Landmark US antitrust case against Apple ‘is not a slam dunk’

“We allege that Apple has maintained monopoly power in the smartphone market, not simply by staying ahead of the competition on the merits, but by violating federal antitrust law,” said Attorney General Merrick B Garland in a statement. “If left unchallenged, Apple will only continue to strengthen its smartphone monopoly. The Justice Department will vigorously enforce antitrust laws that protect consumers from higher prices and fewer choices. That is the Justice Department’s legal obligation and what the American people expect and deserve.”

In particular, the complaint spells out five key areas in which the plaintiffs allege that Apple engaged in anti-competitive behavior:

Hamstringing so-called ‘super apps,’ or apps with integrated and extensive functionalities that would enable consumers to seamlessly switch between competing smartphone platforms

Thwarting mobile cloud streaming apps and services, denying consumers access to high-quality video games and other cloud-based applications without costly smartphone hardware

Inhibiting cross-platform messaging apps by undermining the quality, innovation and security of rival cross-platform messaging applications, compelling users to stay loyal to iPhones

Degrading the functionality of non-Apple smartwatches, thereby imposing significant additional costs on consumers who would choose Apple Watch alternatives

Barring third-party digital wallets from offering tap-to-pay functionality on Apple devices and, as a result, hindering the development of cross-platform third-party wallets

In its complaint, the DOJ and state attorneys general urge the court to bar Apple from undercutting cross-platform technologies, including ‘super apps,’ streaming services, messaging, smartwatches and digital wallets.

Plaintiffs also seek to prevent Apple from leveraging private APIs to stymy cross-platform tools and aim to ensure that the tech titan can’t use the terms and conditions of contracts with developers and other parties to do so. Additionally, they aim to restrain Apple from utilizing the terms and conditions of its contracts with developers, accessory makers, consumers, or any other parties to “obtain, maintain, extend, or entrench a monopoly.”

Apple says it will fight the charges. In a statement, the organization said: “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets. It would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology. We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it.”

It’s not the first time the company – which has the second-highest market cap of any company on earth – has been the subject of antitrust scrutiny over its App Store policies. In the US, Epic Games, the maker of popular titles including Fortnite and ZZT, filed a case against the tech giant in 2020 over its App Store fees, which require that developers fork over 30% of all in-app purchases to Apple. The case was mostly decided in Apple’s favor but required the company to allow developers to inform users about other payment systems available within apps.

In Europe, meanwhile, Apple has been an antitrust magnet – as recently as this month, when the company was slapped with a $2bn fine for violating antitrust laws related to music streaming.

Identifying potential gaps in the case

Despite the breadth of the DOJ’s new complaint against Apple, some competition and media experts believe the case lacks weight.

“The case is by no means a slam dunk,” says Dr Erik Hovenkamp, an associate professor at USC’s Gould School of Law, whose research focuses on antitrust and economics. “Most antitrust violations involve anti-competitive contracts or mergers, but much of this case focuses on the design of the iPhone. Judges are usually very reluctant to scrutinize the design of a product unless it’s really clear that certain design elements serve no purpose other than to restrain competition.”

However, it’s plausible that Apple could justify the reasons behind some of its restrictive designs to a judge – likely on the basis of user safety and privacy. In recent years, the company has made significant changes to its operating system that aim to improve users’ data privacy and limit non-consensual tracking of users across apps.

But another concern about the case’s strength is raised by Lazar Radic, a professor of law and a senior scholar of competition policy at the International Center for Law & Economics. The case “seems slightly outdated,” Radic says.

In particular, he suggests that some of the issues raised by the plaintiffs appear to have been recently remedied. “One example is the cloud services complaint, which is accusing Apple of suppressing mobile cloud streaming services. Apple changed its policy on [cloud gaming services] earlier this year, to an extent that would address this [concern].”

Apple has also already moved to address concerns about messaging system interoperability. The company announced in November that it will begin supporting standard Rich Communication Services (RCS) in late 2024, which will improve communication between Androids and iPhones.

The DOJ, in its complaint, would seem to be grasping at straws on this front, Radic suggests. “The DOJ’s complaint is that the color of the text bubbles is different, which disadvantages Android [users]. Apple did address … the downgraded experience when messaging non-iPhone phones. But the DOJ seems to be saying that that’s not enough because having different colors for the bubbles of text still disadvantages non-iPhone users.”

