Apple Settles with French Authorities over €25 Million Fine
The Situation: Following an investigation of Apple led by the French authorities into the use of misleading commercial practices, Apple agreed to settle and pay a €25 million fine.
The Issue: Under French law, using misleading commercial practices is a criminal offense and the fine incurred by a legal person may increase to as much as 10% of that person's average annual turnover. Failing to share material information on a good or a service may be deemed as a misleading commercial practice.
Looking Ahead: In the near future, French authorities could increasingly resort to settlement procedures to avoid the encumbrances of a criminal investigation.
The Case at Hand
On January 5, 2018, a consumer association filed a complaint against Apple with the Public Prosecutor's Office in Paris for planned obsolescence of its devices, alleging that Apple was deliberately slowing down its old smartphone models to speed up their replacement.
The investigation, led by the Directorate General for Competition Policy, Consumer Affairs, and Fraud Control ("DGCCRF"), established that iPhone users had not been informed that the iOS operating system updates they were regularly installing on their devices could slow them down.
The slowdowns occurred on devices with older batteries that did not support the new operating system. The iPhone 6, SE, and 7 models were equally affected. Apple responded by stating that these updates were implemented to preserve the autonomy of the concerned devices, despite the wear of the batteries.
The DGCCRF asserted, however, that the issue was not the reduced performance of the affected devices, but rather Apple's failure to inform users of the consequences of the new operating system downloads. This behavior, according to the DGCCRF, constitutes, under French law, a misleading commercial practice by omission.
After securing the agreement of the Public Prosecutor, the DGCCRF offered to settle with Apple for a €25 million fine and publication of a statement on the company's website for one month.
The DGCCRF's Duties
The DGCCRF is a French administrative authority affiliated with the Ministry of the Economy. Its mission is to monitor the conditions under which companies carry out their activities, with a view towards ensuring the fairness of transactions vis-à-vis consumers. It has three core missions: regulating market competition, ensuring the economic protection of consumers, and maintaining consumer safety.
DGCCRF agents enjoy broad investigative powers in carrying out their mission and may, as such, access a company's premises and/or vehicles to collect information and documents.
Depending on the evidence, the DGCCRF can seek three types of sanctions:
- The suites pédagogiques, which may take the form of a simple warning, for minor offenses resulting either from a lack of knowledge of the law, or negligence in its application;
- The suites correctives, which may take the form of injunctions requiring companies to comply with French regulations, or a judge order requiring the cessation of the illicit practice; and
- The suites répressives, which may take the form of a civil penalty (e.g., a fine or the annulment of a contractual clause), or a criminal sanction, where the evidence collected during the DGCCRF's investigation is transmitted to the Public Prosecutor's Office for further proceedings.
Misleading Commercial Practices
The DGCCRF considers commercial practice misleading where material information needed by the consumer to make an informed transactional decision is omitted or provided in an unclear, unintelligible, ambiguous, or untimely manner (article L. 121-3 of the French Consumer Code).
This legislation covers practices that are implemented or that produce their effects in France. Therefore, companies incorporated abroad may also be subject to investigation.
Accordingly, omitting material information regarding a good or service may be categorized as a misleading commercial practice. In this context, an omission may be punished in the same way as a deliberate falsehood.
Under French law, companies engaging in misleading commercial practices are liable to a maximum of €1,500,000 fine, which may be increased, in proportion to the benefits obtained from the infringement, and can go as high as 10% of the company's average annual turnover.
Settlement as an Alternative to Criminal Prosecution
The so-called transaction pénale is a settlement mechanism that allows the accused to pay a sum of money in exchange for authorities agreeing to drop all criminal charges.
French administrative authorities may also enter into settlements where criminal proceedings have not yet been initiated. Provided it obtains the approval of the Public Prosecutor's Office, the DGCCRF may offer a settlement.
Originating from the United States, this method of amicable dispute resolution is now expanding in Europe, and particularly in France.
The conclusion of any such settlement bars prosecution, provided that the accused fulfills the obligations it undertakes under said settlement.
This settlement mechanism should not be confused with another French law mechanism called convention judiciaire d'intérêt public ("CJIP"), which allows legal entities to settle allegations of corruption, bribery, tax fraud, and laundering of tax fraud with the Public Prosecutor's Office. The CJIP is akin to the U.S. concept of a deferred prosecution agreement ("DPA").
One advantage of resorting to case settlement is the collection of large amounts of money by the relevant authorities, which allows the government to bypass lengthy legal proceedings.
Anticipating Similar Cases
While settling may bar criminal prosecution, it does not extinguish the possibility of civil action. Consumer associations may bring civil proceedings against a company notwithstanding the fact that it has already settled its criminal case with French authorities.
The Apple settlement opens the floodgates of a potential increase in consumer actions in France. Indeed, consumer associations are now aware that their complaints can result in large fines for companies. It is also worth noting that the consumer association that raised the initial complaint in the Apple case plans to lodge a number of additional consumer claims, encouraging consumers to come forward via an online form.
Three Key Takeaways
- French authorities are working together with consumer associations to track down abusive behaviors towards consumers. Where findings indicate that a criminal offense has occurred, the relevant information is transmitted to the Public Prosecutor's Office.
- To avoid the encumbrances of lengthy criminal proceedings and to boost government funds, French authorities do not hesitate to seek a settlement with legal entities. Given the often high amount of the fines incurred, companies are frequently encouraged to settle for more modest, if still substantial, sums of money.
- A commercial practice is misleading where material information needed by the average consumer to make an informed transactional decision is omitted or provided in an unclear, unintelligible, ambiguous, or untimely manner. As such, omitting material information regarding a good or service may be categorized as a misleading commercial practice.
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