DOJ, State and DC AGs: Apple’s Conduct in Smartphone Market Violates Antitrust Laws

Image of Apple Store

  • Apple uses anticompetitive tactics to lock in consumers and developers, government says.
  • Apple will even sacrifice quality to thwart innovation and competition, according to the suit.
  • Three private antitrust class actions immediately follow in California and New Jersey.
  • Suits follows $1.95 million fine against Apple by the European Commission.

Apple Inc. has used its dominant position, restrictive contracts, and even delay new product features, combined with a strategy of getting people “locked in” and “hooked on the ecosystem,” to monopolize the smartphone market. The company’s enormous profits come at the expense of consumers, developers, competition, and innovation.

That is the theme of an 88-page complaint filed in U.S. District Court for New Jersey by the Antitrust Division of the Department of Justice and the attorneys general of Arizona, California, the District of Columbia, Connecticut, Maine, Michigan, Minnesota, New Hampshire, New Jersey, New York, North Dakota, Oklahoma, Oregon, Tennessee, Vermont, and Wisconsin (U.S., et al. v. Apple Inc., No. 2:24-cv-04055, D. N.J.).

The complaint seeks relief for Apple’s alleged monopolization or attempted monopolization of the U.S. “Performance Smartphone Market” and “Smartphone Market” in Violation of Section 2 of the Sherman Act. It also cites violations of the New Jersey Antitrust Act (Monopoly Maintenance) and Wisconsin State Law.
“This case is about freeing smartphone markets from Apple’s anticompetitive and exclusionary conduct and restoring competition to lower smartphone prices for consumers, reducing fees for developers, and preserving innovation for the future,” the government attorneys write.

Shapeshifting Rules and Restrictions

Factual allegations and assertions cut across Apple’s business lines and models. In the case of the App Store, the complaint says, “Rather than respond to competitive threats by offering lower smartphone prices to consumers or better monetization for developers,” the company imposes a series of “shapeshifting rules and restrictions in its App Store guidelines and developer agreements that would allow Apple to extract higher fees, thwart innovation, offer a less secure or degraded user experience, and throttle competitive alternatives.”

The company forces developers to use its payment system to lock in both developers and users on its platform, then demands up to 30 percent of the price of an app created by a third party and charges a fee for every “tap-to-pay” transaction. In other words, the company imposes its “own form of an interchange fee on banks and a significant new cost for using credit cards.”

This is Apple’s “playbook,” the complaint asserts, one it has deployed across many technologies, products, and services, including “super apps,” text messaging, smartwatches, digital wallets, and others.

The wildly popular and ubiquitous iPhone is far more than a mere phone, and its high price and profit margins are a huge part of the company’s success. Fearing the disintermediation of its iPhone platform, Apple works to lock in users and developers, but the impact goes further. “Critically, Apple’s anticompetitive conduct not only limits competition in the smartphone market, but also reverberates through the industries that are affected by these restrictions, including financial services, fitness, gaming, social media, news media, entertainment, and more.”

Delaying, Degrading, and Blocking Technology

Perhaps the most damning allegation is that Apple will even sacrifice innovative improvements to the iPhone and smartphones in general. “It does this by delaying, degrading, or outright blocking technologies that would increase competition in the smartphone markets by decreasing barriers to switching to another smartphone …. Apple suppresses such innovation through a web of contractual restrictions that it selectively enforces through its control of app distribution and its ‘app review’ process.”

Examples of sacrificing its own product improvements to prevent competition from emerging, according to the complaint, include:

  • Suppressing “super apps” which can improve smartphone competition by providing a consistent user experience that works across devices.
  • Suppressing cloud streaming games, which denies users the ability to play high-compute games, and prevents developers from selling such games.
  • Making third-party messaging apps on the iPhone worse generally and relative to Apple Messages,
  • Apple’s own messaging app, by prohibiting third-party apps from sending or receiving carrier-based messages.
  • Suppressing key functions of third-party smartwatches, which denies Apple users access to high performing smartwatches with better styling, user interfaces and services, and batteries. This harms smartwatch developers by decreasing their ability to innovate and sell products.
  • Blocking Apple users access to third-party digital wallets that work across smartphone platforms, which denies consumer access to a variety of enhanced features. It also denies developers – often those working for banks – the opportunity to provide advanced digital payments services to their own customers.

Immense Profits on the Backs of Consumers

The complaint notes that Apple’s anticompetitive conduct arguably has been a boon for shareholders who enjoyed $77 billion in stock buybacks in FY2023. However, this “comes at a great cost to consumers.”

Apple justifies many of its business and product decisions as being motivated by his concerns for privacy. The government attorneys are skeptical, saying Apple “selectively compromises privacy and security interests when doing so is in Apple’s own financial interest – such as degrading the security of text messages.”

The government lawyers say Apple acts as if it can get away with a product that is “good enough” when that means profits and hampered competitors. “But under our system of antitrust laws, ‘good enough’ is, quite simply, not enough.” Options available to consumers should be determined by consumers, competition, and the competitive process, not “a self-interested monopolist,” the complaint reads.

Private Actions

Following the Antitrust Division’s suit, three private class actions were filed on behalf of iPhone users, two in the Northern District of California and one in the District of New Jersey. As with the government’s complaint, the plaintiffs say Apple engages in exclusionary conduct via the App Store, Apple Pay and music streaming. The complaints echo not only the claims but even some of the language used in the federal action. The cases are:

Jared Schermer v. Apple Inc., No. 3:24-cv-01815, N.D. Calif.
Colins v. Apple Inc., 3:24-cv-01796, N.D. Calif.
Shoshi Goldfus v. Apple Inc., No. 2:24-cv-04108, D. N.J.

EC Fines Apple for Violating Anti-Steering Laws

Earlier this month, the European Commission fined Apple over €1.8 billion ($1.95 million) for abusing its dominant position in the market for the distribution of music streaming apps to iPhone and iPad users through its App Store. In particular, the Commission found that Apple applied restrictions on app developers preventing them from informing iOS users about alternative and cheaper music subscription services available outside of the app, a violation of the anti-steering provisions of EU antitrust rules.

According to a statement from the EC announcing the penalty, “Apple is currently the sole provider of an App Store where developers can distribute their apps to iOS users throughout the European Economic Area (EEA). Apple controls every aspect of the iOS user experience and sets the terms and conditions that developers need to abide by to be present on the App Store and be able to reach iOS users in the EEA. The Commission’s investigation found that Apple bans music streaming app developers from fully informing iOS users about alternative and cheaper music subscription services available outside of the app and from providing any instructions about how to subscribe to such offers.”

Edited by Tom Hagy. Photo by Harry Cunningham on Unsplash

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