U.S. Sues Apple Over iPhone Monopoly
David McCabe and Tripp Mickle (PDF, CourtListener, Hacker News, MacRumors):
The Justice Department joined 16 states and the District of Columbia to file an antitrust lawsuit against Apple on Thursday, the federal government’s most significant challenge to the reach and influence of the company that has put iPhones in the hands of more than a billion people.
In an 88-page lawsuit, the government argued that Apple had violated antitrust laws with practices that were intended to keep customers reliant on their iPhones and less likely to switch to a competing device.
The tech giant prevented other companies from offering applications that compete with Apple products like its digital wallet, which could diminish the value of the iPhone, and hurts consumers and smaller companies that compete with it, the government said.
The government points to several different ways that Apple has allegedly illegally maintained its monopoly:
- Disrupting “super apps” that encompass many different programs and could degrade “iOS stickiness” by making it easier for iPhone users to switch to competing devices
- Blocking cloud-streaming apps for things like video games that would lower the need for more expensive hardware
- Suppressing the quality of messaging between the iPhone and competing platforms like Android
- Limiting the functionality of third-party smartwatches with its iPhones and making it harder for Apple Watch users to switch from the iPhone due to compatibility issues
- Blocking third-party developers from creating competing digital wallets with tap-to-pay functionality for the iPhone
My high-level, non-lawyer-who-hasn’t-read-the-whole-filing take is that the DOJ’s case stretches existing law, but it may prove useful in revealing information and in shifting public opinion. I’m skeptical that this will amount to much more than a giant distraction. I wish Congress had passed better laws and that Apple hadn’t acted so badly.
Apple has maintained monopoly power in the smartphone market not simply by staying ahead of the competition on the merits, but by violating federal antitrust law.
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We allege that Apple has employed a strategy that relies on exclusionary, anticompetitive conduct that hurts both consumers and developers.
For consumers, that has meant fewer choices; higher prices and fees; lower quality smartphones, apps, and accessories; and less innovation from Apple and its competitors.
For developers, that has meant being forced to play by rules that insulate Apple from competition.
Via John Gruber:
Defining the iPhone as a monopoly when it has somewhere around 55 percent market share in the U.S. is obviously the first thing the DOJ needs to prove.
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.
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.
It accuses Apple of attempting to create a monopoly through its various business tactics, which is also illegal.
This is where I think existing law is lacking. iPhone is probably not a monopoly in the traditional sense. But it’s obviously not Nintendo, either. And I would argue that it’s much closer to the former than the latter. Apple thinks of itself as providing a highly differentiated product, which is true in a sense, but I see its hardware-software platform as approaching a utility. The smartphone revolution was so successful that the product has become table stakes for modern life. When everyone needs mobile Internet and app access, and the barriers to entry are astronomical, it makes more sense to think of iPhone/iOS as an electric company or an ISP than as a more powerful Nintendo Switch. We should be thinking in terms of common carriers and network neutrality. I don’t know whether there’s a good regulatory solution. Certainly, it could be a disaster if done heavy handedly.
I am supportive of good legislation in tech (especially for privacy and user rights) but this Apple DOJ complaint is everything that can be bad about government tech regulation: an ignorant, pointless exercise which will likely hamper making meaningful laws that help us as users.
Competition across iOS and Android platforms is important, but competition just within iOS is important too. My complaints have always been about Apple’s exclusive control over app distribution, regardless of Android.
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Even though there is a smartphone duopoly with iOS and Android, iOS alone reaches so many hundreds of millions of people that it is effectively a market on its own. If you want to build and distribute for the most commercially viable smartphone platform, you have no choice but to follow Apple’s rules. Until Apple lets developers route around that monopoly through external payments and sideloading, there will be pushback.
This summary reeks of technical naivety. The DOJ is alleging that, for example, Apple Watch and iPhone work better together than third-party watches with iPhones not because of specific integration, but because Apple is locking third parties out. Same with Tile trackers vs. AirTags. The only alternative would be to allow third parties to install system software extensions on iOS, like on a Mac or PC.
I think both are true. As one would expect, the DOJ’s technical understanding is not great. I suppose you can argue as to why Apple did so, but it’s undeniable that it prevented third-party products in these categories from being competitive. Other companies innovated and got there first, Apple blocked them, privileged its own products, and took over the market.
