Australian Competition and Consumer Commission v Apple Pty Ltd

Introduction 1 This proceeding is brought by the applicant (the ACCC) against Apple Pty Ltd (Apple Australia), an Australian company, and Apple Inc (Apple US), a United States of America corporation. 2 The ACCC has served the originating application and its concise statement (the Court Documents) on Apple Australia. In relation to Apple US, although the Court Documents have been provided to a senior lawyer at Apple US, Apple US has not provided an address for service in Australia. Accordingly, the ACCC seeks leave to serve the Court Documents out of the jurisdiction, on Apple US in the United States of America. 3 For the following reasons, it is appropriate to give the ACCC leave to serve the Court Documents out of the jurisdiction on Apple US.

Overview of the ACCC's case 4 The ACCC's case against Apple Australia and Apple US is set out in the ACCC's concise statement. 5 By way of background, the ACCC alleges that: Apple US manufactures and supplies iPhone and iPad devices and software known as 'iOS' (including periodic updates to that software); the iOS software is essential to the functioning of iPhones and iPads, as the devices cannot operate without it; Apple Australia imports and supplies in Australia iPhones and iPad devices with the iOS software pre-installed; Apple Australia provides after-sales support in respect of iPhone and iPad devices and the iOS software through its 'Apple' stores in Australia; and Apple Australia also operates a telephone and online support service for consumers in Australia. It is also alleged that Apple US is the ultimate parent company of Apple Australia. 6 The substance of the ACCC's claims against Apple Australia and Apple US is set out in paragraphs 8 to 25 of the concise statement, which are as follows: iOS Error 53 software fault conduct 8. From about September 2014 to at least February 2016, some iPhone and/or iPad users experienced a fault, commonly known as "Error 53", which rendered their iPhones or iPads inoperable (the Error 53 software fault). 9. The Error 53 software fault occurred when those iPhone or iPad users attempted to update the iOS software on their device by connecting their device to Apple iTunes through a personal computer. 10. On or about 17 September 2014, Apple US supplied the iOS software update known as iOS8 to consumers in Australia. 11. On or about 16 September 2015, Apple US supplied the iOS software update known as iOS9 to consumers in Australia. 12. Apple US represented that iOS8 and iOS9 would improve the functionality and performance of iPhones and iPads. 13. When the iPhone or iPad users downloaded, and attempted to install, iOS8 or iOS9 on their device by connecting it to Apple iTunes through a personal computer, an error message appeared on Apple iTunes stating that the device could not be restored, and the device had stopped functioning. This occurrence was commonly referred to as "bricking". 14. The Error 53 software fault occurred where, as part of the iOS software installation process, a change was detected in the connection between the "Touch ID" (a fingerprint recognition component of the device) and other components of the device. 15. Many consumers who experienced the Error 53 software fault sought after-sales support from Apple Australia, through its retail stores and/or the telephone support service, and requested a remedy for their bricked iPhones and iPads. 16. Between February 2015 and February 2016, Apple Australia represented to at least the consumers listed in Annexure A and Annexure B that, if a component of their iPhone or iPad had previously been repaired, serviced or replaced by someone other than Apple Australia or a service provider authorised by Apple Australia or Apple US (Apple­Authorised Service Provider), no Apple entity (including Apple Australia and Apple US) was required to, or would, provide a remedy for the Error 53 software fault at no cost (the Error 53 Software Fault Representations). 17. From at least 21 December 2015 to about February 2016, Apple US published a webpage with the address https://support.apple.com/en-au/HT205628 and titled "If you see error 53 or can't update or restore your iPhone or iPad": If the screen on your iPhone or iPad was replaced at an Apple Service Centre, Apple Store, or Apple Authorized Service Provider, contact Apple Support. If the screen or any other part on your iPhone or iPad was replaced somewhere else, contact Apple Support about pricing information for out-of-warranty repairs. 18. By the conduct in paragraph 17 above, Apple US represented to consumers in Australia with iPhones and iPads affected by the Error 53 software fault that, if a component of their device had previously been repaired, serviced or replaced by someone other than Apple Australia or an Apple-Authorised Service Provider, no Apple entity (including Apple Australia and Apple US) was required to, or would, provide a remedy relating to the Error 53 software fault at no cost (the Error 53 Software Fault Website Representation). 