The U.S. Department of Justice, along with the attorneys general of 15 states and the District of Columbia, has filed suit against Apple for violating Section 2 of the Sherman Antitrust Act, the federal law that limits the power of a monopoly company.
According to the complaint, Apple has made it difficult for developers to expand the iPhone’s capabilities, made it difficult to abandon the iPhone, and generally made the entire smartphone market worse, among numerous allegations.
In a video briefing, US Attorney General Merrick Garland explained that Apple has a 65% share of the US smartphone market. Garland claims that “Apple has maintained its monopoly position in the smartphone market not only by staying ahead of the competition on the merits, but also by violating federal antitrust laws.”
In response, Apple points out that it only has a 20% share of the smartphone market globally, and that it competes globally, not just in the US.
Apple has denied developers crucial access
The lawsuit is divided into three primary complaints. The first is that Apple “selectively imposes contractual restrictions on developers and withholds critical access points.” That is, while other smartphones give developers access to hardware features like tap-to-pay, Apple locks this hardware into its own Apple Pay platform. On other phones, you can tap to pay with Venmo or PayPal instead of Google Wallet. On the iPhone, every transaction is done via Apple Pay, and Apple gets a big cut.
Furthermore, restricting access to the phone’s hardware means that accessories such as smartwatches are not interoperable. You cannot use the latest Galaxy Watch with the latest Apple iPhone. You can also only use an Apple Watch with an iPhone, which means Apple Watch buyers are unfairly willing to buy iPhone after iPhone, according to the US government.
Apple is making it harder to abandon Apple products
The second complaint is that Apple “undermines apps, products, and services that would otherwise reduce users’ dependence on iPhone, promote interoperability, and lower costs for consumers and developers.” This is of course the iMessage and green bubble argument, which goes much further.
Not only has Apple locked users into its own messaging platform, it has also actively worked to make its competition’s messaging platform even worse. If you send a video from an iPhone to an Android, the Android user will see a grainy, grainy video, as Garland explained. That gives iPhone owners the impression that Android phones are substandard, when in fact it’s Apple that is reducing quality, not the Android device.
According to Garland, and the opinion of the 16 other attorneys general who filed the lawsuit along with the U.S. Department of Justice, Apple should retain customers by making its own products better, not by making its competitors’ products worse . Apple needs to keep buyers on its platform by making the best phone, not by making it impossible or too expensive to switch from Apple’s products.
Garland also cites Apple’s blockade of so-called ‘Super Apps’, which are individual apps that run multiple apps. Think of Xbox Cloud Gaming, where you launch the Xbox app and then access all your Xbox gaming apps within the Xbox environment. That app is blocked in Apple’s App Store, although Apple claims that super apps can run on the iPhone.
Apple uses its power to charge more money
The third complaint detailed in the lawsuit says Apple “exercises monopoly power to extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others.” The government has not provided specific examples for this argument, but presumably Apple’s App Store policies, along with the Apple Pay lock-in, will come under scrutiny as the lawsuit progresses.
Apple appears to have dug its own grave with this antitrust case, and many of the examples presented by Garland and the other attorneys general come straight from the horse’s mouth. Garland specifically cited an infamous incident in which Vox Media’s LiQuan Hunt complained to CEO Tim Cook that he couldn’t text his mother, and Cook rather coldly suggested to Hunt that Hunt should “get your mom an iPhone,” in a moment reminiscent of Marie Antoinette.
Jonathan Kanter, antitrust chief at the Department of Justice, used a 2010 example in which an Apple executive emailed Steve Jobs about a Kindle ad in which Kindle worked on both iPhone and Android. The director was concerned that the “message that should not be missed is that it is easy to switch from iPhone to Android. Not fun to watch.”
According to Kanter, this shows that Apple’s goal was to make it difficult to switch, while Apple’s goal should have been to get consumers to stay. In a 2013 email message, another Apple executive said that supporting iMessage on Android would “simply serve to remove an obstacle for iPhone families to give their children Android phones,” according to Garland. It appears that switching will be an ongoing theme in the lawsuit.
Apple says the case is factually and legally incorrect
We believe this lawsuit is flawed on the facts and the law, and we will vigorously defend against it
Apple
We spoke to Apple about the situation and simply put: Apple is not affected by it. It characterized the DOJ’s case as meritless and plans to file for immediate dismissal.
“At Apple, we innovate every day to make sure people love technology. We design products that work seamlessly, protect people’s privacy and security, and create a magical experience for our users. This lawsuit threatens who we are and the principles that distinguish Apple products in fiercely competitive markets. If successful, it would hinder our ability to create the kind of technology people expect from Apple – at the intersection of hardware, software and services. It would also set a dangerous precedent, giving the government the power to take a heavy hand in designing people’s technology. We believe this lawsuit is flawed on the facts and the law, and we will vigorously defend against it.”
Apple says its smartphone business is a global business and highly competitive. While Apple may have a 70% market share in the US, the company has about 20% of the global market.
This may be key to Apple’s argument, as it believes the DOJ is trying to fit the company into Microsoft’s 1990s model. At the time, the DOJ successfully sued Microsoft for controlling 95% of the desktop market and essentially defining who won the browser war.
Apple characterizes its activities as, if not open, then certainly not prescriptive. The company insists it allows ‘super apps’ in the app store and has allowed streaming services to make changes; and, like we reported here, now offers limited RCS support; it is not integrated into iMessage, but will be next to it.
Apple was keen to point out all the benefits the market and developers enjoy from its approach. It claims a massive 374% growth in payments to app developers between 2014 and 2023. Apple also says that iOS apps generate 85% more revenue than Android apps.
The core of Apple’s argument is also that it believes that government officials should not define technical features or act as proxy engineers, and they believe this point was raised in the recent Epic vs. Apple case. In that case, the judge wrote: “Apple’s evidence strongly suggests that little switching between operating systems stems from general satisfaction with existing devices, rather than from a ‘lock-in’.”
Apple’s approach is rooted in providing the best iPhone customer experience and strict adherence to privacy and security principles. Unfortunately, it is these principles that the Department of Justice is questioning, as Apple’s iMessage interoperability policy makes messages less secure when sent between Apple and Android phones.
This case could lead to the homogenization of the Apple iPhone, making it more like the best Android phones and, Apple claims, potentially less secure and private. Finally, Apple insists that iPhone customers stick with Apple, not because of the high switching costs, but because they love the company and the product.
Apple claims that “high switching costs” don’t even exist.