U.S. versus Apple: A first reaction
The U.S. Department of Justice, 15 states, and the District of Columbia sued Apple on Thursday. While I am not a lawyer, I’ve written extensively about Apple for 30 years and just read all 88 pages of the full complaint. Here are some initial reactions:
Defining a “monopoly.” Before we get to some of the details of Apple’s specific anti-competitive behavior, it’s worth noting that this suit is charging Apple with violations of the Sherman antitrust act, which is meant to specifically regulate monopolies. Things that are legal for regular companies to do become illegal when monopolies do them.
Part of this document, then, has to establish that Apple holds monopoly power over a specific market. Given that Apple’s share of the U.S. smartphone market is about 60 percent, how can it be called a monopoly? The DoJ attempts to square this circle in a few different ways:
- It uses revenue instead of unit sales, pointing out that Apple and Samsung combined hold 90 percent of the U.S. smartphone market by revenue.
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It creates a new sub-market, the “Performance Smartphone,” which pushes Apple up to about 70 percent of the market in terms of unit sales.
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It accuses Apple of attempting to create a monopoly through its various business tactics, which is also illegal.
Questions I would ask about this approach: Can you add in Samsung, find a number starting in ninety, and declare something a monopoly? Is revenue share how monopolies are defined? Can you draw borders on a product category in a beneficial way in order to declare it a new market?
Apple’s position in the U.S. market is certainly strong, but regardless of how you view its behavior, it will be interesting to see if the DoJ can make a convincing case that Apple is actually a monopoly, given the presence of Samsung and Google in the market.
Suppressing cross-platform technologies is key. One of the DoJ’s primary arguments is that Apple has reduced competition by making it hard for developers to deploy cross-platform software—in other words, software that works the same on both iOS and Android. This, in turn, makes it harder for iPhone users to switch to Android, which reduces competition.
Among the examples it cites:
- “Super apps,” which provide multiple kinds of functionality and mini-apps within a single app container, written in HTML and JavaScript. WeChat is never named, but its ubiquity in China is alluded to, and the argument is that it’s a reason that Chinese users can switch phone platforms more easily.
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Cloud streaming games, which make the power of smartphone hardware less relevant, thereby freeing consumers to buy cheaper, low-powered phones and still play games.
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Messaging apps not being able to have access to incoming SMS messages. (Yep, I was surprised too.) The argument is that because incoming text messages come to the Messages app, Apple is feeding users into its own chat app ecosystem and putting other messaging apps at a disadvantage.
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Smartwatches, specifically access to the iPhone for non-Apple smartwatches. The DoJ says that by not allowing third-party watches access to messages and the ability to maintain consistent connections to the iPhone, Apple is suppressing competition in the smartwatch market and making it harder to switch. In theory, if you could buy a competitor to the Apple Watch and use it on the iPhone, you could then later switch to Android without a penalty.
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Digital wallets. By controlling the iPhone’s digital wallet tech, the suit alleges, Apple has increased “friction” in moving to a different smartphone platform, and denied users access to alternative wallets provided by their banks.
Apple’s total control is an issue. It’ll be familiar to anyone who has been following Apple’s adventures in Europe with the Digital Markets act, but another argument here is that Apple exerts its power over its platform to limit developers and users. This comes in numerous forms, including capricious and self-serving App Store policies and the failure to offer third-party access to APIs that Apple itself uses in its apps.
Apple’s only concerned about user security when it’s convenient. The document alleges that Apple talks a good game when it comes to privacy and security, but that it favors them when it’s convenient and not when it’s not. It calls Apple’s privacy and security justifications an “elastic shield that can stretch or contract” to serve Apple’s interests. The examples in the document include continuing to rely on the insecure SMS protocol for cross-platform texts and letting Google be the default search engine when more private options are available.
Lock-in will be on trial. Many of the DoJ arguments come down to this: Every feature that Apple builds that makes it harder to switch to an Android phone is fundamentally anticompetitive. It’s clear that the DoJ envisions a competitive smartphone market—or, if that doesn’t work, performance smartphone market—as one in which there’s as little friction as possible when jumping between platforms.
This would mean Apple offering third-party app access to features it currently keeps for itself. (One could argue that Apple’s behavior has already begun to change due to pressure, as it launched its new Journal app alongside an API that gives other apps access to the same data as its own app.) It also suggests that policies against game streaming and web apps would also come under scrutiny.
