DOJ Suing Apple for Monopolistic Practices
Anticompetitive practices in one of the most competitive of markets.
AP (“Justice Department sues Apple, alleging it illegally monopolized the smartphone market“):
The Justice Department on Thursday announced a sweeping antitrust lawsuit against Apple, accusing the tech giant of engineering an illegal monopoly in smartphones that boxes out competitors, stifles innovation and keeps prices artificially high.
The lawsuit, filed in federal court in New Jersey, alleges that Apple has monopoly power in the smartphone market and leverages control over the iPhone to “engage in a broad, sustained, and illegal course of conduct.”
“Apple has locked its consumers into the iPhone while locking its competitors out of the market,” said Deputy Attorney General Lisa Monaco. Stalling the advancement of the very market it revolutionized, she said, it has “smothered an entire industry.”
Apple called the lawsuit “wrong on the facts and the law” and said it “will vigorously defend against it.”
The suit takes aim at how Apple allegedly molds its technology and business relationships to “extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others.”
That includes diminishing the functionality of non-Apple smartwatches, limiting access to contactless payment for third-party digital wallets and refusing to allow its iMessage app to exchange encrypted messaging with competing platforms.
It specifically seeks to stop Apple from undermining technologies that compete with its own apps — in areas including streaming, messaging and digital payments — and prevent it from continuing to craft contracts with developers, accessory makers and consumers that let it “obtain, maintain, extend or entrench a monopoly.”
The lawsuit — filed with 16 state attorneys general — is just the latest example of aggressive antitrust enforcement by an administration that has also taken on Google, Amazon and other tech giants with the stated aim of making the digital universe more fair, innovative and competitive.
“The Department of Justice has an enduring legacy taking on the biggest and toughest monopolies in history,” said Assistant Attorney General Jonathan Kanter, head of the antitrust division, at a press conference announcing the lawsuit. “Today we stand here once again to promote competition and innovation for next generation of technology.”
Antitrust researcher Dina Srinavasan, a Yale University fellow, compared the lawsuit’s significance to the government’s action against Microsoft a quarter century ago — picking a “tremendous fight” with what has been the world’s most prosperous company.
[…]
The case seeks to pierce the digital fortress that Apple Inc., based in Cupertino, California, has assiduously built around the iPhone and other popular products such as the iPad, Mac and Apple Watch to create what is often referred to as a “walled garden” so its hardware and software can seamlessly offer user-friendly harmony.
The strategy has helped Apple attain an annual revenue of nearly $400 billion and, until recently, a market value of more than $3 trillion. But Apple’s shares have fallen by 7% this year even as most of the stock market has climbed to new highs, resulting in long-time rival Microsoft seizing the mantle as the world’s most valuable company.
Apple said the lawsuit, if successful, would “hinder our ability to create the kind of technology people expect from Apple — where hardware, software, and services intersect” and would “set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.”
“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,” the company said in a statement. “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets.
Apple has defended the walled garden as an indispensable feature prized by consumers who want the best protection available for their personal information. It has described the barrier as a way for the iPhone to distinguish itself from devices running on Google’s Android software, which isn’t as restrictive and is licensed to a wide range of manufacturers.
“Apple claims to be a champion of protecting user data, but its app store fee structure and partnership with Google search erode privacy,” Consumer Reports senior researcher Sumit Sharma said in a statement.
The lawsuit complains that Apple charges as much as $1,599 for an iPhone and that the high margins it earns on each is more than double what others in the industry get. And when users run an internet search, Google gives Apple a “significant cut” of the advertising revenue those searches generate.
The company’s app store also charges developers up to 30 percent of the app’s price for consumers.
Critics of Apple’s alleged anticompetitive practices have long complained that its claim to prioritize user privacy is hypocritical when profits are at stake. While its iMessage services is sheathed from prying eyes by end-to-end encryption, that protection evaporates the moment someone texts a non-Apple device.
But Will Strafach, a mobile security expert, said that while he believes Apple needs reigning in, he’s concerned that the Justice Department’s focus on messaging may be misplaced and could weaken security and privacy.
“I am quite glad that access to SMS messages is restricted,” said Strafach, creator of the Guardian Firewall app.
He notes that a number of apps, ostensibly for weather and news, on iPhones have secretly and persistently sent users’ GPS data to third parties. Strafach said he is concerned weakened Apple security “could open the door to stalkerware/spouseware, which is already more difficult to install on Apple devices compared to Android.”
However, prominent critic Cory Doctorow has complained that while Apple has blocked entities like Facebook from spying on its users it runs its “own surveillance advertising empire” that gathers the same kinds of personal data but for its own use.
