Apple’s $1.2-billion conspiracy fine is fair enough

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By Alex Webb

THE TEMPTATION with antitrust cases — especially involving a company as high-profile as Apple Inc. — is to identify an ulterior motive. Why have the authorities attacked this particular target? Why is the fine so big? Surely there’s a hidden agenda at work, with broader implications.

Sometimes, though, it’s as simple as a firm breaking the rules and getting caught. France’s antitrust regulator fined Apple €1.1 billion ($1.2 billion) on Monday for conspiring with two distributors to stifle competition and impose unfair conditions on third-party vendors, or “resellers,” of products such as the Mac and iPad. The figure is a French record.

France is building a reputation as the European nation most willing to tackle big tech. It fined Alphabet Inc. unit Google €150 million in December for its advertising practices. It’s also investigating Facebook Inc. on a separate issue.

Apple is to appeal. But it’s hard to argue that the company didn’t get what it deserved. Monday’s decision found that, between 2005 and 2013, the tech group divvied up the supply of its 2,000 French resellers between two distributors: Ingram Micro (subsequently acquired by China’s HNA Group) and Tech Data Corp. It then rationed what they could deliver to each reseller, imposing strict limitations on when the stores could offer discounts and promotions.




To retain a “premium reseller” distinction, the shops had to ensure that Apple products represented 70% of their sales. Yet they often found they didn’t receive new products as promptly as Apple’s own retail stores or other big retailers. If they broke any of Apple’s conditions, they risked being cut off.

So the resellers found themselves on an unlevel playing field. They were told they must mostly sell Apple products. Yet they couldn’t depend on getting plentiful supply. These resellers are small companies with a handful of outlets. They could hardly stand up to the might of Apple, even if it hadn’t then become the world’s largest company.

It’s not hard to see why Apple might have ended up on this path. The retail experience has been one element of the firm’s revival. Under Steve Jobs’s then leadership, and with current Chief Executive Officer Tim Cook as chief operating officer, Apple tightened control over its retail operations and the way its products were presented. It spent much of the first 15 years of its renaissance building out its own stores and pulling its products from a stack of big-name retailers.

This worked. Apple built one of the world’s most envious retail operations. Meanwhile, premium resellers became a good way of picking up the slack when demand outstripped Apple’s ability to meet it from its own locations. But in France, at least, those resellers seemed to be doing little more than picking up the scraps.

Apple, like any luxury brand, has an understandable interest in demanding certain standards of its partners. But it should do so fairly. Here, it broke the rules. With $90 billion of net cash, a fine of anything less than a billion euros would risk being too easily absorbed. Does the sum look like political showboating? Sure, but that oughtn’t make it any less valid.

 

BLOOMBERG OPINION









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