It’s worth noting that Apple has made some concessions in the EU that it has not yet made in the US market. In January, as part of an effort to resolve another antitrust complaint levied by the European Commission, the company told regulators that it would allow tap-to-pay via third-party payment services.

It’s clear that the DOJ doesn’t believe all of its concerns about App Store controls have been adequately addressed by the device maker.

In addition to what Radic deems “outdated” complaints, others have pointed out that the DOJ’s case omits a handful of concerns that have been at the heart of other antitrust suits against Apple.

Eric Seufert, an analyst at mobile marketing firm Mobile Dev Memo, notes in a post on X that the case fails to highlight Apple’s unwillingness to allow sideloading and alternative app marketplaces on its devices. It also makes only peripheral mention of developer fees – the 30% commission that served as the crux of Epic Games’ complaint against the company. In Seufert’s telling, most of the issues spotlighted in the case are “trivial.”

A cursory read of the DoJ's complaint: these issues are all fairly trivial, and addressing them wouldn't impact iOS' general market position. Alternative app stores, sideloading, and the App Store commission aren't raised. (1/X) pic.twitter.com/N3NE34mOvv

— Eric Seufert (@eric_seufert) March 21, 2024

For these and other reasons, many experts see a challenging path ahead for the DOJ and the associated state attorneys general.

“The DOJ is taking its talking points about the dangers of big tech from the media to the courtroom,” says Daniel Castro, vice-president at the nonprofit think tank the Information Technology and Innovation Foundation. “While its antitrust arguments have won over some academics, there is a much higher bar in the courtroom. Unless it has evidence and the law on its side, the DOJ will lose. Epic learned this lesson when it lost its lawsuit against Apple.”

Regardless of the case’s final outcome, Castro says, the pressure is likely to force Apple to make some changes. “Any company that comes under this level of scrutiny will have to take another look at its practices,” he says. “There might be some small changes at the margins, but Apple will likely hold tightly to its successful business model.”

Developers, publishers & advertisers hold their breath

Despite the ambiguity of the DOJ’s path forward, developers, publishers and advertisers will be on alert at this stage, as they have a lot hanging in the balance.

Namely, should Apple be forced to change its policies surrounding third-party technology – or even eventually be required to enable sideloading or alternative app stores – the privacy-focused system changes it’s made in recent years could be upended.

As Radic puts it: “The thing with Apple is its walled garden ecosystem insists a lot on safety and privacy. So, allowing interoperability with third-party apps and third-party hardware always has an inherent risk in their view. And often, the courts have agreed with them, [as in the case of the Epic Games suit].”

Such an upheaval, though a remote possibility at this stage, would likely prove valuable for publishers and advertisers, who would be allowed to collect and exchange more data about users for the sake of behavioral targeting.

For example, “When somebody subscribes to a newspaper through Apple, and they use the in-app payment system, the publisher gets very little information about the consumer,” says Chris Pedigo, senior vice-president for government affairs at Digital Content Next, a digital media trade body. “It’s just highly dysfunctional for the publisher and for the consumer – they’ve decided to engage with this publisher, they value that content and they value that relationship, and yet, the publisher doesn’t have a way to really remember who they are across different devices to be able to offer them better pricing, greater flexibility [or market to them in ways] that you would expect would come with that more intimate relationship. Apple prevents all of that.”

A path riddled with hurdles

For now, it’s too early to predict with any degree of precision how the case will shake out. But experts are, in general, skeptical that the DOJ has a shoo-in with this one.

“This is going to take a long time. It’s been a long campaign [on the DOJ’s part]. They’re comparing it to [the landmark 2001] Microsoft case, and Microsoft took a long time,” says Radic. “Of course, it’s a bit of PR [to make that comparison]. But they’re going to have to show that Apple is a monopoly on its own phones – and not all smartphones, [based on the relevant definition of the market in this case]. First, they have to show that. Then, they have to show that Apple is actively degrading alternative hardware and apps … and doing so in a way that harms consumers and competition. So if they can prove all of that, and if Apple can raise no cognizable efficiencies defense … then they might have a case.”

At this point, the DOJ has a long road ahead of it, in Radic’s estimation. “There are factual, there are legal, there are economic things that have to be proven, and then Apple can potentially claim efficiencies to justify its conduct. I’m not sure how likely this is to succeed. It doesn’t seem like the strongest case.”

For more, sign up for The Drum’s daily newsletter here.