Tag: U.S

On March 21, the United States Justice Department sued Apple for antitrust violations, concluding a multi-year investigation into Apple’s business practices. The U.S. government is also pursuing antitrust cases against Google, Amazon, and Meta, as part of an expansive look into the practices of major tech companies.

Apple plans to “vigorously defend” against the DoJ’s lawsuit, which seeks to fundamentally change the way that Apple operates. This will be a legal battle that spans multiple years, and we’ll keep this guide updated with the latest news as the case progresses.

DoJ’s Claims

The lawsuit that the DoJ filed against Apple is broad ranging, and rather than focusing on one or two issues, it aims to establish a long-running history of anti-competitive behavior. The DoJ tries to establish a pattern of business decisions that have suppressed competition, with the DoJ arguing that Apple has time and time again opted to “make its products worse for consumers to prevent competition from emerging.”

It is the opinion of the DoJ that Apple has gotten consumers “hooked” on its platform through these choices, making it unreasonably difficult for customers to switch to another smartphone brand. There is no allowance made for customer preference and the idea that people simply like their iPhones – the DoJ positions Apple as a monopolist that has manipulated 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 has allegedly harmed consumers, the DoJ cites five specific examples of Apple blocking technologies that it claims would decrease barriers to switching and give consumers a “higher-quality user experience on any smartphone.”

The DoJ is of the opinion that if Apple did not historically limit cloud gaming, digital wallets, and non-Apple Watch smartwatches, that people would freely choose to purchase less expensive alternative smartphones over the iPhone. The DoJ believes that Apple is not facing pressure from “innovative, cross-platform technologies” because Apple “makes other products worse” rather than making its own products better.

• Super apps – The DoJ defines super apps as those that provide a user with “broad functionality” in a single app and have the benefit of providing a consistent user experience across devices. An example of a super app is WeChat, which is widely used in China for communicating, making payments, and more. The DoJ says that Apple has “denied users access to super apps” in the U.S., but it is worth noting that there is a cultural aspect to these apps, and they just haven’t caught on in the U.S. the way they have in China. Mini apps are often frequently referenced too, as Apple did have restrictions on apps offering mini games and other multi-app features (these restrictions were eliminated in iOS 17.4).
• Cloud streaming – The DoJ suggests that Apple is suppressing cloud streaming games by preventing them from being available on the App Store. Cloud streaming apps have been usable on Safari, and as of iOS 17.4, Apple changed its rules to allow streaming game apps like Xbox Cloud Gaming to offer streaming games through a single ‌App Store‌ app. This argument is no longer entirely relevant, but the DoJ believes that by not allowing cloud gaming apps, Apple prevented consumers from buying cheaper phones. The idea here is that customers had to opt in to expensive iPhones to play “high-compute” games because they weren’t available to play using cloud services.
• Messaging apps – The DoJ thinks that third-party apps should be able to send and receive SMS messages, rather than these messages being routed to the Messages app. This would let users switch phones without changing the way they communicate. The filing takes issue with the lack of an iMessage app for Android, Apple’s efforts to block the Beeper Mini app, green bubbles, and the adoption of RCS.
• Smartwatches – Apple suppresses key functions of third-party smartwatches, preventing ‌iPhone‌ users from getting Apple Watch-like functionality from smartwatches with “better user interfaces and services.” The DoJ says that Apple locks customers in to the ‌iPhone‌ with the Apple Watch, because the Apple Watch can’t be used on other smartphones. A user who wants to switch from the ‌iPhone‌ must also purchase an Android-compatible smartwatch.
• Digital Wallets – Apple does not let banking apps access NFC and provide digital payments services, and customers are not able to choose their “trusted banking apps” as their digital wallet. Apple also prevents developers from creating cross-platform wallets that would make it easier to switch from ‌iPhone‌ to Android, and alternative wallets could also be used for in-app purchases. The DoJ claims that the payments that banks make to Apple for using Apple Pay would otherwise be used for features and benefits for smartphone users.

Privacy and Security

The DoJ suggests that Apple justifies its anticompetitive conduct with privacy and security concerns.

• Apple spends billions on marketing to promote “the self-serving premise that only Apple can safeguard consumers’ privacy and security interests.”
• Apple selectively compromises privacy and security interests when it is in Apple’s financial interest. The examples used here include the lack of end-to-end encryption between Android and ‌iPhone‌ messages and the making Google the default browser engine when “more private options” are available.
• The safe, secure experience on Mac is evidence that Apple’s control over app distribution and creation is “substantially more restrictive than necessary to protect user privacy and security.”
• Apple makes the ‌iPhone‌ less secure if that helps it maintain monopoly power. The DoJ cites unencrypted text messages sent from iPhones to Android phones as an example. “If Apple wanted to,” it could let ‌iPhone‌ users send encrypted messages to Android users.

