Julie Clover
On March 21, the US Department of Justice sued Apple for violating antitrust laws, ending a years-long investigation into Apple's business practices. The US government is also investigating antitrust cases against Google, Amazon and Meta as part of its scrutiny of the practices of big tech companies.
Apple plans to “vigorously defend” against a Justice Department lawsuit that seeks to fundamentally change the way Apple operates. This will be a legal battle that will span several years, and we will update this guide with the latest news as the case develops.
DOJ Claims
The Justice Department's lawsuit against Apple is broad in scope, and rather than focusing on one or two issues, it seeks to establish a long history of anticompetitive behavior. The Justice Department is trying to establish a pattern of business decisions that stifle competition. The DOJ alleges that Apple has time and again chosen to “degrade the quality of its products for consumers in order to prevent competition.”
According to the DOJ, Apple has “hooked” consumers onto its platform through these choices because making it unreasonably difficult for buyers to switch to another brand of smartphones. It doesn't take into account customer preferences or the idea that people simply like their iPhones – the DOJ is positioning Apple as a monopolist that manipulates people into sticking with its ecosystem by blocking competing apps, services and products.
Suppressing technologies
While the full lawsuit details a long list of ways Apple allegedly harmed consumers, the DOJ cites five specific examples of Apple's blocking technologies that it claims will reduce barriers to switching and provide consumers with “a better user experience on any smartphone.”
The Department of Justice believes that if Apple had not historically restricted cloud gaming, digital wallets, and third-party smartwatches, people would freely choose to buy less expensive smartphone alternatives instead of the iPhone. The Justice Department believes that Apple does not face pressure from “innovative, cross-platform technologies” because Apple “makes other products worse” rather than making its own products better.
- Super Apps. The Department of Justice defines super apps as those that provide a user with “rich functionality” in a single app and provide a consistent user experience across all devices. An example of a super app is WeChat, which is widely used in China for communication, payments and more. The DOJ says Apple has “denied users access to super apps” in the US, but it's worth noting that there is a cultural aspect to these apps and they simply haven't caught on in the US the way they have in China. . Mini-apps are also often mentioned, as Apple did have restrictions on apps offering mini-games and other cross-app functionality (these restrictions were lifted in iOS 17.4).
- Cloud Streaming– The DOJ alleges that Apple is suppressing cloud game streaming by banning their availability on the App Store. Cloud streaming apps could be used in Safari, and starting with iOS 17.4, Apple changed its rules to allow game streaming apps like Xbox Cloud Gaming to offer game streaming through a single App Store application. This argument is no longer entirely valid, but the Justice Department believes that by not allowing cloud gaming apps, Apple is preventing consumers from buying cheaper phones. The idea here is that customers had to opt for expensive iPhones to play “high-end” games because they were not playable using cloud services.
- Messaging apps – The Department of Justice believes that third-party apps should be able to send and receive SMS messages, rather than redirecting those messages to the Messages app. This will allow users to switch phones without changing the way they communicate. The lawsuit discusses the lack of an iMessage app for Android, Apple's attempts to block the Beeper Mini app, green bubbles, and the introduction of RCS.
- Smartwatches– Apple suppresses key features of third-party smartwatches, preventing iPhone users won't be able to get Apple Watch-like functionality from a smartwatch with “better user experiences and services.” DOJ says Apple is tying customers to iPhone with Apple Watch, since Apple Watch cannot be used on other smartphones. A user who wants to migrate from iPhone You should also purchase an Android compatible smartwatch.
- Digital wallets. Apple does not allow banking apps to access NFC and provide digital payment services, and customers cannot select “trusted banking apps” as their digital wallet. Apple also doesn't allow developers to create cross-platform wallets that would ease the transition from iPhone on Android, and alternative wallets can also be used for in-app purchases. The Justice Department contends that payments banks make to Apple for using Apple Pay would otherwise be used to leverage features and benefits for smartphone users.
Privacy and Security
The Justice Department suggests that Apple justifies its anticompetitive behavior on privacy and security grounds.
- Apple spends billions on marketing to promote “the self-serving premise that only Apple can protect consumer privacy and security interests.” “
- Apple selectively violates privacy and security interests when it is in Apple's financial interests to do so. Examples used here include not having end-to-end encryption between Android and iPhone messages and making Google the default browser engine when 'more' are available private settings.”
- A secure and reliable experience on Mac demonstrates that Apple's control over app distribution and creation is “substantially more restrictive than necessary to protect user privacy and security.”
