The Department of Justice’s antitrust division has come into its own, having filed its third tech monopoly lawsuit in four years.
The accumulated experience shows up in the complaint, according to antitrust experts who spoke with The Verge about the complaint filed Thursday accusing Apple of violating antitrust law. The DOJ describes a sweeping arc of behaviors by Apple, arguing that it adds up to a pattern of illegal monopoly maintenance. Rather than focusing on two or three illegal acts, the complaint alleges that Apple engages in a pattern of behaviors that further entrench consumers into their ecosystem and make it harder to switch, even in the face of high prices and degraded quality.
“I think that they made an even stronger case than I thought that they could,” says Rebecca Haw Allensworth, antitrust professor and associate dean for research at Vanderbilt Law School. “They told a very coherent story about how Apple is making its product, the iPhone and the products on it – the apps — less useful for consumers in the name of maintaining their dominance.”
The lawsuit makes a strong case for consumer harm in addition to harm to developers, says Allensworth, comparing it favorably to the Federal Trade Commission’s suit against Amazon. This, according to Allensworth, was the “missing piece” in the FTC suit against Amazon. “This is just a more plausible story about consumers,” Allensworth says of the Apple complaint, making it, “as a legal matter, a stronger lawsuit.”
That’s not to say it’s a slam dunk for the government. The DOJ is making the case that Apple’s 65–70 percent share of the smartphone market gives it dominance. Despite a number of careful strategic choices — like the broad scope of the case and a favorable venue — the DOJ will likely have a pretty challenging time of it. And even if the government proves that Apple is an illegal monopoly, creating effective remedies for the alleged harms is a whole different problem.
William Kovacic, a former FTC chair who teaches antitrust at George Washington University Law School, says the Apple complaint is “well-written” and shows the DOJ is “learning a lot and applying their learning very effectively across the different cases they’ve been having.” The government, he says, has probably paid close attention to what happened in Epic’s lawsuit against Apple over the App Store. “They’ve written a complaint in a way that seeks to avoid weaknesses that I think the judge might have seen in that case, to add additional material so it’s not simply a reprise of Epic v. Apple.”
In that lawsuit, Epic argued that Apple illegally monopolizes the market for app distribution and payments on its iPhones, allowing it to “unlawfully condition access to the App Store on the developer’s use of a second product—In-App Purchase—for in-app sales of in-app content,” according to the 2020 complaint. But Epic lost on most of its claims and the ruling was upheld by an appeals court. Epic did win one key point, requiring Apple to let developers link to outside payment options. (Epic and other developers have recently complained to the district court, saying Apple is not abiding by that requirement, rendering it ineffective.)
The DOJ took a broader view of Apple’s conduct than Epic did in that case, putting together a very big picture of how Apple has harmed consumers. Rather than going after one or two discrete harmful actions, the DOJ looks to establish an interlocking pattern of illegal behavior that is epitomized by five examples, like the “green bubble” non-interoperability in messaging between iPhones and Android phones. (Other examples include Apple’s exclusion of superapps from the App Store, cloud streaming, lack of compatibility with competitors’ smartwatches, and its policies around Apple Wallet.) “Apple continues to expand and shift the scope and categories of anticompetitive conduct such that the cumulative anticompetitive effect of Apple’s conduct is even more powerful than that of each exclusionary act standing alone,” the government writes.
“DOJ has stepped back from the details and simply asked and answered the question, what are all these about?” says John Kwoka, professor of economics at Northeastern University who recently served as chief economist to FTC Chair Lina Khan. “The merit of looking at it that way is that it frames it in a way that makes clear the core problem.”
Allensworth found particularly striking the DOJ’s description of how Apple’s allegedly anticompetitive behavior could have consequences well into the future. “The one that really jumped out at me was this idea that parents don’t want to get their kids Android phones if they have Apple phones, because it really degrades their ability to interoperate, and interconnect,” Allensworth says. “In this market where you pick an ecosystem kind of for life, that’s really powerful because now that kid is locked in. I mean, not literally, I’m not saying they totally don’t have any choices, but they’re very likely to stick with a product that they grew up on when they were 13.”
Still, the details of the case will be challenging to prove. One key fight will likely be over what the relevant market is — a common area of contention in antitrust litigation. The DOJ defined two different relevant markets, giving it some strategic flexibility in the fight up ahead. One is the overall smartphone market in the US, of which the DOJ says Apple has a 65 percent market share. The other is a subset of that market that the DOJ calls the performance smartphone market (basically high-end smartphones), of which the government says Apple has a 70 percent market share.
An Apple spokesperson told reporters on a background call Thursday that it believes the global smartphone market is more relevant to reflect where the company competes. Apple owns a much smaller portion of that pie. Apple spokesperson Fred Sainz said in a official statement that the complaint “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.”