The App Store

The DoJ mentions Apple’s ‌App Store‌ policies and fees, but it is not the main focus of the lawsuit. While the DoJ was preparing its case, the Apple vs. Epic Games lawsuit took place, and Apple was found not to have a mobile gaming monopoly. That undoubtedly influenced the DoJ filing, but there is wording here

• Apple uses ‌App Store‌ rules to “extract monopoly rents” from third-party developers.
• Apple prohibits the creation and use of alternative app stores, and has arbitrary enforcement of its own ‌App Store‌ rules.
• Developers are not able to offer web apps as an alternative to ‌App Store‌ apps because ‌iPhone‌ users “do not look for or know how to find web apps.”
• Apple uses ‌App Store‌ rules and restrictions to penalize and restrict developers that threaten its monopoly. It does allow apps to use private APIs, and requires web browsers to use WebKit.
• Apple’s efforts to restrict super apps and cloud streaming apps may have slowed the development of innovative apps related to education, artificial intelligence, and productivity. It has also kept app developers for creating features prohibited by Apple on other platforms.

iPhone Cost and Development

• Apple inflates the price for buying and using iPhones.
• Apple spent more than twice as much on stock buybacks and dividends as it did on research and development ($30B vs. $77B in fiscal 2023).
• Apple slowed down innovation on ‌iPhone‌ to extract revenue from customers using subscriptions and cloud services.
• Powerful, expensive hardware is unnecessary if consumers can play games through cloud streaming apps.

Services

• Apple’s subscription services increase the cost of switching from the ‌iPhone‌ to another smartphone. The DoJ references Apple Arcade, Apple’s cloud storage, and Apple News+ because these are exclusive to the ‌iPhone‌. This results in “significant frictions” for ‌iPhone‌ users who want to switch.
• Apple uses its “rapidly expanding” role as a TV and movie producer to control content and affect the “flow of speech.”

“Green Bubbles” and iMessage

• By using green bubbles, Apple “signals to users” that rival smartphones are lower quality because the experience of messaging non-iPhone users is worse. The DoJ says this is because conversations are not encrypted, videos are grainy, and users cannot edit messages or see typing indicators.
• Non-iPhone users experience “social stigma, exclusion, and blame” for “breaking” chats with where other participants own iPhones. This is “particularly powerful” for teenagers, and “social pressure” causes teens to switch to ‌iPhone‌.
• While the DoJ’s comments on messaging largely ignore that Apple plans to bring feature parity with ‌RCS‌, it says that 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 DoJ speculates that because ‌RCS‌ improves over time, Apple might not support later versions of ‌RCS‌, so cross-platform messages “could soon be broken on iPhones” after Apple adds ‌RCS‌ support later in 2024.
• The DoJ references Beeper Mini, an app that gained access to Apple’s iMessage servers by exploiting fake credentials. The DoJ claims that it was a solution that “fixed” the broken cross-platform messaging experience. Apple made ‌iPhone‌ users less secure because it also supported end-to-end encryption.

CarPlay

• Apple’s next-generation CarPlay forces an iPhone-centric experience by taking over “all of the screens, sensors, and gauges” in a car in order to use ‌CarPlay‌ features. The DoJ suggests Apple is leveraging the ‌iPhone‌ user base to exert power over American carmakers and restrict innovation, but Apple has so far not seen a lot of traction with ‌CarPlay‌ 2 and many car makers, such as Tesla and GM, are opting out of ‌CarPlay‌.

Competitors

• The DoJ claims that Apple is the reason that only Google and Samsung remain as meaningful competitors in the premium smartphone market.
• The DoJ blames Apple’s market dominance for failed smartphones that include the Amazon Fire Phone and the Microsoft Windows Phone.

Other DoJ Claims

• The iPod was successful because of the DoJ’s antitrust case against Microsoft because it allowed Apple to launch iTunes on Windows PCs. “Microsoft did not charge Apple a 30 percent fee for each song downloaded from the iTunes Store.”
• The DoJ holds itself responsible for Apple’s success. U.S. vs. Microsoft “created new opportunities for innovation,” and without this case, Apple would have had more difficulty achieving success with the iPod and the subsequent ‌iPhone‌.
• Apple made smartphones other than the ‌iPhone‌ worse by stifling the growth of cloud gaming apps and interactive AI services.
• The DoJ says that Apple copied the idea of a smartwatch from third-party developers.
• The DoJ warns that Apple may “use its power to force its own users (and their data to become its next profitable product.”