“Apple has a history of clandestine deals with surveillance giants like Google, and (CEO) Tim Cook gave Uber a slap on the wrist instead of an app store ban when (the ride-sharing company) built a backdoor to spy on iPhone users who had already deleted Uber’s app,” noted Sean O’Brien, founder of Yale’s Privacy Lab.
On its face, the notion that Apple, whose share of the wildly competitive global smartphone market fluctuates considerably from quarter to quarter, has monopoly power is absurd. Indeed, the past quarter was one of only two in the last eight where it outsold Samsung.
Within the US, though, Apple is indeed the dominant player:
The fact that they charge a premium for their products would seem to give competitors a huge advantage. Even though I’ve been in the Apple ecosystem for fourteen years now—indeed, the whole family is on iPhones—I’d definitely consider switching to a Google or Samsung phone if they were radically cheaper. It turns out, they’re not.
The so-called “walled garden” has long struck me as a feature, not a bug. Various applications working seamlessly between my iPhone, iPad, and MacBook is a huge bonus of being in their ecosystem.
At the same time, it’s clear that Apple engages in some anti-competitive practices.
The Verge‘s Victoria Song (“US v. Apple: everything you need to know“):
The DOJ alleges that Apple blocks “super” apps, suppresses mobile cloud streaming services, blocks cross-platform messaging apps, limits third-party digital wallets, and even limits how well third-party smartwatches work on its platforms.
[…]
The DOJ complaint, which was joined by attorneys general and district attorneys from 16 other states, alleges that “Apple undermines apps, products, and services that would otherwise make users less reliant on the iPhone, promote interoperability, and lower costs for consumers and developers.”
Buried in the 88-page antitrust lawsuit filed by the US Department of Justice against Apple is a reference to everyone’s favorite phone-projection system, CarPlay.
The DOJ says that, like smartphones, vehicle infotainment systems have become a new way in which Apple exhibits anticompetitive behavior to harm consumers as well as its competitors.
It’s no secret that Apple products work best if you stick with an iPhone. It turns out that’s a big reason why Apple landed in hot water today with the US Department of Justice, which alleges that the company went too far in locking down messaging, smartwatches, and digital wallets to intentionally hobble its rivals.
This won’t be a surprise to most consumers. We’ve all known for years about green bubbles and that you can’t bring your Apple Watch to an Android phone. What the DOJ is saying is that, altogether, this series of protective policies makes it extremely difficult for an iPhone user to leave its walled garden, limiting competition so much that it breaks the law.
I’m skeptical of some of these claims. “Lock-in” is a natural feature of many technology products.
For example, I’ve had multiple Fitbit devices over the last dozen or so years. Switching to a different fitness tracker would mean having to start fresh, as I could no longer easily compare today’s activities with those from previous days, months, and years. (And, it’s worth noting that I’ve had iPhones somewhat longer than Fitbits and the latter’s app works perfectly well on the former, even though Apple Watch has been a thing most of that time.)
It’s why, even though people hate what Elon Musk has done to the place, so many people remain on Twitter. I’ve dabbled on Bluesky, which is intentionally a Twitter clone, but it doesn’t have anything like the user base, making it exponentially less useful.
WaPo’s Shira Ovide (“Why is the government suing Apple? Look at your iPhone’s restrictions.“) adds:
The government’s charges against Apple will probably face a high legal bar in court, if the lawsuit makes it that far.
Apple said it would “vigorously” contest the lawsuit. A victory for the plaintiffs “would hinder our ability to create the kind of technology people expect from Apple,” the company said.
If you have an iPhone, you can see for yourself the heart of the government’s allegations.
The Justice Department says Apple limits choices with apps, text messaging, the ability to tap phones to buy lunch and options for seamlessly using a Garmin or Samsung smartwatch with an iPhone.
I assume this to be true but, again, my Fitbits over the years have worked seamlessly with iPhone, both before and after they were bought out by Google.
If you use an iPhone, you’re subject to several limitations pointed out in the government’s lawsuit, including:
You can’t send secure iMessages to someone with an Android phone
If you have an iPhone and text a buddy with an Android phone, each of your phone companies gets a copy of that message — and it’s less secure from hackers.
If you text a video to your Android friend, it probably looks compressed or garbled on their end. You don’t get an indication that your buddy read your text, as you would if he had an iPhone.
If you have a Windows computer, you can’t easily read your iMessage chats on your PC as you can on a Mac.
Honestly, until I bought a Macbook a year and a half ago, it would never even have occurred to me that I could see messages on my PC. So far as I know, I couldn’t do so when I had a BlackBerry, either.
