By decision of, The Paris Commercial Court, in its 13th chamber, rendered a decision on 19 December 2022 on the significant imbalance (as defined in the former Article L442-6, I, 2° of the French Commercial Code) created by an Internet giant. This case allows the judges to recall not only the mandatory nature of such a provision, but also the conditions of its application. However, for the first time, the French judges decided not to impose injunctions on the respondent, considering that the EU’s incoming Digital Markets Act (commonly referred to as “DMA”), would require changes in any event.
In the present case, the French Minister of Economics and Finance launched a procedure against Apple (US and Ireland) in 2017, on the grounds that the adhesion contracts signed by the latter with app developers would be the cause of a significant imbalance pursuant to former Article L442-6, I, 2° of the French Commercial Code (this provision is now contained in Article L442-1, I, 2°). This has been confirmed by the Paris Commercial Court, in line with a settled case-law.
- Former Article L442-6, I, 2° of the French Commercial Code constitutes an overriding mandatory provision
As French law has not been chosen to govern the contracts concluded between Apple and its app developers, the question arises as to the applicability of former Article L442-6, I, 2° as an overriding mandatory provision. This article, which implements EC Regulation No. 1/2003 Recital 9, allows to establish the liability of any producer, trader or industrialist who submits or attempts to submit “a commercial partner to obligations that create a significant imbalance in the rights and obligations of the parties”. Considered crucial for safeguarding the principles of equality of arms and good faith between economic partners, and therefore “essential for the economic and social organization of France”, the Expédia decision (Court of Cassation, Commercial Chamber, 8 July 2020, No. 17-31.536) had already confirmed the provision’s mandatory nature. However, for it to be applicable, the dispute must be sufficiently connected to the French territory. To this end, the location of the potential victim is relevant, “irrespective of the actual effects”. In the present case, over 5,000 app developers who signed with Apple the contract at issue carry out their activities in France, which makes it possible to connect the dispute to the French territory and therefore to apply former Article L442-6, I, 2° as an overriding mandatory provision.
- Submission to a significant imbalance
Following the example of the Google case (Paris Commercial Court, 28 March 2022), the trial judges examine the two essential requirements for establishing Apple’s liability: a submission, and a significant imbalance. Once these elements demonstrated by the Minister, the burden of proof shifts to the respondent, who has to show that other clauses allow a rebalancing of the contract.
First, the act of submission is revealed by a body of competitive and contractual evidence. As for competition considerations, Apple is a leader in the relevant economic sector. From a contractual point of view, the contract at issue is an adhesion contract, leaving no room for the developers to negotiate.
However, the fact that a company in a dominant position concludes adhesion contracts with its partners is not per se reprehensible; on the contrary, it is understandable from a practical point of view, given the number of Apple’s partners. It will only be liable if it takes advantage of its success to impose abusive non-negotiable terms. In order to establish such an abuse, the court analyses each of the clauses, and concludes that 6 of them (summarized below) create a significant imbalance:
- the possibility for Apple to unilaterally amend the contract and to terminate it if the app developer does not agree with the new terms (such a clause creates legal and economic uncertainty).
- the fact that notifications from developers must be in writing, while Apple can use e-mail. Such a clause would be admitted only if the law applicable to the developer did not recognize digital signatures, which is not the case here.
- the limitation of Apple’s liability up to €50 (which in practice amounts to an exemption clause), imposing all the liability on the developers.
- the ability for Apple to suspend the distribution of an app, in its sole discretion and without prior notice. This clause would nevertheless be admitted if Apple stated the reasons leading to such a suspension.
- the prohibition for developers to file a patent infringement suit against Apple, under penalty of immediate termination of the contract. Again, this could be rebalanced if developers were given the opportunity to provide explanations.
In any case, the judges consider that the overall contract is unbalanced to the detriment of developers.
- What sanctions are imposed on the eve of the entry into force of the new European regulation on Digital Markets (“DMA”)?
Both Apple and Google have been fined the maximum amount, i.e. €2 million. Although high, this amount actually represents a minuscule fraction of their turnover, raising doubts about its deterrent effect… This is about to change thanks to the European Regulation known as “DMA”, which now provides for a fine of up to 10% of the worldwide turnover (Article 30 of the Regulation), as well as periodic penalty payments of up to 5% of the average daily worldwide turnover per day (Article 31).
In March 2022, the Paris Commercial Court also imposed on Google an order to cease the practice at issue. Such an order does not appear in the Apple judgment, precisely because the DMA itself will get Apple to rebalance its contracts in favor of app developers. In fact, the DMA establishes a set of obligations for “gatekeepers”, particularly towards their “business users”.
By using the App Store to market their applications, the developers referred to in the case under consideration necessarily fall into the category of “business users” within the meaning of the DMA. As for gatekeepers, a combined reading of Articles 2 and 3 of the European Regulation allows to define them as “undertakings providing core platform services”, with a “significant impact on the market”. Such a dominant position may be presumed on the basis of various factors, such as turnover (equal to or above 7.5 billion Euro in the EU), or the number of business and end users (at least 45 million monthly active end users and at least 10,000 yearly active business users, both established in the Union). In view of its success in the market, which results in a colossal turnover, Apple clearly appears to meet the definition of a gatekeeper. As such, the Internet giant will have to comply with several obligations when the DMA comes into force in May 2023.
Among them, several will rebalance the clauses denounced by the French Minister in the Apple case, particularly the following obligations:
- the gatekeeper shall not restrict the possibility for business users to report to the relevant authority a possible infringement of national or Union law committed by the gatekeeper itself (Article 5 point 6);
- the gatekeeper shall not impose disproportionate general termination conditions (Article 6 point 13).
A parallel can be drawn with the recent Statement of Objections the European Commission sent to Apple, expressing its concerns regarding the App Store. The Commission emphasized the fact that Apple has been using anti-steering clauses, thereby preventing app developers from informing users of alternative music subscription options at lower prices outside the app. According to the Commission, this amounts to unfair trading conditions in breach of Article 102 TFEU. The DMA also regulates such a conduct by expressly prohibiting anti-steering provisions in Article 5 points 4 and 5. In this respect, business users shall be able to promote offers to end users (users acquired through the gatekeeper’s platform service) outside the said platform; and end users shall be allowed to access, through the gatekeeper’s platform services, content, subscriptions and features of the business user’s application, even when the former acquired such items without using the platform.
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Marco Amorese
Jeanne Deniau