So what surprised me is that they didn’t do the expected “Apple needs to make their watch work on other platforms”, they did the “Apple makes it impossible for other watches to work on their platform” -- which as someone who used to use a Pebble is 100% a better argument.
This is the worst history of the iPod I’ve ever seen.
If Microsoft had been able to charge 30% on all iTunes for Windows purchases, even without restricting its availability or functionality, history would have been very different. I don’t think it’s a stretch to believe that Apple’s policies could (or may already have) prevented the emergence of the next iPod. Imagine if the Web browser hadn’t already been invented. Or look at something like the Humane Ai Pin and how it seems like they had to contort the entire design and purpose of the product because they knew they would be locked out of really integrating with iOS. Apple would say that, not even knowing about what a product like this could have been, customers chose iOS because they wanted to be protected from its ilk. I find it hard to take this sort of argument seriously, even as I also see that somehow mandating the sort of integration you’d want would be a mess.
Here’s the most brutal sentence thus far:
“Rather, to protect its smartphone monopoly—and the extraordinary profits that monopoly generates—Apple repeatedly chooses to make its products worse for consumers to prevent competition from emerging.”
Mysk:
“In the end, Apple deploys privacy and security justifications as an elastic shield that can stretch or contract to serve Apple’s financial and business interests.”
“Rather than respond to competitive threats by offering lower smartphone prices to consumers or better monetization for developers, Apple would meet competitive threats by imposing 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.”
“…Apple would meet competitive threats by imposing a series of shapeshifting rules and restrictions in its App Store guidelines and developer agreements…”
“Shapeshifting” App Store rules and guidelines. Goddam, what a wonderful way to describe it.
The root of Apple’s recent success Apple to use dominance of the iPhone to push for dominance elsewhere (see Pay, Watch, AirPods). Even then it’s still shockingly bold that Apple told car manufacturers that the only way to keep CarPlay is if they let Apple take over the dash.
There’s no sourcing on these flyby quotes from unnamed Apple employees, but this is somewhat juicy: it sounds like an iPhone product manager explaining how they should differentiate Pro vs non-Pro models more aggressively.
An abstract way of looking at the DOJ’s antitrust action against Apple is that it’s like they’re zooming in on the very part that the district court and the appeals court said Epic had failed to prove: customer lock-in.
Epic’s sacrifice was not in vain, apart from the injunction.
It was really naïve to think Epic ‘lost’ its fight against Apple. Everything Epic fought for is going to come to pass, and Apple has trashed its reputation in the process while daring regulators the world over to start peeling the layers of its business apart with a crowbar.
I’m curious to see how long it’ll be before shareholders start questioning Apple about how they’re handling regulations.
Apple keeps getting fined for acting in bad faith and is risking more fines. They’ve wasted time and effort making 600 APIs instead of just opening iOS like macOS.
The costs are going to outweigh the benefits soon, which doesn’t make sense because they earn most of their money from hardware and they wouldn’t lose all services revenue either by opening up.
Apple still thinks it can control everything like the early days. It should’ve gradually let go, knowing this approach wasn’t going to last forever, reaping the benefits in the meantime.
See also: Gergely Orosz.
Previously:
- EU Approves Digital Markets Act and Digital Services Act
- Why Apple Should Compromise With Antitrust Regulators
Update (2024-03-22): Matt Stoller:
And in the U.S., retention rates are really high. According to one mobile carrier, 98% of iPhone owners buy a new iPhone. In China however, that number, at least a few years ago, was just 50%. The reason is simple. In America, it’s difficult to move out of the Apple ecosystem. In China, it’s easy.
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According to the complaint, “as one Apple manager put it, allowing super apps to become ‘the main gateway where people play games, book a car, make payments, etc.’ would ‘let the barbarians in at the gate.’ Why? Because when a super app offers popular mini programs, ‘iOS stickiness goes down.’”
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Like the rest of Big Tech, Apple is less a technology development firm than a middleman, standing in between the relationships of consumers and businesses, taking a piece from each. And it strong-arms anyone who tries to disrupt its role as that critical middleman, using coercive contractual terms, denial of access to key technologies, or outright deception via its impressive branding.