You can’t try some potentially useful apps
Imagine downloading one app that lets you play a bunch of games such as “Candy Crush” and “World of Warcraft.”
Xbox made an iPhone app like that several years ago, but Apple never let you try it. Instead you generally must download and pay for each game app separately.
The Justice Department said that Apple’s decision to block those kinds of apps within apps stops you from trying potentially innovative products. The government lawsuit essentially compared it with Netflix only letting you watch one movie rather than giving you access to a bunch of programming.
Apple said in January that it would start to permit apps within other apps, although it’s not clear yet how that might work in practice.
This is clearly about Apple getting its cut rather than about app functionality. The “innovation” is Microsoft only paying one fee to Apple.
You can’t tap to pay with anything other than Apple Pay
In the United States, Apple restricts access to the technology on your iPhone that lets you hover your phone near a payment register to pay for groceries, a subway fare or a cup of coffee.
That’s partly to keep your phone secure, but it also steers all your tap-to-pay purchases through its own Apple Pay service, letting the company collect a fee every time. Even if you wanted, you can’t pay instead with PayPal, the Cash app, Venmo or other payment services.
In its lawsuit, the Justice Department said that Apple “exerts its smartphone monopoly” to stop financial companies from “developing better payment products and services for iPhone users.”
After the European Union recently passed a law that forces Apple to allow access to its tap-to-pay features, PayPal told its investors that it planned to make its payment service available for tap-to-pay on iPhones.
I honestly don’t have a strong feeling about this one way or the other but I’m not sure why Apple should be required to offer up a competitor’s payment system on its phones or vice-versa.
CNN’s David Goldman (“Green bubbles, Apple Pay and other reasons why America says Apple is breaking the law“) emphasizes what has always struck me as the silliest complaint:
“Buy your mom an iPhone.”
That was Apple CEO Tim Cook’s famous response at Vox’s 2022 Code Conference, when a reporter complained that her mother couldn’t see the videos she texted to her mom’s Android phone because they were grainy and slow.
It’s also a quip that US Attorney General Merrick Garland quoted – and sharply criticized – Thursday at a press conference announcing the Justice Department’s landmark antitrust lawsuit against Apple, in which the Biden administration and 16 states allege Apple is illegally abusing the iPhone’s monopoly power in the smartphone market.
[…]
With iMessage, Apple created an enhanced text messaging service that allows people to seamlessly communicate with one another, sending rich text, high-quality video and audio that uploads almost instantly – as long as it’s sent to another iPhone customer.
When those messages get sent to people with Android phones, they appear grainy, they can be slow to load, and they can miss out on key features like emoji responses, editing functionality and end-to-end encryption. The dreaded “green bubbles” that mark Android users within iMessage – and particularly the lower-quality performance – are illegal, the Justice Department alleges.
“As any iPhone user who has ever seen a green text message, or received a tiny, grainy video can attest — Apple’s anticompetitive conduct also includes making it more difficult for iPhone users to message with users of non-Apple products,” Garland said on Thursday. “As a result, iPhone users perceive rival smartphones as being lower quality because the experience of messaging friends and family who do not own iPhones is worse — even though Apple is the one responsible for breaking cross-platform messaging. And it does so intentionally.”
I routinely text and receive photos and such from non-iPhone users. The easiest way to do that is with a third-party tool like WhatsApp—which I’ve had on my iPhone for years.
LAT’s Wendy Lee (“What the DOJ’s antitrust suit against Apple means for everyone with an iPhone“) adds:
Unlike Google’s Android operating system, which runs on Google phones as well as other devices such as Samsung’s, Apple products operate only through its own software, iOS. The only way that third-party developers can get their app onto Apple’s App Store is by following the iPhone maker’s rules. If they don’t, they risk losing out on millions of customers.
Again, I don’t see why this is a problem. The company’s entire model has been the walled garden approach that curates the user experience. If I wanted to use Android, I would buy one of the many phones that allow me to do that. The iPhone and iOS are synonyous.
“This is signaling that Apple is going to have to bring its prices for other apps down,” [Jamie Court, president of L.A.-based nonprofit Consumer Watchdog] said. “It’s going to have to open its payment systems to other providers and it’s going to have to make sure that people who use other devices have basically a comparable access to convenience and service.”
We shall see, I guess. But, again, it’s not remotely obvious why Apple should be forced to offer competing products on its device. If customers don’t like that, they can buy one of dozens of other products on the market—and tens of millions do just that.
Critics say that Apple abuses its position as a gatekeeper for the App Store, launching similar Apple products that directly compete against rivals and put them at a disadvantage.
