we have one Supreme Court with ultimate jurisdiction over what those laws mean. A small state that breaks from the pack, creating an especially burdensome regime for business, runs the risk that the business will pull its sales, manufacturing, or employment, out of that state. In Europe, by contrast, placing restrictions on an American company’s preferred way of marketing creates an advantage for a European competitor of the American firm.

The French antitrust agency’s ruling against Apple deals with how Apple distributes its products (other than iPhones). Apple sells iPads and Mac laptops through its own stores and through two large wholesalers. The French antitrust authority held that Apple divided ultimate customers between these two wholesalers. It claimed Apple enforced minimum prices that retailers must charge for iPads and laptops, and that Apple threatened to terminate retailers who did not abide by its instructions. France believed that there would have been robust competition between the two wholesalers but for Apple’s division of the market. (Apple uses a different distribution mechanism for its iPhones and those were not part of the French decree.)

In America, the courts with ultimate authority to interpret antitrust laws would be hesitant to condemn Apple’s choice of marketing strategy.

Rather, American courts would have noted the vibrant competition between brands both for laptops and for tablets. If Apple thought it helped it compete with Microsoft, Samsung and Amazon to divide its wholesalers by type of customer (one wholesaler for higher-end consumers, the other for more price-conscious purchasers), the courts would have allowed Apple to do so.

The same result would have obtained regarding Apple’s insistence on the price retailers charged. A high retail price is a good way to insure the retailer puts resources into knowledgeable sales personnel who can explain complicated product features — keeping Apple from being undercut by “Crazy Eddie” box stores that cater to customers whom Apple has paid to educate, but who go to the other side of town to make their ultimate purchase.

As long as there is vibrant competition between brands, American antitrust courts stay out of how any one brand chooses to market its goods, especially in the high tech area. Innovative products require different marketing approaches, even if smaller retailers are disadvantaged. France and Europe have chosen protection of shop-keepers over innovators.

Source:  https://www.ocregister.com/2020/03/23/understanding-frances-1-2-billion-fine-on-apple/