DoJ’s Market Definition

The DoJ suggests that Apple violated Section 2 of the Sherman Act, which says that it is illegal to acquire or maintain monopoly power “through improper means.” To make this argument, the DoJ needs to prove that Apple is a monopoly power in a relevant market, and that Apple used anticompetitive conduct to achieve and maintain that monopoly.

Sherman Act claims failed in Epic vs. Apple because ‌Epic Games‌ was not successful narrowing down the defined market in which Apple had a supposed monopoly. ‌Epic Games‌ argued that the relevant market was apps on Apple devices, but the court decided it was all digital mobile gaming transactions. Apple was not found to have a monopoly.

The DoJ is also using a narrowed market definition that may not hold up. It has created a “performance smartphone market” defined as a “more expensive segment of the broader smartphone market.” In this “performance market,” Apple’s U.S. market share by revenue is over 70 percent. In the “broader smartphone market” in the U.S., Apple has a 65 percent share.

It could be tough for the DoJ to prove that Apple has a monopoly with only a 65 percent share of the market. 70 percent market share is a more solid argument for a monopoly, but the case against Apple won’t be as strong as the case against Google. Google, for example, has a 90 percent share of the search engine market.

Apple claims that it operates in a global market, and that the market share that should be considered is the global market share. Apple only has around a 20 percent cut of the global market.

The DoJ also argues that Apple has a larger share “among key demographics” such as higher-income households and among young people.

What the DoJ Wants

The DoJ wants the court to find that Apple has acted unlawfully to monopolize or attempt to monopolize the U.S. smartphone market. It has asked for “relief as needed” to address anticompetitive harm and restore competitive conditions, and a ruling that prevents Apple from continuing to engage in anticompetitive practices.

According to the DoJ, Apple should be prevented from using its control of app distribution to undermine cross-platform technologies, that it should not be able to use private APIs to undermine cross-platform technologies like messaging and smartwatches, and that Apple should be prevented from using the terms and conditions of its contracts with developers, consumers, and accessory makers to maintain a monopoly.

Apple’s Response

Apple has an official statement on the DoJ’s lawsuit:

At Apple, we innovate every day to make technology people love–designing products that work seamlessly together, protect people’s privacy and security, and create a magical experience for our users. This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets. If successful, it would hinder our ability to create the kind of technology people expect from Apple–where hardware, software, and services intersect. 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.

Apple has also held media briefings and shared information on key facts in the lawsuit. Some highlights:

• The DoJ has changed the scope of its case six times due to the results in ‌Epic Games‌ v. Apple and other lawsuits. Several theories were considered and had to be abandoned because of a lack of evidence.
• Apple says that the lawsuit won’t be successful because it does not get the facts right. It would set a dangerous precedent for government interference in technology, and would make the ‌iPhone‌ less private, less secure, and more vulnerable to malware. The ‌iPhone‌ would not be able to operate as well with other Apple products, and user information would be put at risk.
• Apple claims the DoJ wants to turn the ‌iPhone‌ into an Android, and that the case goes after the key features that make the ‌iPhone‌ experience unique.
• Apple does not believe the lawsuit has a basis in antitrust law and seems to be suggesting that Apple has an obligation to design its products in a way that would help competitors.
• In a recent ruling in the AliveCor v. Apple dispute, the court said that it cannot oversee technology and innovation, and it is not for the court to analyze algorithms.
• The DoJ ignored changes to streaming game apps and plans to implement ‌RCS‌, and Apple says that super apps have always been permitted.
• Apple claims the DoJ is trying to fit Apple into the theories that were successful in the antitrust case against Microsoft 20 years back, but Apple does not agree with the parallels. Microsoft had a 95 percent share of the market, and Apple says that business decisions are made to provide consumers with maximum privacy and safety.
• Apple says the DoJ misses that customers are loyal because they are satisfied with their devices and love Apple products.
• Apple claims it spent three years looking at whether it made sense to make an Apple Watch for Android, but ultimately chose not to make one because it would be inferior and would have limits impacting privacy and security.
• iMessage has not been designed for other platforms because Apple doesn’t have a 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 content of ‌iPhone‌ users’ messages, leading to fraud and spam issues.

Read the Full Lawsuit

What’s Next

Now that the DoJ has filed a lawsuit, Apple will have a 60-day period to respond. Apple plans to move to dismiss the complaint.

If that doesn’t happen, the case will move forward. There will be briefings, hearings, and a discovery period. It will be a few months before there are additional filings, and the entire legal process will span for multiple years. Apple says that it plans to vigorously fight the case.

Should the judge assigned to the case rule in the DoJ’s favor, there will be appeals and then remedies for the anticompetitive behavior will need to be determined.