Apple iPhone article and Third-Line Forcing
It's taken me a while to get around to blogging this, because I've been sick as the proverbial dog for the past week -- which is unfortunate, because the media has been going slightly nuts over a journal article of mine which was recently published in the QUT Law and Justice Journal.
Some of the reporting of the article has been less than entirely accurate. News Limited, in their wisdom, have awarded me an honorary doctorate. ("The finding comes from an analysis of the iPhone under Australia's competition laws by Dr Clapperton and fellow QUT law expert Professor Stephen Corones"). I'm not exactly comfortable with them describing me as a 'fellow law expert' with someone as eminent as Professor Corones, either. I am but a 'umble research peon.
The Australian Personal Computer piece is better than most of the coverage, because they actually read the article instead of parroting a story which was distributed on the AAP wire.
Professor Joshua Gans in his blog seems less than impressed with our article. Which is fine, I wasn't expecting everybody to agree with it, but I think he may have missed one of the important points of our article. Professor Gans writes:
A very simplistic explanation of third-line forcing is where a company (Apple) won't sell you something that you want (an iPhone) unless you buy something else (which you may or may not want) from somebody else (who you may or may not want to deal with, like AT&T, or Telstra). So if Apple doesn't sell the iPhone, they're off the hook, right? Not necessarily. Third-line forcing usually involves two contracts -- one between the consumer and each supplier. If Telstra sell the iPhone, and it's technologically tied to Telstra's services, there's no contract with Apple, right?
Wrong. There's the EULA for the iPhone software, which is expressly a contract between Apple and the end-user ("The software ... are [sic] licensed, not sold, to you by Apple Inc.").
The TPA deals with third-line forcing in ss 47(6) [supply on condition] and (7) [refusal to supply unless condition agreed to]. The legislation talks in terms of 'supply' of goods or services. A software licence almost certainly falls within the TPA definition of 'services'.
So, if Apple:
And yes, Professor Gans correctly makes the point that Apple could try and obtain permission (technically, an exclusive dealing notification) from the ACCC. Actually obtaining that permission is not a given. I think that the ACCC might well object, which they can do if they are not satisfied that the public benefits of the third-line forcing would outweigh the public detriment, and I think that balance would be weighing against Apple.
Anyhow, I encourage people to read the article and make up their own mind.
Some of the reporting of the article has been less than entirely accurate. News Limited, in their wisdom, have awarded me an honorary doctorate. ("The finding comes from an analysis of the iPhone under Australia's competition laws by Dr Clapperton and fellow QUT law expert Professor Stephen Corones"). I'm not exactly comfortable with them describing me as a 'fellow law expert' with someone as eminent as Professor Corones, either. I am but a 'umble research peon.
The Australian Personal Computer piece is better than most of the coverage, because they actually read the article instead of parroting a story which was distributed on the AAP wire.
Professor Joshua Gans in his blog seems less than impressed with our article. Which is fine, I wasn't expecting everybody to agree with it, but I think he may have missed one of the important points of our article. Professor Gans writes:
The only serious legal issue might come in relation to Third Line Forcing which says that one company cannot sell a product that makes it a condition of sale that the consumer purchase a product from another company. However, Apple need only sell the iPhone through a carrier's retailers and it is likely to be fine. In any case, it can obtain permission from the ACCC for any arrangement it might propose.At page 362-3 of our article, we advance what is, so far as we know, a novel argument that Apple may still engage in third-line forcing regardless of whether the phone is only sold through a carrier's retailers or not.
A very simplistic explanation of third-line forcing is where a company (Apple) won't sell you something that you want (an iPhone) unless you buy something else (which you may or may not want) from somebody else (who you may or may not want to deal with, like AT&T, or Telstra). So if Apple doesn't sell the iPhone, they're off the hook, right? Not necessarily. Third-line forcing usually involves two contracts -- one between the consumer and each supplier. If Telstra sell the iPhone, and it's technologically tied to Telstra's services, there's no contract with Apple, right?
Wrong. There's the EULA for the iPhone software, which is expressly a contract between Apple and the end-user ("The software ... are [sic] licensed, not sold, to you by Apple Inc.").
The TPA deals with third-line forcing in ss 47(6) [supply on condition] and (7) [refusal to supply unless condition agreed to]. The legislation talks in terms of 'supply' of goods or services. A software licence almost certainly falls within the TPA definition of 'services'.
So, if Apple:
- Supply you with services (the licence to use the iPhone software);
- On the condition that you acquire services from somebody else (the carrier that's paying them kickbacks)
And yes, Professor Gans correctly makes the point that Apple could try and obtain permission (technically, an exclusive dealing notification) from the ACCC. Actually obtaining that permission is not a given. I think that the ACCC might well object, which they can do if they are not satisfied that the public benefits of the third-line forcing would outweigh the public detriment, and I think that balance would be weighing against Apple.
Anyhow, I encourage people to read the article and make up their own mind.
Some thoughts off the top of my head. Key issue on the 3LF stuff will be compulsion (Northrop J was right in SWB Family Credit, I reckon). Depending on how it is structured, the EULA may be entered into by Apple, and the relevant licence thereby granted, whether or not you actually acquire carrier services (as in the US). Yes, the phone won't operate as a phone, but it will otherwise operate (eg. via WiFi). So no actual element of futurity or compulsion. Davies J (Tepeda) has a lot to answer for here! If you are right, it suggests that all sales of hardware that also contains EULA-governed software fall within 3LF, since 47(6)/(7) requires only "another person", not a particular person (such as a nominated carrier), and that person would be the hardware vendor. Would be interested to know your thoughts.
Cheers
BBB