Big Tech and Contract Law: Lessons from France

Reigning in the power exercised by the global tech giants is a goal being pursued by countries across the world, with the scope of regulation spanning across the realms of tax law, competition law, data privacy law and media law, among others, but with little to no focus being put on the use of contract law to prevent any potential abuse of power. At the same time, the French government has moved to dismantle big tech’s overwhelming economic power by invoking Article L442-1(I)(2) of the French Commercial Code (Code de commerce), establishing the civil liability of business operators for ‘subjecting or attempting to subject a business partner to obligations creating a significant imbalance in the rights and obligations of the parties’. This French norm on significant imbalance in business transactions has been qualified as an ‘overriding mandatory provision’ (loi de police) and imposed on international contracts under the Rome I Regulation on the law applicable to contractual obligations.

The latest story in the saga of France’s war against big tech manifested itself in the December 2022 decision of the Commercial Tribunal of Paris against Apple, which involved a dispute regarding rights of application developers which entered into a contractual relationship with Apple to make their applications available for download on Apple’s flagship App Store. The contours of this contractual relationship were defined by a standard ‘Program License Agreement’ or, after 2016, ‘Apple Developer Program License Agreement’, which the application developers were required to sign. The Parisian court held that six clauses in the standard contract caused a significant imbalance (déséquilibre significatif) in the commercial relationship between Apple and the application developers, and imposed a civil fine of approximately one million Euros on Apple.

While French courts have utilised the doctrine of significant imbalance, we believe that other countries can seek to replicate the same effect while operating within the contours of their respective domestic laws by (i) identifying pre-existing legal doctrines which can be used to prevent contractual unfairness and protect unsuspecting parties from adhering to an unfair bargain, which we term as ascertaining the shield; and thereafter (ii) incorporating the identified doctrine as an overriding mandatory provision under their domestic law, which we term as wielding the sword.

Ascertaining the shield

It is well accepted that the freedom of parties to enter into legally binding agreements is not absolute and is instead subject to certain restrictions which aim at avoiding the abuse of this freedom to the detriment of one or more of the parties to the contract. These restrictions often manifest themselves in the development of legal doctrines which can lend themselves to the protection of parties which are in a substantially weaker bargaining position and consequently accept a bargain which imposes unfair or oppressive terms. While these doctrines have distinct names ranging from unconscionability (commonly found in common law jurisdictions) to abusive clauses or lesion (commonly found in civil law jurisdictions) and slightly different legal characteristics (including their impact on the parties’ bargain), there are certain common threads running through these doctrines of contractual unfairness that allow us to group them together for the purposes of our analysis.

In this regard, reference can be made to Rodriguez-Yong’s identification of the common features between the doctrines of unconscionability and abusive clauses in the context of the legal systems prevalent in the United States and Colombia respectively. These features point to the fact that the doctrine should (i) arise as a consequence of an abuse of the right to contract; (ii) apply to agreements which have been drafted by only one of the parties (an hermeneutical rule known as contra proferentem); (iii) involve the drafting party possessing greater bargaining power in comparison to the party accepting the contract; and (iv) deal with the existence of gravely inequitable or unfair clauses in the contract. In fact, in a comprehensive study pertaining to the practices prevalent in different jurisdictions in dealing with such one-sided contracts, it was found that ‘the definitions of abusive clauses adopted across the world resemble each other on the main points’, which include one party being in a dominant position over the other and the existence of a grave imbalance with respect to the parties’ obligations under the contract.

Therefore, we believe that ascertaining the shield in the form of a legal doctrine which can be used to prevent such contractual unfairness should not be a tough exercise for most countries in light of the convergence across jurisdictions when it comes to legal tools aimed at protecting the weaker party from unfair contractual bargains. Having said that, both legislators and courts must concentrate on substance over form in their inquiry and should be careful not to conflate the identified doctrine with contractual defences such as duress, undue influence, and mistake, which strike at the root of consent to enter into the contract and differ from legal tools which protect weaker but nonetheless consenting parties to the contract.

Wielding the sword

When the application developers chose to enter into the contracts with Apple discussed in the previous section, the contract mentioned that it will be governed by and construed in accordance with the laws of the United States and the State of California—there was no indication of French law coming into the picture. Nonetheless, the court based its analysis of the jurisdictional question on Article L442-1(I)(2) of the French Commercial Code, characterising it as an overriding mandatory provision.

In essence, overriding mandatory provisions are rules of law—including statutory provisions and generally applicable legal principles—which apply regardless of the law chosen by the contracting parties to govern their agreement. Examples of such rules of law can be found in almost every legal system—some common ones include antitrust law, foreign exchange regulations, and certain consumer protection rules. While this broad understanding of mandatory overriding provisions can help us move past definitional issues, it is important to draw a distinction between these terms and the elusive concept of ‘public policy’. The overlap between mandatory overriding provisions and public policy is undeniable, with both legal conceptions being used by courts to prevent the application of the governing law chosen by contracting parties in order to protect the larger public interest. However, it is the distinction between the two which has received considerable academic attention. While some scholars distinguish between the two by characterising public policy as a philosophy and a mandatory overriding provision as a tool to express or protect the said philosophy, others assert that the difference is in their objective, with mandatory overriding provisions protecting fundamental public interest and public policy protecting a nation’s basic constitutional principles. In our opinion, these methods of differentiation are more theoretical than practical, especially for our limited purpose of ensuring the application of the identified legal doctrine even when the law chosen by the parties might not permit it. Accordingly, we prefer the more practical distinction offered by Adeline Chong: ‘the generally accepted dividing line between the two is that public policy operates negatively in that it involves the disapplication of the relevant applicable law, while [mandatory overriding provisions] operate positively in that they are superimposed onto the applicable law of the contract.’ The positive operation of mandatory overriding provisions is clear from the Apple case as well, where Article L442-1(I)(2) of the French Commercial Code was superimposed by the French court on the contract being examined by them.

Therefore, once the relevant legal doctrine or shield is identified by the courts or legislators, it must be expressly recognised as a mandatory overriding provision in the relevant legal system, such that it can be superimposed on any standard form contract promulgated by the big tech in order to serve its purpose as a sword meant to protect the general public interest. Lastly, while mandatory overriding provisions have been recognised in European legislative instruments such as the Rome I Regulation and the Rome II Regulation, dealing with the widespread power and influence of big tech is a global issue. Therefore, even though an analysis of comity is out of the scope of this article, we believe that the use of a common legal doctrine aimed at preventing contractual unfairness on the part of big tech would be in the interest of the international community at large, and perhaps steps can be taken to ensure greater international cooperation in this regard.

Matteo M. Winkler is an Associate Professor, CEMS Academic Director and Diversity Committee Co-Chair at HEC Paris.

Romit Kohli is an M&A Associate at Khaitan & Co LLP. He is qualified to practice Indian law. The views expressed in this article are personal and do not constitute legal or professional advice of Khaitan & Co LLP.