19. In around February 2016, Apple US released an iOS software update which, if downloaded and installed by consumers whose iPhones and iPads had been bricked as a result of the Error 53 software fault, restored the functionality of the device. Other refusal to remedy conduct 20. In addition to the consumers who experienced the Error 53 software fault, some consumers with iPhones experienced faults relating to a component of their iPhone, which led Apple US to initiate recall programs for the affected iPhones, conducted in Australia through Apple Australia. 21. Some of these consumers sought after-sales support from Apple Australia, through its retail stores and/or the telephone support service, and requested a remedy for the fault. 22. In each of the three instances listed in Annexure C, Apple Australia represented to the consumer that, if a component of their iPhone had previously been repaired, serviced or replaced by someone other than Apple Australia or an Apple-Authorised Service Provider, no Apple entity (including Apple Australia and Apple US) was required to, or would, remedy the fault with their iPhone at no cost (the Recall Representations). Conduct in response to telephone calls from the ACCC 23. As part of its investigation of the Error 53 software fault, in or about June 2016, officers of the ACCC telephoned the 13 retail stores operated by Apple Australia listed in Annexure D to make an inquiry about a defective iPhone. 24. In each call, the ACCC caller told the Apple Australia representative(s) responding to the call that: (A) the screen of the iPhone had been replaced by someone other than Apple Australia or an Apple-Authorised Service Provider; and (B) a fault had later developed with the speaker component of the iPhone. 25. In each call, Apple Australia represented to the ACCC caller that no Apple entity (including Apple Australia and Apple US) was required to, or would, remedy the defective speaker at no cost under the ACL if the screen of the iPhone had been replaced by someone other than Apple Australia or an Apple-Authorised Service Provider (the ACCC Representations). 7 The ACCC alleges that the respondents engaged in conduct that was misleading or deceptive (or likely to mislead or deceive) in contravention of s 18 of the Australian Consumer Law (being Sch 2 to the Competition and Consumer Act 2010 (Cth)). The ACCC also alleges that, in connection with the supply of goods or services, the respondents made false or misleading representations as to the existence, exclusion or effect of guarantees, rights and remedies, in contravention of s 29(1)(m) of the Australian Consumer Law. 8 The way in which the conduct is said to have contravened those provisions is set out in paragraphs 27 to 29 of the concise statement, which are in the following terms: 27. The Error 53 Software Fault Representations and the Error 53 Software Fault Website Representation were misleading or deceptive, likely to mislead or deceive and/or false because: (a) the iOS8 and iOS9 software updates supplied to consumers in Australia were subject to consumer guarantees under Part 3-2 of the ACL, including the guarantees in ss 54 and 55, which required that they be goods of acceptable quality and be reasonably fit for the purposes for which Apple US represented they were reasonably fit; (b) the iOS8 and iOS9 software updates, when downloaded to a consumer's iPhone or iPad in the circumstances described in paragraphs 8 to 14 above, caused those devices to cease functioning; and (c) accordingly, the consumers whose devices ceased functioning because of the Error 53 software fault were entitled to a remedy from Apple US under Part 5-4 of the ACL. 28. The Error 53 Software Fault Representations and the Error 53 Software Fault Website Representation were also misleading or deceptive, likely to mislead or deceive and/or false because the mere fact that a component of the iPhone and/or iPad devices had been serviced, repaired or replaced by someone other than Apple Australia or an Apple­Authorised Service Provider, did not, and could not, result in: (a) the consumer guarantees under Part 3-2 of the ACL ceasing to operate in respect of those devices or the software on those devices; or (b) the right to any remedy under Part 5-4 of the ACL being extinguished. 29. The Recall Representations and ACCC Representations were misleading or deceptive, likely to mislead or deceive, and/or false because the mere fact that a component of the iPhone devices had been serviced, repaired or replaced by someone other than Apple Australia or an Apple-Authorised Service Provider, did not, and could not, result in: (a) the consumer guarantees in Part 3-2 of the ACL ceasing to operate in respect of those devices or the software on the devices; or (b) the right to any remedy under Part 5-4 of the ACL being extinguished. 9 The ACCC also alleges that certain conduct of Apple Australia was engaged in on its own behalf and as the agent of Apple US.

