Written by: Edson Hernandez
The United States Department of Justice (the “DOJ”) and sixteen other states filed a civil antitrust lawsuit on March 21, 2024, against Apple, a computer and consumer electronic company that owns more than 65% of the U.S. smartphone market. The DOJ alleges that Apple violated Section 2 of the Sherman Act, a federal statute that prohibits maintaining monopoly power through improper means, by making it difficult for third-party companies to integrate with Apple’s iPhone. The DOJ claims that Apple’s restrictive app store terms and high fees, and its pattern of undermining apps, products, and services prevent lower costs for users and third parties and illegally monopolizes the smartphone market. Specifically, Apple’s illegal monopoly conduct includes diminishing the utility of non-Apple smartwatches, limiting its iMessage app to not exchange encrypted messages with competing platforms like Android, and restricting access to contactless payment for third-party digital wallets. By employing similar conduct since its inception, Apple has established an ecosystem that provides seamless integration and optimization between Apple devices but is closed to third-party developers. This lawsuit is the latest in a series of antitrust lawsuits filed by the DOJ against tech giants, a focus of the Biden administration’s agenda, and may impact Apple’s ecosystem.
Epic Games, Microsoft, and the Legal Up Battle
This is not the first antitrust allegation Apple has faced. For years, Apple has been criticized for using its dominance in the smartphone market to suppress competition and impose large fees on payments to third-party app developers. In 2020, “Fortnite” creator Epic Games filed an antitrust suit against Apple, accusing Apple of requiring apps to use Apple’s payment system and taking a 30% cut on developers’ earnings. In 2021, a Ninth Circuit district court rejected Epic’s antitrust allegations but found that Apple had violated California’s unfair competition law due to their practice of barring developers from directing users to make digital purchases on third-party payment systems. In January 2024, the Supreme Court refused to review appeals from both parties, affirming a lower court’s decision requiring Apple to begin allowing alternative in-app payment options. In March 2024, Epic Games requested that a federal judge hold Apple in contempt over its failure to comply with the ruling. Apple denied allegations of noncompliance.
Unlike previous antitrust lawsuits where the focus was on a couple of illegal acts committed by Apple, the DOJ argues that Apple enacted a pattern of illegal monopoly conduct that made it difficult for consumers to move away from the Apple ecosystem, despite its high prices and degraded quality. Ironically, the DOJ analogizes Apple’s pattern of behaviors to Microsoft’s attempt to monopolize the market for Intel-compatible personal computer operating systems in the early 2000s. That suit was partly brought to the DOJ’s attention by Apple’s co-founder Steve Jobs who criticized Microsoft’s anticompetitive behavior as targeting Apple. The court sided with the DOJ, finding that Microsoft violated Section 2 of the Sherman Act. Here, the DOJ seeks to prove that Apple is exploiting its market dominance to block competitors – the same practice that Apple sought to prevent.
However, legal experts caution that the DOJ will still struggle to win this antitrust case, despite the Microsoft precedent. One key area of contention will be defining what Apple’s smartphone “relevant market” is (a common contention area in antitrust litigation). In its suit, the DOJ defined this term in two different ways, giving it some flexibility in the upcoming litigation. The first defines the term as the overall smartphone market in the US, of which the DOJ claims Apple owns 65% of the market. The other defines the term as a subset of the overall smartphone market, the “performance smartphone” market, in which the DOJ claims Apple owns 70% of this subset. However, both terms only claim that Apple has a 65-70% market share, which differs from Microsoft’s then-commanding market share for Intel-compatible personal computer operating systems of close to 95%. Additionally, and just as problematic, the DOJ has defined “relevant markets” in the context of the US market, which Apple contends that the more appropriate market is the global market.
Future Implications
Like most antitrust cases, this case may drag out for years before a decision is passed. The Epic Games lawsuit against Apple lasted four years before the final appeal was rejected. However, a lengthy delay may benefit the DOJ in the interim, as both the Federal Trade Commission and the DOJ will be able to observe how Europe handles the European Digital Markets Act, an Act that requires companies like Apple to make changes to its products that the European Commission believes will create a more competitive environment. While it is unclear what specific rules and enforcement mechanisms Europe will inject to create competition in digital markets, it may be beneficial when devising antitrust laws here in the United States. Also, it may be possible that while complying with European regulations, Apple may see the writing on the wall and change its business model; saving the time and expenses associated with litigation. After all, Apple has begun addressing European requirements by exploring how to allow competing app stores and third-party software to be loaded on its products. Regardless, the courts will determine the future of the Apple ecosystem.
Sources:
Andrew Chung, US Supreme Court Snubs Apple-Epic Games Legal Battle, Reuters, (Jan. 16, 2024, 11:22 AM).
Brian Fung et al., Apple Sued in a Landmark iPhone Monopoly Lawsuit, Cnn, (Mar. 21, 2024, 12:12 PM).
Cailey Gleeson, U.S. Sues Apple in Landmark iPhone Antitrust Case, Forbes, (Mar. 21, 2024, 10:50 AM).
Dave Michaels and Aaron Tilley, Monopoly Case Pits Justice Department Against Apple’s Antitrust Winning Streak, Wall Street Journal, (Mar. 22, 2024, 12:02 AM).
Lauren Feiner, ‘Even Stronger’ Than Imagined: DOJ’s Sweeping Apple Lawsuit Draws Expert Praise, The Verge, (Mar. 22, 2024, 4:17 PM).
Makena Kelly and Vittoria Elliott, The US Claims Apple Has a Stranglehold on the Future, Wired, (Mar. 21, 2024, 5:54 PM).
Robert Freedman, DOJ Faces Tough Road in Apple Antitrust Lawsuit, Legal Dive, (Mar. 22, 2024).
Complaint, United States et al. v. Apple Inc., No 2:24-cv-04055 (D.N.J. Mar. 21, 2024).