Farukh Kitchlew | Dec 6, 2023 | 0
Apple and Amazon Fined $218M: ‘Brand Gating’ in Spain
Two of the world’s most prominent tech giants, Apple and Amazon, have been fined $218 million by the Spanish authorities for alleged ‘brand gating’ practices. The penalty, resulting from an antitrust investigation, raises concerns over the companies’ dominance in the market and their potential violation of fair competition principles. In this article, we delve into the intricacies of the case and explore its implications on the global tech landscape.
The Spanish antitrust authorities initiated an investigation into the practices of Apple and Amazon amid concerns that these companies were engaging in ‘brand gating.’
What is brand gating?
“Brand gating refers to a strategy employed by sellers and retailers to control the distribution of branded products on their platforms, often intending to restrict competition and inflate prices.”
In the case of Apple and Amazon, it was alleged that both companies imposed strict contractual obligations on third-party sellers, demanding them to adhere to specific terms and conditions to access their respective marketplaces. These restrictions included minimum pricing requirements, limited product distribution, and stringent criteria for product eligibility, creating significant barriers for potential competitors and limiting consumer choices.
Italy Fines Amazon and Apple $230M for alleged collusion.
In November 2021, Italy’s competition watchdog dealt a significant blow to tech giants Amazon and Apple, imposing a substantial $230 million fine on the companies for alleged collusion. The investigation centered around reselling Apple and Apple-owned Beats products on Amazon’s platform, raising concerns over anti-competitive practices in the market. Both companies have expressed their intent to appeal the decision.
The Italian Competition Authority initiated the investigation based on suspicions that Amazon and Apple colluded, limiting competition and hindering other sellers’ access to their respective marketplaces. The alleged conspiracy took place through contracts signed locally in October 2018, which contained clauses referred to as “brand gating” or exclusion clauses.
Brand Gating and Its Impact
The essence of the allegations lies in the brand-gating practices exercised by Amazon and Apple through these contracts. The companies reportedly agreed that only a specific set of distributors designated by Apple would be allowed to sell Apple-branded products on Amazon’s platform in Spain. This exclusionary arrangement led to the exclusion of more than 90% of Apple product resellers utilizing Amazon’s website as their primary local sales channel for electronics in Spain.
The resulting Penalty
Following a thorough investigation, Italy’s antitrust watchdog, the Competition and Market Authority (CNMC), found compelling evidence to support the allegations. Consequently, the watchdog imposed a substantial $230 million fine on Amazon and Apple. This hefty penalty serves as a stern warning against anti-competitive practices and reflects the gravity of the offense.
Appeal and Implications
Amazon and Apple vehemently denied any wrongdoing and intended to appeal the decision. The appeal process will involve a rigorous examination of the evidence and arguments presented by the companies to contest the findings.
The outcome of this appeal holds significant implications for the tech industry as a whole. Depending on the result, it may either reaffirm the Italian watchdog’s stance on fair competition or signal potential adjustments to the regulations governing the activities of dominant tech players in the market.
$230M Fine: Apple and Amazon’s Collusion and Reseller Restrictions
The CNMC found that the contract changes impacted unauthorized resellers of Apple products on Amazon, who offered more competitive prices. This led to increased prices for consumers purchasing Apple products on Amazon Spain.
The contractual restrictions limited trade between EU countries and reduced competition for Apple in Spain. Marketing limitations prevented Amazon from running ad campaigns targeting customers who purchased Apple products, further reducing competitive pressure.
The CNMC highlighted the negative impact on consumers, limiting their access to alternative products and increasing search costs. The 2018 contract violated Spanish competition law by restricting intra-brand and inter-brand competition.
Apple and Amazon can appeal the CNMC’s decision to the national court within two months, and both companies confirmed their intention to do so. Apple defended the 2018 agreements, citing their efforts to address counterfeit goods and safety issues on Amazon’s marketplace. They claim that the agreement significantly reduced fake sales and improved the customer experience.
While Apple justified the limitation on using marketplaces to protect customers and ensure a premium experience, it did not explain the clauses restricting Amazon’s marketing of rival electronics products.
According to the company’s statements, the 2018 contract positively affected Spanish consumers. They asserted that the agreement led to an expanded range of Apple products on Amazon’s marketplace and significantly increased sales for new products.
Amazon further supported these claims, stating that more Apple products were eligible for fast-track shipping after the implementation of the contract. Additionally, the company highlighted that discounts on iPhone models increased by an average of 6 percentage points in the second and third years following the agreement. In contrast, discounts on iPad models rose by an average of 7%-8% during the same period.
The $218 million fine levied against Apple and Amazon in the Spanish antitrust finding for ‘brand gating’ is a significant development reverberating across the tech industry. The case raises vital questions about fair competition, market dominance, and the role of antitrust regulations in the digital age.
As the matter proceeds to the appeals process and garners attention from regulators worldwide, it is evident that the implications of this ruling extend beyond just Apple and Amazon. This case serves as a stark reminder to all companies operating in the tech sector to carefully review their business practices to ensure compliance with antitrust laws and maintain a level playing field for all market participants.