- Apple produces iPhone less secure if it helps him maintain monopoly power. As an example, the Justice Department cites unencrypted text messages sent from iPhones to Android phones. “If Apple wanted,” it could let the iPhone users send encrypted messages to Android users.
App Store
DOJ mentions Apple App Store policies and fees, but that is not the main focus of the lawsuit. While the Department of Justice was preparing its case, Apple's lawsuit against Epic Games took place, and it turned out that Apple does not have a monopoly in the field of mobile games. This undoubtedly influenced the DOJ filing, but there is language here
- Apple uses App Store rules for “extracting monopoly rent” from third party developers.
- Apple prohibits the creation and use of alternative app stores and arbitrarily enforces its own App Store rules.
- Developers cannot offer web applications as an alternative to the App Store applications because iPhone users “do not search for or know how to find web applications.”
- Apple uses App Store rules and restrictions to punish and restrict developers who threaten its monopoly. It allows apps to use private APIs and requires web browsers to use WebKit.
- Apple's efforts to limit super apps and cloud streaming apps may have slowed the development of innovative apps related to education, artificial intelligence and productivity. It also held down app developers for creating features that Apple prohibited on other platforms.
iPhone cost and development
- Apple raises prices for the purchase and use of iPhone.
- Apple spent more than twice as much on share repurchases and dividends as it did on research and development ($30 billion versus $77 billion in fiscal 2023). .
- Apple slows innovation on iPhone to generate revenue from customers using subscriptions and cloud services.
- Powerful and expensive hardware is not required if consumers can play games through cloud streaming applications.
Services
- Apple subscription services increase the cost of switching from iPhone to another smartphone. The DOJ cites Apple Arcade, Apple's cloud storage, and Apple News+ as exclusive to the iPhone. This results in “significant friction” for the iPhone users who want to switch.
- Apple is using its “rapidly expanding” role as a TV and film producer to control content and influence the flow of speech.
Green Bubbles and iMessage
- By using green bubbles, Apple is “signaling to users” that competing smartphones are of lower quality because the messaging quality of non-iPhone users is poorer. The Justice Department says this is because conversations aren't encrypted, video is grainy, and users can't edit messages or see typing indicators.
- Non-iPhone users face “social stigma, isolation and charges” for “disrupting” chats in which other participants have an iPhone. It's “particularly effective” for teens, and “social pressure” is causing teens to switch to iPhone.
- While the DOJ's comments on messaging largely ignore the fact that Apple plans to achieve feature parity with RCS&zwnj ;, it does say that this won't be enough because third-party apps still won't be able to be set as the default app for SMS/RCS messages.
- The Department of Justice suggests that since RCS improves over time, Apple may not support later versions of RCS, so cross-platform messaging “may soon be broken on iPhone” after Apple adds RCS support will follow later in 2024.
- The Justice Department cited Beeper Mini, an app that gained access to Apple's iMessage servers using fake credentials. The DOJ claims that this was a solution that “corrected” problems with cross-platform messaging. Apple released iPhone users are less secure because it also supports end-to-end encryption.
CarPlay
- The next generation of Apple CarPlay makes the iPhone experience iPhone-centric, capturing “every screen, gauge, and gauge” in the car for CarPlay functions. The Justice Department suggests that Apple is using iPhone user base to put pressure on US automakers and limit innovation, but Apple still hasn't had much success with CarPlay 2, and many automakers, such as Tesla and GM, are refusing to participate in CarPlay.
Competitors
- The Justice Department says Apple is the reason only Google and Samsung remain significant competitors in the premium smartphone market.
- The Justice Department blames Apple's market dominance for failed smartphones, including including Amazon Fire Phone. and Microsoft Windows Phone.
Other DOJ claims
- The iPod was a success thanks to the Justice Department's antitrust lawsuit against Microsoft because it allowed Apple to run iTunes on Windows PCs. “Microsoft did not charge Apple a 30 percent commission on every song downloaded from the iTunes Store.”
- The Department of Justice is responsible for Apple's success. US vs. Microsoft “created new opportunities for innovation,” and without this case, Apple would have had a harder time achieving success with the iPod and subsequent iPhone.
- Apple made smartphones other than the &zwnj ;iPhone worse, stifling the growth of cloud gaming applications and interactive artificial intelligence services.
- The Justice Department says Apple copied the smartwatch idea from third-party developers.
- The Justice Department warns that Apple may “use your power to force your own users (and their data) to become the next big thing.”
DOJ Market Definition
DOJ's Market Definition
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The DOJ alleges that Apple violated Section 2 of the Sherman Act, which states that the acquisition or maintaining monopoly power by “improper means” is illegal. To make this argument, the DOJ must prove that Apple is a monopoly power in the relevant market and that Apple engaged in anticompetitive conduct to achieve and maintain that monopoly.