For example, Apple released its own streaming music service, Apple Music, which competes directly with Spotify. Apple foes say that the company has a competitive advantage because it not only owns the iPhone but also controls the software system and App Store. Apple also controls which apps are pre-installed on its iPhones.
Even though I once used a music service that eventually became Apple Music, I’ve been using other services (mostly Amazon’s Prime Music and Google’s YouTube Music) on my iPhone for going on a decade now. My wife has long been using Spotify on hers. The five kids use some combination of those apps. None of us are using Apple Music. It’s just not that hard to download an app.
The irony of these suits is that, regardless of how big a Microsoft or an Apple or an Amazon are, they’re ants compared to the power of the United States Government. Having the full weight of the Justice Department against them essentially forces the companies to settle rather than spend years leaking money and having their future clouded by the prospect of a massive judgment.
It’s not, although there’s certainly a lot of tech bros whose fortunes depend on getting consumers to think that it is.
@Stormy Dragon: I honestly don’t know how you’d get around it in some cases. Getting accustomed to an interface (MS Office, Mac/Windows, Adobe Acrobat, iOS/Android, etc.) naturally creates change costs. My old MOG playlists went away when Beats bought them; I don’t know how I could have taken them to Spotify or YouTube.
We could probably create some legal requirement for make something like my Fitbit data formatted in a way that it could be ported to Apple or Garmin but I suspect there are proprietary differences that make that hard. But I don’t know how you’d make all of my Twitter data easily portable to BlueSky, much less force Twitter users to migrate to that platform.
As a long-time systems engineer in Silicon Valley, I can assure you that there really is no reason whatsoever that, for instance, your FitBit data can’t be ported over to another device. There could be an industry standard, or the data could be ported over, which really is not that complicated.
It isn’t done because the owners of the data don’t want it to be possible. They want customers locked in, because that way they can charge extra in so many ways. “Commoditization is death” is a phrase I’ve heard uttered in complete seriousness (although it’s clearly hyperbole).
Microsoft used to do this. They famously did it with the browser. The big dogs want proprietary stuff, not industry standard stuff.
This battle was won by the consumer side when it comes to how networking works, and that’s why we have an internet in the first place – an industry standard. So I brook no argument that proprietary formats and walled gardens are somehow better for the economy. Nope.
Everybody and her sister wants to lock me in to something, and then collect the fees for little effort. Bleh.
I mean, Apple even uses connectors that aren’t standard so you have to buy theirs not the standard ones that cost half as much. Until the EU dinged them on it, anyway.
@James Joyner: I consider changes in interface to be more legit than data formats. Interfaces can cut both ways, it can be better, or worse. And yeah, there’s some inertia there, but if you have other reason to change vendors, you can go through the pain of learning a new UI.
Nobody really cares about data formats, they care about the data. But data formats can be used to lock you in much more severely than UIs.
I agree with your arguments in the post, but then I would, because my experience pretty much matches yours.
There’s a lot that I don’t like about iOS, but in my work, I test and work with a lot of Android stuff, and IMO Android is worse in most ways. Apple is popular mostly because many people prefer its products.
While Android runs on a variety of devices, makers like Samsung do have proprietary features. Samsung has OneUI along with apps that are the default apps, which are intended to mesh seamlessly with OneUI, which other apps don’t. You can’t run Samsung’s propriety apps or OneUI on other phones, and Samsung ensures this via hardware built into their phones and their custom version of Android.
Oh, and we can also talk about Google and how its Android apps integrate with Google’s ecosystem.
You also mentioned WhatsApp, which is the dominant messaging app globally and blows iMessage away in terms of user base. For some reason, it hasn’t taken off here in the US. And who owns Whatsapp? Meta.
I think you are correct on the general issue, James. And I think you reference the key issue.
Apple can design products that lock in Apple only peripherals etc. I think its their right. That may, or may not, be a good business decision, and make them pricks. Its their policy decision to make. I even understand some of the reasoning: tech has such a rapid lifecycle that a producer needs to recover their investment and return quickly.
But as a consumer, I can give Apple the finger and buy an alternative. That’s not monopoly. And I think we all know Apple is a cult, in addition to good products.
I see no monopoly power whatsoever. No restraint of trade.
You want to talk about monopoly? Go look at media and leftist darling Warren Buffet. A monopolist of the first order. But I guess he’s the right kind of monopolist: one who will BS the general public about taxes and his secretary blah, blah…..
@Jack:
Can you expand on that? Or link to an article that unpacks this? Genuinely curious. Unfortunately the existence of a Berkshire-Hathaway Monopoly game made doing a quick google challenging.