Applicable principles 10 Rule 10.43 of the Federal Court Rules 2011 relevantly provides: (2) A party may apply to the Court for leave to serve an originating application on a person in a foreign country in accordance with a convention, the Hague Convention or the law of the foreign country. (3) The application under subrule (2) must be accompanied by an affidavit stating: (a) the name of the foreign country where the person to be served is or is likely to be; and (b) the proposed method of service; and (c) that the proposed method of service is permitted by: (i) if a convention applies - the convention; or (ii) if the Hague Convention applies - the Hague Convention; or (iii) in any other case - the law of the foreign country. (4) For subrule (2), the party must satisfy the Court that: (a) the Court has jurisdiction in the proceeding; and (b) the proceeding is of a kind mentioned in rule 10.42; and (c) the party has a prima facie case for all or any of the relief claimed in the proceeding. 11 Rule 10.42 relevantly provides: Subject to rule 10.43, an originating application, or an application under Part 7 of these Rules, may be served on a person in a foreign country in a proceeding that consists of, or includes, any one or more of the kinds of proceeding mentioned in the following table. … 1 Proceeding based on a cause of action arising in Australia … 12 Proceeding based on a contravention of an Act that is committed in Australia … 15 Proceeding seeking any relief or remedy under an Act, including the Judiciary Act 1903 12 Rule 10.44 relevantly provides: (1) A party may apply to the Court for leave to serve a document filed in or issued by the Court, other than an originating application, on a person in a foreign country in accordance with a convention, the Hague Convention or the law of the foreign country. … (2) An application under subrule (1) must be accompanied by an affidavit that includes the information mentioned in paragraphs 10.43(3)(a) to (c). 13 Rule 10.43(4)(c) refers to the party having a prima facie case for all or any of the relief claimed in the proceeding. This requirement has been described as "not particularly onerous": Australian Competition and Consumer Commission v Yellow Page Marketing BV [2010] FCA 1218 (Yellow Page Marketing) at [25] per Gordon J. In Australian Competition and Consumer Commission v April International Marketing Services Australia Pty Ltd (No 6) (2010) 270 ALR 504, Bennett J said in relation to the predecessor provision (at [8]): Establishing a prima facie case for the relief claimed for the purposes of O 8 r 3(2) of the FCR should not call for a substantial inquiry. A prima facie case is made out where, upon a broad examination rather than an intense scrutiny of the material before the court, inferences are shown to be open which, if translated into findings of fact, would support the relief claimed: Western Australia v Vetter Trittler Pty Ltd (in liq) (rec and mgr apptd) (1991) 30 FCR 102 at 110; 4 ACSR 795 at 802-3 per French J; Sydbank Soenderjylland (A/S) v Bannerton Holdings Pty Ltd (1996) 68 FCR 539 at 549; 149 ALR 134 at 142-3; the Full Court in F Hoffman-La Roche at [17] and [96]-[97] per Carr J. The relevant question was put in the following terms by Lee J in Century Insurance (in prov liq) v New Zealand Guardian Trust Ltd [1996] FCA 376, a formulation approved by the Full Court (in Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159 at [10] (Ho)): What the court must determine is whether the case made out on the material presented shows that a controversy exists between the parties that warrants the use of the court's processes to resolve it and whether causing a proposed respondent to be involved in the litigation in the court in Australia is justified. 14 The applicant need only show a prima facie case in respect of part of, rather than the entirety of, its claim: Yellow Page Marketing at [25]. 15 The Court has residual discretion to refuse leave to serve out even if the requirements of the above rules have been met: Jasmin Solar Pty Ltd v Trina Solar Australia Pty Ltd (2015) 331 ALR 108 at [66] per Edelman J and cases there cited.