The DoJ congratulates itself. For me, the most unexpected part of the document was the DoJ’s explanation that Apple’s success as a company largely stems from… the DoJ itself. It points out that Apple’s resurgence early in this century was due to the release of the iPod, which only became a hit when it arrived on Windows. The DoJ argues that the iPod’s presence on Windows was only due to Microsoft being under a consent decree from the DoJ for monopolistic behavior.
I don’t know enough about the specifics of the Microsoft consent decree to weigh in on the idea that an unconstrained Microsoft would have made it impossible for Apple to make the iPod compatible with Windows. It’s a pretty big hypothetical, and I’m skeptical, but I’m impressed that the DoJ would try to place its current case within the larger DoJ Connected Universe.
A few howlers. Some arguments in the document seem silly. A section describes how Apple will use its sinister market powers to dominate the automotive industry by… inflicting CarPlay 2.0 on users? Not only is Apple struggling to get CarPlay into cars by major American manufacturers, but I’m not sure how better integrating our phones (which we love) into our car infotainment systems (which we frequently do not love) is some sort of tragic outcome. (Update: Nilay Patel of the Verge suggests the implication is that Apple won’t let carmakers support CarPlay in the future unless they let Apple take over the entire auto interface. That would certainly be a power move, but the DOJ will need to prove that for it to become more than another scary story told around a campfire.)
And then there’s the danger of Apple, tech giant, affecting “the flow of speech.” How, you might ask? The answer is Apple TV+, where Apple has committed the grave sin of “control[ling] content.” Be right back, gotta find some pearls to clutch.
United States v. The People of the United States. What strikes me most about this document is that people… like using the iPhone? This suit (joined by 16 other attorneys general, mostly of blue states) has a political element to it, in the sense of trying to send a message that your government is looking out for your rights and protecting you from big, bad tech companies.
What happens when that collides with a product that has extremely high customer satisfaction ratings? Those of us in the know are well aware of all the ways that Apple plays hardball, and understand that the company is so powerful that really the only way it will be convinced to change its ways is under threat of government intervention. But will American iPhone users feel like the government is on their side, in taking on an American tech giant that makes a product they actually enjoy using?
I doubt most regular people will get into the weeds with this stuff, but some of the depictions in the lawsuit really are topsy-turvy. Imagine trying to sell regular people on the idea that they’d be better off with a bunch of different banking apps implementing NFC payments in random ways, rather than using the Wallet system Apple built. No doubts the banks disliked it, and they certainly despise that Apple skims some money off of every transaction, but there’s no denying that Apple’s approach actually did favor the user… and that Apple used its power (or “monopoly power,” if you’re the DoJ) to force the banks to play ball.
This one issue seems like a microcosm of the entire case: Apple undoubtedly has huge market power, owing to its success in the market. Apple uses that power to make decisions that frequently benefit its users and enrich itself. (Sometimes it’s one or the other, but usually it’s some degree of both.) Is it illegal for Apple to use its power to improve the user experience? What about when it cuts itself in for some sweet Services revenue along the way? How do we tell the difference between real user benefit and phony benefit that’s really designed to allow Apple to exert its power and increase its profits?
It’s complicated. There’s some danger that Apple will no longer be able to make judgments that favor users, and that will degrade the user experience. But this is the same company that acts as if buying things on the Internet with a credit card is the height of dangerous behavior, when in fact it’s commonplace and safe. By mixing exertions of its control and power with notions of user benefit, it risks losing all of it.
What’s next? Again, not a lawyer. What I’ve learned in observing three decades of government interaction with tech is that the most likely outcome is one that doesn’t make a whole lot of sense. I could create a list of Apple behaviors that I consider to be anticompetitive and unfriendly to consumers, but many of them are barely touched on in this document.
So my prediction is that this will be a long, drawn-out process that will end up with Apple changing some of its policies. Some of those changes will be substantial and will alter how the company operates; others will be pointless and cause no appreciable effect; and still others will degrade the experience of iPhone users without increasing competition. Meanwhile, other Apple policies that stifle competition, degrade the user experience, and cost users money will just go on as usual, unchanged and unchallenged.