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If you’re a consumer, sure there’s Samsung. But an app developer, or a messaging app maker, or automotive firm, or bank, or anyone who has to live in the Apple ecosystem, is operating inside a monopoly. If you make an email program, some of your customers are going to own iPhones, and they will expect an app from you, and thus Apple is your boss. It’s a bit like in the 19th century having one railroad to ship your products. There might be other railroads across the country, but the only one that matters is the one near you that can carry what you make. Similarly, an Android phone doesn’t help you if your customers demand you get your app, or your Toyota car, through the Apple approval process.
Case in point about Apple’s privacy “à géométrie variable”: their Shazam app, even on Android, asks for GPS authorization. Voluntary scanning of QR codes at restaurants was blocked when the UK government’s COVID tracking app wanted to offer it.
Apple music sales > human lives
The reality of the US smartphone market is that if you don’t do exactly as Apple wants then you’re shut out of 60% of smartphone users.
It’s technically not a monopoly but gives Apple an unreasonable amount of clout to even dictate the dashboard tech in your car. That sucks.
Despite my critiques of the DoJ suit, I think there are valid points in there. The cloud gaming section is one bit where it seems clear that Apple blocked a technology that it felt was a threat with an arbitrary ruling—clear because they subsequently backtracked that decision with no real technological change.
That’s also one place where it feels obvious that this suit is incredibly scattershot, in part because it’s so big and so long in the making. The strictures on cloud gaming have been relaxed (although perhaps too little and too late). I’m not a lawyer, obviously, but feels like what DoJ needed was maybe a much narrower suit that really focused on one or two high profile instances instead of throwing a bunch of stuff against the wall to see what will end up sticking.
My wife is technically adept, but it’s not a hobby for her, so I always find it interesting to hear her impressions on things that people in our corner of the internet feel very strongly about. Her overall impression is that it’s absurd Apple has absolute control over what people get to run on their iPhones. From that perspective, the cloud gaming ban seemed clearly malicious to her and the NFC restrictions seemed egregious. I did mention to her that some people think the iPhone is more like a Switch or PS5 than a computer so this absolute control is fine, and her exact response was, “people actually think that?”
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She said green bubbles suck so much that it makes her never want to get an Android phone lest she be the green bubble person everyone else in the group thread is slightly angry at all the time. “It’s social suicide.”
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I do think it’s notable that (a) the iPod is what really pushed Apple off the brink and into the mainstream, setting them on the path that got them to be the biggest tech company in the world and (b) the iPod really took off once Windows users could buy it, and Apple would not have been able to do this if Microsoft had the same rules in place that Apple has over the iPhone and iPad.
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Do you want to be the next big smartwatch company? Go ahead, but you can hire the best developers and designers in the world, you’ll never be able to beat the Apple Watch because Apple doesn’t offer you the same access their product gets. See also cloud gaming services which were blocked for years pretty clearly because they competed with Apple Arcade and made it impossible for Apple to maintain the IAP revenue and control over what games get to run on people’s devices.
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Without getting into details, I will say that there are absolutely cases in the payments industry where innovative ideas were proposed but scrapped because you couldn’t do it on iPhones[…]
See also: Accidental Tech Podcast, Steven Sinofsky, Six Colors Podcast, Mac Power Users, The Verge.
Update (2024-03-25): Jeff Johnson:
Look again at the 1982 US vs. AT&T case.
The issue wasn’t AT&T’s monopoly, which had been allowed for decades. And the issue wasn’t customer unhappiness with AT&T’s service. Rather, the issue was that AT&T abused its monopoly status by requiring customers to lease phones approved by A&T, arbitrarily restricting customers from using third-party phones that could be purchased outright.
Over on Threads, Walt Mossberg has commented on the Apple/DOJ case. First up, if you do not respect Walt’s opinions, you’re a fool. Walt is one of my tech journalism heroes. That said, I think he’s missing a couple of points here.
Walt is correct that the vertically integrated model has been Apple’s since the start. But what is permissible when you’re a small company or in a nascent market is no longer permissible when you are in a position of market power. And no one doubts that Apple is in a position of significant market power, not least Apple itself.
Second, like most people, Walt is being tripped up by the word “monopoly”. The DOJ definition makes absolutely no mention of a percentage: it talks only of “market power”. That’s why the DOJ’s filing is careful to refer to Apple having both market power AND significant market share.