Application of principles to the present case 16 I will start with r 10.43(3), which requires the application for leave to serve out to be accompanied by an affidavit setting out certain matters. In the present case, the application is supported by an affidavit of Daniel John Marquet dated 19 April 2017 and an affidavit of Gerard Mark O'Shaughnessy of the same date. These affidavits set out the required matters. It is proposed to serve the Court Documents in the USA. The proposed method of service is to use a private service agent retained through a firm of lawyers based in San Francisco. The affidavits state that the proposed method of service is permitted by the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters done at the Hague on 15 November 1965 (the Hague Convention) (to which Australia and the USA are parties) and conforms with the California Code of Civil Procedure. 17 Turning then to the requirements of r 10.43(4), I am satisfied that each of these requirements is established. First, the Court has jurisdiction in the proceeding. This is conferred by s 138 of the Competition and Consumer Act and s 21 of the Federal Court of Australia Act 1976 (Cth). Secondly, the proceeding is of a kind mentioned in r 10.42. In particular, it is of a kind mentioned in items 1, 12 and 15 of r 10.42. 18 Thirdly, in my view, the ACCC has a prima facie case for the relief claimed against Apple US in the proceeding. There are two aspects to the case brought by the ACCC against Apple US. The first aspect concerns an alleged false or misleading representation by Apple US on the Apple website. The relevant text, which appeared on a page headed "If you see error 53 or can't update or restore your iPhone or iPad", was as follows: If you got your screen or other parts replaced If the screen on your iPhone or iPad was replaced at an Apple Service Centre, Apple Store, or Apple Authorized Service Provider, contact Apple Support. If the screen or any other part on your iPhone or iPad was replaced somewhere else, contact Apple Support about pricing information for out-of-warranty repairs. 19 The ACCC alleges that the above text was false or misleading because it did not refer to the consumer guarantees and rights and remedies available under the Australian Consumer Law. In circumstances where the software update caused the customer's iPhone or iPad to become inoperable, it is said that these consumer guarantees and rights and remedies likely applied, and therefore that the customer was entitled to have the problem resolved without payment, regardless of whether he or she had previously had the screen or another part replaced by someone other than Apple or an Apple-authorised service provider. It appears from the affidavit material that Apple US is responsible for operating and publishing content on the relevant website page for Apple Australia. In these circumstances, I am satisfied that the ACCC has a prima facie case against Apple US in relation to the statement on the website page. 20 The second aspect of the ACCC's case against Apple US is as follows. It is alleged that Apple US is liable for certain conduct of Apple Australia on the basis that Apple Australia engaged in the relevant conduct both on its own behalf and on behalf of Apple US. In this regard, it appears from the affidavit material that Apple US is the licensor and supplier of the iOS8 and iOS9 software to consumers in Australia. This may support an inference that, in responding to customers seeking support in relation to the software update, Apple Australia was acting on behalf of Apple US as well as on its own behalf. Consistently with the authorities referred to above, I consider there to be at least a prima facie case in respect of this aspect. The preconditions for making an order for service out of the jurisdiction are therefore established. 21 In my view, it is appropriate in the circumstances to make such an order. The allegations against the respondents are closely intertwined. It is desirable that the claims against both respondents proceed together in the one proceeding. Moreover, a controversy exists that warrants the use of the Court's processes to resolve it and justifies the involvement of the foreign respondent. 22 Accordingly, it is appropriate to grant leave to the ACCC to serve the Court Documents on Apple US in the United States of America in accordance with the Hague Convention and the California Code of Civil Procedure. Subject to consideration of the next issue, I will make an order to this effect.

Substituted service 23 The ACCC also sought an order for substituted service pursuant to r 10.24 of the Federal Court Rules. This rule provides, in brief, that where it is not practicable to serve a document on a person in a way required by the Rules, a party may apply to the Court for an order substituting another method of service. Where an order for substituted service is sought in respect of a party outside Australia, the applicant must first satisfy the Court that an order for service out should be made: Commissioner of Taxation v Zeitouni (2013) 306 ALR 603 at [24]-[32]. Whether or not the form of service required by the Federal Court Rules will be "not practicable" must be determined in the factual context of the case: Zeitouni at [74], [83]; Australian Competition and Consumer Commission v Valve Corporation [2014] FCA 1018 at [8]. 24 The ACCC seeks an order for substituted service such that the Court Documents be taken to have been served on Apple US by sending copies of these documents by email to Mr Scott Murray, Senior Legal Counsel, Commercial Litigation of Apple US, at his email address. In fact, this has already occurred, and Mr Murray has acknowledged receipt of the documents. 25 In my view, it is not demonstrated that it is "not practicable" to serve the documents on Apple US in a way required by the Federal Court Rules, and thus the power to make an order for substituted service is not enlivened. The ACCC in its submissions concedes that "it is likely that service can be completed in accordance with the Hague Convention and the Code".

Conclusion 26 For these reasons, I will grant leave to the ACCC to serve the Court Documents on Apple US in the United States of America. [Further discussion ensued as to the form of orders] I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.