I saw something about mobile homes, but I’m not sure if that was what you were referring to.
The walled garden means that Apple can choose which apps, and gets a large cut of that app’s cost, and all payments within those apps.
Apple simultaneously uses that in anticompetitive, monopolistic ways, and has to allow a lot of sketchy apps that aren’t theirs in order to maintain the appearance of a competitive market to avoid regulation on the things they care about. It’s a weird set of incentives.
If iOS was able to work with other app stores (without jailbreaking, etc), then a few things would likely happen:
– Users would be able to load apps Apple doesn’t approve. (Duh)
– Apple’s cut of the money would go down. I doubt this would affect prices to the consumer.
– Apple would no longer be under a lot of pressure to approve so many apps to appear competitive that they are letting garbage into the walled garden.
– Someone would be able to build the App Store that maintains higher walls, if Apple doesn’t raise their standards.
The Apple App Store is filled with late stage capitalist wealth extraction apps, data extraction apps, poorly done knock off apps, and every kind of fraud out there.
Apple has a very nanny “we know better than you” corporate mentality, held in check by the need to appear to be allowing competition and openness. By allowing other App Stores, it would allow Apple’s nanny nature to thrive. Apple distinguish its App Store by focusing on safety (from everyone other than Apple, granted, but that’s a start).
I want that.
@Matt Bernius:
That is brilliant. That is beautiful SEO behavior. Apple needs to get an Apple-branded Monopoly game out there to confuse search results.
Obviously not one that focuses on their actual anticompetitive practices, but simply highlighting their many fine and innovative product offerings. No block of the various specialty cables and connectors, but a block with stuff like iPhone SE, iPhone Pro, iPhone Max…
It would be awful and make no sense as a game, but that’s not the point.
I am so impressed with Berkshire-Hathaway for their monopoly game.
I have to say I was startled that Apple is so dominant in USA land…. being in a world more dominated by Android flavours (and also living in a world where WhatsApp is wildly favoured even to my own irritation but…).
@Andy: I think few if any people are particularly bought into Samsung proprietary apps, the Android ecoystem not having such a dynamic.
@Jack:
Leftist darling? You know you lot have quite become deranged, truly deranged. The Lefties here can barely stand capital at all.
But as a matter of actual current factity, Berkshire Hathaway sold its media holdings more than four years ago, to a media specialist. The deranged wing of the populist Right in USA really does need to work on updating the rote talking points.
I suppose Buffet is indeed genuinely popular amongst the centrist economic-liberals (in the proper sense of liberal rather than the American deformation into meaning Leftist), who one might call properly liberal capitalism oriented social democrats.
@Lounsbury:
FWIW, I think Jack meant that political media, and the media in general, likes to hold Buffet as what a consentaneous billionaire should be (i.e. arguing for tax increases on the rich).
(Not an i-Phone guy but have several friends who are and listen to them complain. Soooo…)
I think that Apple does all those things. And, as others have noticed, so do Samsung and LG and Google and… What I’m not sure about is that the way that it (and the others for that matter) do those things constitutes monopolistic control over an item for which there are still dozens of brands and (to the degree that I understand/follow the technology) still several operating systems available to choose from (though many are niche products at best).
And there may well be an advantage to the monopoly condition the DOJ is describing. It could open the way to declare cellphone service a utility and put the industry under (local) government regulation (See Ma Bell). Of course, declaring the industry a utility would require action from Congress, so I doubt that I will live long enough to see it happen let alone benefit from it. And the libertarians would scream, but that’s just another potential upside.
@Matt Bernius:
Matt
Warren Buffet does not just buy good businesses, at “fair prices.” And, amazingly, the Easter Bunny does not exist. He then lobby’s government to enhance the competitive position of his holdings. Look first at his position in his railroad. Then go to the former advocacy on behalf of Solomon Brothers.
I would be breaching confidentiality to say more than this: I have absolute first hand experience (because of my profession) with Buffet. I can say it was in the housing industry. I can say he threatened very serious people with financial interests in a potential acquisition/divestiture. (to convey it to him, creating a monopoly. Heh.) They were billionaires as well. Told him to fuck off. I can say he lost. To us.
You can do your own homework. If you care. He parades around as a Coke sipping, ice cream eating good guy. The press loves it. Because he says bullshixt they want him to say. He’s a financial machine. And plays the politicians and other fools to a tee.
You can take that commentary, or not. I don’t care. It speaks then only to you.
@Matt Bernius:
Correct. Loundsberry seams to be off his rocker.
@Jack:
Thanks for the context.