Regarding the antitrust suit: I have been an Apple employee, supplier, and partner. As soon as I sold Big Nerd Ranch, I threw away my iPhone and bought a Pixel because I believe Apple’s power (and thuggish use of that power) is bad for our industry.
App developers, can you imagine how much better things would have been if the App Store had let users do free time-limited trials? Maybe, after trying a good app, a user would have been willing to pay more than $.99.
Negotiations with Apple (our biggest customer) end with “…because we are Apple (and will destroy you if we don’t get everything we want).” Most didn’t say the last part aloud, but Mike Fenger’s team shouted it while renegotiating our role in the Enterprise Partners Program.
Having worked closely with Google, Amazon, Microsoft, and Meta, none use their power as ruthlessly as Apple. I am grateful that the DOJ has stepped in. I’m certain there was a lot of political force trying to prevent the suit.
So, since we have plenty of time, I thought I’d kick off our coverage at MacStories with a look at the DOJ’s complaint and its legal underpinnings, along with some observations on what’s going on and what you can expect to happen next.
Apple decreed that 3rd-party apps could only be installed via the App Store, which would review every app; free apps wouldn’t have to pay anything, while Apple would take 30% of paid apps. This led to an absolute explosion in the market: consumers, who had been scarred by the 2000’s era of malware and viruses, shook off their reticence to install software and embraced the App Store, leading to an explosion of app-based businesses.
This is certainly Apple’s view, but I don’t see a lot of evidence for it. Sandboxing, not Apple’s review, is what should have given consumers confidence. iPhone apps might have been more popular if Apple had allowed Mac-style downloads instead. Certainly, we did not see that sort of explosion when adding the Mac App Store to a platform that already had downloadable apps. It’s not even clear the Mac App Store had an overall positive effect on the ecosystem. People also conflate the App Store with easy installation, updates, and uninstalls, but there’s no reason Apple couldn’t have enabled those to be smooth for non-store apps, too. It’s just that they see no reason to help Pebble now that they’re selling Apple Watches.
Tourist attractions are a poor analogy for owning a smartphone. A better one, if you want an analogy, is something like a really powerful company town compared to a normal city. Everything you can buy and do is filtered through a paternalistic owner, there are seemingly arbitrary rules, and despite all the bureaucracy, it is unwise for businesses to ignore setting up shop there because its residents seem to spend more money.
People make all kinds of trade-offs when they buy something as complex and convergent as a smartphone, and it is difficult to know how much of that is a fair vote with their wallet and how much of it is a side effect of the platform owner’s impositions.
We saw this play out before the iPhone 6 was introduced. Apple still sold plenty of iPhones even though its models had smaller displays than competing products, and it was unclear whether people were buying iPhones because they were small or in spite of their size. The still-unbeaten unit sales of the iPhone 6 models shows lots of people wanted a bigger iPhone.
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That lots of people buy iPhones is not inherently a vote of confidence in each detail of the entire package. If some of those things changed a little bit — the U.S. government’s suit is not a massive overhaul of the way the iPhone works — I doubt people would stop liking or trusting the product.
Update (2024-03-27): Aaron Tilley and Kim Mackrael:
In its antitrust lawsuit against Apple filed Thursday, the Justice Department invoked its case against Microsoft filed in 1998 and noted that Jobs used to rail against what he viewed as Microsoft’s anticompetitive tactics to protect its dominance in the PC market. Bill Gates has since said the company’s legal fights were a distraction that contributed to Microsoft’s failure to gain a lasting foothold in the emerging world of mobile operating systems.
After so many years of fighting, Microsoft changed tack after settling the case in 2001, promoting Brad Smith to general counsel the following year. In Smith’s pitch to Microsoft’s board of directors to take the job, he presented them with a single slide that said: “It’s time to make peace.”
Such a detente is unlikely for Apple while Schiller remains at the company, said Phillip Shoemaker, who ran the store’s review group under Schiller until 2016. “He’s a brick wall when it comes to these matters,” Shoemaker said. “I just don’t think he’s ever going to leave.”
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One thing Jobs insisted on in the App Review process is that the company should always have someone reviewing each app that made it into the store. Schiller continued that tradition, eschewing excessive use of artificial intelligence in favor of reviews and careful curation [sic].
Previously:
