Apple got hit with a €1.1b penalty for competition law breaches in its distribution network in France. This is the highest penalty handed down by the French regulator and the defendants have already announced an intention to appeal.

The case gives some important signals as to what will and won't work in a selective distribution system. In this update we unpack the conduct that the French court poohpoohed, apply Australian competition laws, and, voila! A guide to successful selective distribution systems appears.

There were three big issues for Apple.

  1. Restricting wholesalers. Apple appointed two wholesalers and allocated customers between them. It also specified the exact quantities of different products the wholesalers could deliver to each distributor.
  2. In Australia, if you are a manufacturer and placing these kinds of limits on your wholesalers you will generally only have a problem if the restraints 'substantially lessen competition'. In many cases, exclusivities in a distribution agreement won't reduce competition, but legal advice is key because the test can be tricky to apply.

  1. Setting prices. Apple 'strongly encouraged' resellers to charge the same price as Apple stores through a web of contract terms, suggested prices, controlled promotions and price monitoring.
  2. In Australia, the rules are pretty clear. You're not allowed to set a price for resale in Australia and heavy-handed practices designed to 'strongly encourage' a minimum price, or restrict supply to price offenders, are likely to breach this rule.

  1. Abuse of economic dependency. Apple Premium Resellers were 'economically dependent' on Apple given their contractual obligations and lack of alternatives. Apple's conduct abused this dependency as it favoured Apple selling directly, when Apple was in competition with the very same resellers who were economically dependent on it.
  2. The closest equivalents in Australia would be misuse of market power or even unconscionable conduct. If you have a strong market position, you need to consider your distribution strategy carefully to avoid exposure.

eCommerce is having a bit of a moment. And brands are increasingly interested in controlling their distribution networks, whether by exclusive distribution, selective distribution or another arrangement. There's definitely a way to do it that's lawful in Australia. There are also ways which are not. Don't be like Apple.

We do not disclaim anything about this article. We're quite proud of it really.