But even if the court accepts the DOJ’s most narrow market definition, the 70 percent market share could still be a challenging number for the government to prove Apple’s dominance. By comparison, in the DOJ’s second anti-monopoly suit against Google’s advertising technology business, it alleged Google has maintained over a 90 percent share of the publisher ad server market in the US and an 80 percent share of the US advertiser ad network market.
“There will be a big fight over whether or not that 65–70 percent gives them monopoly power.”
Allensworth thinks that DOJ’s strategy was informed by Epic v. Apple. Rather than limiting the relevant market to devices that run Apple’s operating system, prosecutors decided to pick the smartphone market as its battleground, “which is an easy case to make on the market definition side, but sets up a bigger fight on the monopoly power side,” according to Allensworth. “There will be a big fight over whether or not that 65–70 percent gives them monopoly power.”
To understand whether this market share actually gives Apple dominance that it can wield in ways that exclude rivals, the government will need to show that Apple is able to increase prices or degrade quality without losing customers — something you’d expect to happen if customers are able to freely choose the best option out there. “The question is whether users will opt out, can they opt out?” Kwoka says. “Will they opt out for degradation of service? And I think, much like the Google case, I think there probably will be evidence of ways that Apple has limited or compromised some service quality without losing anybody at all.” This would go toward showing Apple’s ability to exercise market power.
The court will also weigh Apple’s arguments for why it had legitimate business reasons to make the decisions that the government says were exclusionary.
One element that can work in the government’s favor is their choice of venue. Rather than file close to home in DC or near Apple’s headquarters in California, the DOJ chose to bring the case in New Jersey.
On close inspection, the choice seems deliberate. Kovacic notes the Third Circuit Court of Appeals, which covers the New Jersey District Court, has “some pretty good law for plaintiffs on monopolization issues.” Kovacic points to a 2005 decision by the Third Circuit in favor of the government in a case called US v. Dentsply. In that case, the appeals court found that the denture manufacturing company violated anti-monopoly law by using “exclusive dealing arrangements to prevent rivals from getting inputs they need to succeed,” according to Kovacic.
“The larger theory of exclusion that DOJ is relying on in the Apple case is the effort by the dominant firm to impede the effort of rivals to provide alternatives in a number of instances, seeking to ensure that they never get a foothold in the market,” he says.
Allensworth notes the Dentsply case may prove particularly useful for the government’s argument for Apple’s market dominance. While she says that courts often consider monopoly power to be more in the range of 90 percent market share, Dentsply had 75 to 80 percent market share based on revenue and 67 percent based on units.
“That, I’m guessing, is at least part of why they filed there,” she says in an email.
DOJ Antitrust Division Chief Jonathan Kanter has said on multiple occasions that he prefers so-called structural remedies (or breakups, like the breakup of AT&T in 1982) to behavioral ones (i.e. requirements to change or stop anticompetitive conduct, like the 2001 Microsoft consent decree). But experts who spoke with The Verge say a breakup is doubtful in this case, and injunctions to stop the allegedly harmful behavior might be more appropriate and plausible.
Enforcers aren’t typically shy about telling the press that all options are on the table. But DOJ officials who briefed reporters on background Thursday were careful not to address the exact kinds of remedies they would seek. Instead, they emphasized that the case will start at an evaluation of Apple’s liability for the alleged harms.
California Attorney General Rob Bonta, one of the state AGs who has joined in the DOJ lawsuit, tells The Verge that the enforcers “are focused on injunctive relief.”
“I think a breakup is very unlikely”
“I think a breakup is very unlikely,” Allensworth says. “They don’t seem to be asking for one. They’re asking the court to enjoin, which means to stop doing the stuff that they’re complaining about. In that sense, they’re asking for something very similar to what Europe has asked Apple to do.” The European Digital Markets Act requires designated gatekeepers like Apple to make changes to its products that the commission believes will create a more competitive environment.
Behavioral remedies can be slippery and hard to keep track of, while breakups are decisive and final. But in this case, says Allensworth, “it’s really hard to think about splitting that baby and saying Apple can make handsets, but can’t make an operating system, can’t have the app store, can’t have iMessage.”
Still, behavioral remedies can come with their own problems and a long tail of ongoing conflict over the terms of the remedy — the never-ending saga of Epic v. Apple is one example. Kwoka says Apple can “figure out ways of throwing sand in the gears of that process.”
The DOJ’s antitrust case against Apple will probably drag out for years, and there’s one upside to that. In the interim, enforcers will be keeping an eye on how Europe is handling the DMA and what kind of rules and enforcement mechanisms are working to inject competition in digital markets. A court order in US v. Apple could be as far as three years down the line or more, even before factoring in appeals — it’s possible that in the midst of its ongoing troubles with European regulators, Apple reads the writing on the wall and changes its behavior on its own. “We’re not holding our breath for that,” says Bonta. “We’re bringing the litigation.”
https://www.theverge.com/2024/3/22/24109033/doj-apple-antitrust-lawsuit-legal-expert-praise
