Tuesday, December 20, 2022

Paris Commercial Court declined to find fault in Apple's 30% app tax, referred to EU Commission enforcement of antitrust law and DMA: French government should appeal certain parts

Yesterday it was reported by Reuters and subsequently by other media that the Tribunal de Commerce de Paris (Paris Commercial Court) imposed a fine of approximately 1 million euros (to be precise: €1,090,909) on Apple over some of its App Store terms.

Most of the reporting focused on the fact that some terms--such as Apple's absolute right to reject apps submitted by developers--were deemed unfair ("déséquilibre", i.e., an "imbalance" in trading conditions resulting from one party's superior bargaining power). As an app developer who brought his own complaints over Apple's app review tyranny, I welcome any decision that declares Apple's arbitrary censorship unlawful. However, that's just part of the story. Apple defended itself against multiple claims; otherwise the fine would have been roughly twice as high.

I have meanwhile obtained and perused a copy of the entire 30-part judgment by the Paris Commercial Court's 13th Chamber (trade judges Alain Wormser (presiding judge), Gérard Palti, and Beatriz Rego Fernandez). There are other counts on which Apple prevailed, and which have not received enough attention. As a commentator on these cases, I can't just ignore the unfavorable parts of a decision.

Apple may appeal the million-euro fine, but the French Minister of Economic Affairs and Finance, Bruno Le Maire, may equally--and hopefully will--appeal any unfavorable parts of the ruling to the Cour d'appel de Paris (Paris Court of Appeal).

My overall impression of the decision is that the three-judge panel was simply not interested in tackling some of the more difficult questions, such as the fairness of Apple's requirement that all in-app purchases use Apple's IAP system and the app tax of 30% or more for developers of a certain size (and 15% or more for small ones). With respect to those claims, the court

  • finds that the percentage and the collection method were not facially outrageous, claiming without any particular explanation that smaller developers didn't care anyway and larger ones had other ways of reaching customers,

  • mindlessly lists Apple's spurious arguments such as that Progressive Web Apps are an alternative to native apps (though it's simply a market reality that they are not), many apps are free and Apple does not tax the sale of physical goods,

  • points to the European Commission's responsibility to enforce EU antitrust law against mobile app stores (which is ridiculous given actions that are pending in EU member states such as Germany and the Netherlands), and

  • refers to the EU's Digital Markets Act (DMA), which will require Apple to allow third-party app stores.

There are unmistakable signs that the court wanted to sidestep certain questions. The overall analysis in the judgment (most of which is just a summary of the procedural history and the parties' arguments) is skin-deep at best. Referring to the European Commission's enforcement of EU antitrust rules and to the future effects of the DMA (which won't really change anything in the marketplace until 2024 at the earliest) is tantamount to a dereliction of duty.

I wish to underscore that the ruling does not "bless" the 30% app tax. It merely finds that "le déséquilibre significatif n'est pas suffisamment démontré par le Ministre" ("the Minister has not sufficiently shown the allegedly significative imbalance"). And the court specifically declined to analyze Apple's challenged conduct under antitrust law.

The rule changes that the Paris Commercial Court expects Apple to make relate to app review and to appeals of app rejections, but also to Apple's unilateral right to change the terms of the Developer Program License Agreement (DPLA) anytime. The Paris Commercial Court took into account that there are more than 10 million iPhones in use in France and that developers need a way to reach those users. Apparently Google has already been required to make some changes in that regard.

It's remarkable that the case is actually about five years old, and it took the court so long to hand down a rather thin ruling that decided only some easy parts against Apple. The judgment reflects that Apple engaged in stalling. For example, the French government called Apple's motion for a preliminary reference to the European Court of Justice (ECJ) "abusive and dilatory" as it spans 34 pages, raises 16 partly duplicative questions for review, is highly repetitive, and that the motion's sole purpose was to waste the Court's and the French government's time ("APPLE a, de manière abusive et dilatoire, consacré à ces seize questions préjudicielles pas moins de 34 pages de ses écritures, qui comportent moult doublons et répétitions, dans le seul objectif de faire perdre leur temps au tribunal et au Ministre"). Apple's motion for a preliminary reference was denied, but may indeed have delayed the proceedings.

The court also rejected a procedural motion by which the France Digitale industry association sought to support the French government. France Digitale was not allowed to intervene. While that is unfortunate, the court may have had good reasons. Based on what I found out, the representative of France Digitale lacked the necessary power of attorney to engage in litigation, and the petition to intervene was brought at a relatively late stage of proceeding.

Before the Paris Court of Appeal, not only France Digitale could try to file a timely petition to intervene, but so could other parties. It would be great if there could be broadbased support for the French government, possibly also by organizations like the Coalition for App Fairness (which was founded only in 2020, too late for the case before the lower court).

Regrettably, the Paris Commercial Court did grant ACT | The App(le) Association's petition to intervene. ACT receives most of its funding from Apple, and is effectively controlled by Apple, as Bloomberg reported in September. But that masterpiece of investigative journalism was too late for the proceedings in the lower court. The appeals court might take note of those revelations, however.

The French government told the Paris Commercial Court that ACT's intervention was "opaque" ("imprégnée d'opacité") and that ACT and Apple are linked ("ACT et APPLE sont liées"). According to the French ministry, ACT's intervention was "purely opportunistic, dilatory, and completely useless" ("l'intervention volontaire de l'association de droit belge ACT est purement opportuniste, dilatoire et parfaitemente inutile"). Maybe those argumnents will convince the appeals court, especially with ACT itself having admitted to Bloomberg that the majority of its funding comes from Apple.

This litigation by the French government against Apple has been described as part of a trade war that was started by then-President Trump. However, it appears that the case (and especially the investigation that resulted in it) predated the imposition of punitive tariffs on steel and aluminum imports by the Trump Administration. The judgment notes that the investigation started in 2015, which was during the Obama presidency ("La DGCCRF a ouvert en 2015 une enquête relative aux relations commerciales entre APPLE et les développeurs d'application sur la plateforme App Store").

Some French app makers are suing Apple in the Northern District of California. They have meanwhile amended their complaint, and I'll talk about the differences between the amended complaint and the original one on another occasion. The U.S. class action by French publishers is the result of a cooperation between French antitrust attorney Fayrouze Masmi-Dazi and U.S. class action firm Hagens Berman.