The Sherman Act claims were not upheld in Epic v. Apple. because Epic Games failed to narrow a specific market in which Apple had a perceived monopoly. Epic Games argued that the relevant market was applications for Apple devices, but the court decided that these were all digital mobile game transactions. Apple was not recognized as a monopolist.
DOJ also uses a narrowed definition of market that may not hold up. It created the “performance smartphone market,” defined as “the higher-end segment of the broader smartphone market.” In this “productivity market,” Apple's U.S. market share by revenue exceeds 70 percent. In the “broader smartphone market” in the US, Apple has a 65 percent share.
The Justice Department may have a hard time proving that Apple is a monopoly with only 65 percent of the market. A 70 percent market share is a stronger argument for a monopoly, but the case against Apple won't be as strong as the case against Google. Google, for example, has 90 percent of the search engine market.
Apple says it operates in a global market, and that the market share to consider is global market share. Apple has only about 20 percent of the global market.
The DOJ also argues that Apple has a large share “among key demographic groups” such as higher-income families and young people.
What the DOJ Wants
The Justice Department wants the court to find that Apple acted illegally to monopolize or attempt to monopolize the smartphone market in the United States. It sought “relief as needed” to address anticompetitive harm and restore competitive conditions, as well as an order that would prohibit Apple from continuing to engage in anticompetitive practices.
Apple should be prohibited from using its control over app distribution, the DOJ said. to undermine cross-platform technologies, that it should not be able to use private APIs to undermine cross-platform technologies such as messaging and smartwatches, and that Apple should be prohibited from using the terms of its contracts with developers, consumers and accessory manufacturers to maintain a monopoly.
Apple response
Apple has this official statement regarding the DOJ lawsuit:
At Apple, we innovate every day to make sure people love technology—designing products that work seamlessly together, protect people's privacy and security, and create magical experiences for our users. This lawsuit threatens who we are and the principles that distinguish Apple products in fiercely competitive markets. If successful, it will hinder our ability to create the technology people expect from Apple, where hardware, software and services intersect. It would also set a dangerous precedent by giving the government the ability to tightly control the development of technology for people. We believe this lawsuit is wrong as a matter of fact and law, and we will vigorously defend against it.
Apple also provided media briefings and shared information about the key facts of the lawsuit. Some highlights:
- The Justice Department changed the scope of its case six times in response to the findings at Epic Games against Apple and other lawsuits. Several theories were considered but had to be abandoned due to lack of evidence.
- Apple says the lawsuit will not succeed because it does not present the correct facts. This would set a dangerous precedent for government intervention in technology and make the iPhone less confidential, less secure and more vulnerable to malware. iPhone won't work as well with other Apple products, and user information will be at risk.
- Apple says the Justice Department wants to turn the iPhone in Android, and that this body matches the key features that make the iPhone a unique experience.
- Apple does not believe the case is based on antitrust law and appears to suggest that Apple has a duty to design its products in a way that helps competitors.
- In a recent decision in AliveCor v. Apple, the court said that it cannot control technology and innovation, and that the court does not analyze algorithms.
- The Department of Justice ignored changes in streaming game applications. and plans to implement RCS, and Apple says super apps have always been allowed.
- Apple argues that the Justice Department is trying to fit Apple into theories that were successful in the antitrust case against Microsoft for 20 years. ago, but Apple does not agree with such parallels. Microsoft had 95 percent of the market, and Apple said business decisions were made to provide consumers with maximum privacy and security.
- Apple argued that the Justice Department was overlooking the fact that customers are loyal because they are happy their devices and love Apple products.
- Apple says it spent three years considering whether it made sense to release an Apple Watch for Android, but ultimately decided against making it because it would be inferior and have limitations that would impact privacy and security.
- iMessage was not developed for other platforms because Apple has no way to verify that a third-party device has encryption and authentication procedures that meet its standards, and that security issues on third-party devices could expose the contents of iPhone messages from users, which leads to problems with fraud and spam.
Read the full text of the lawsuit
What's Next
Now that the Department of Justice has filed a lawsuit, Apple will have a 60-day period to respond. Apple plans to dismiss the complaint.
If this does not happen, the case will continue. There will be briefings, hearings and a discovery period. It will be several months before additional documents become available, and the entire legal process will drag on for several years. Apple says it plans to aggressively fight the case.
If the judge rules in favor of the Justice Department, appeals will be filed and then remedies for anticompetitive behavior will have to be determined.
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