US DOJ and 16 States Sue Apple for Violating Antitrust Laws, Establishing Monopoly

[frayne]

Apple holds a 24% market share in the smartphone market. Consumers desire seamless integration between their non-Apple tech devices and Apple's ecosystem. However, Apple is cautious about sharing proprietary information, which could benefit competitors. My teenage grandson is frustrated because his Android smartphone doesn't integrate well with his friend's Apple devices. IMHO this appears to be a first world problem. On my previous post I meant no disrespect for the public legal beagle servants but I wonder how many outside legal firms are going to be contracted for both the government as well as Apple to run this thing to its logical conclusion. Again, I would posit there is going to be some wealth spread throughout the legal community for this case.

 

[Gremlin]

Apple also deliberately makes their text messaging app work better with Apple phones only, and make communications with Android phones an inferior experience for Android phone users. For example, video clips sent from an Apple phone to an Android phone will be lower resolution, pixelated, and generally lousy viewing experience. Then there is the green bubble, blue bubble controversy.

This! Those of us who are Android users (and who communicate with their Apple using friends) know all about it

 

[Qs Laptop]

This! Those of us who are Android users (and who communicate with their Apple using friends) know all about it

Yes, and there are technological fixes available but Apple CEO Tim Cook plainly stated that it wouldn't be good for Apple to fix this disparity, and told teens to fix the problem by telling them to "get your Mom to buy an iPhone."

That would be Exhibit A if I were the prosecutor.

 

[CaptTom]

...Apple didn't HAVE to make it clear who has their phone and who doesn't, but they did. If you have ever been a teenager who had the store-brand sneakers, or the wrong jeans, and been bullied for that? Same thing, only worse, because it's by design.

Yeah, I don't wear "fashion brand" sneakers or jeans, either. I'm not bullied and I don't really care if you think my clothes, hair or phone aren't "in style." I buy these things to use them, not to be seen with them.

Yes, and there are technological fixes available but Apple CEO Tim Cook plainly stated that it wouldn't be good for Apple to fix this disparity, and told teens to fix the problem by telling them to "get your Mom to buy an iPhone."

That would be Exhibit A if I were the prosecutor.

Agreed. That quote says all I need to know about doing business with that company.

 

[Aerides]

Yeah, I don't wear "fashion brand" sneakers or jeans, either. I'm not bullied and I don't really care if you think my clothes, hair or phone aren't "in style." I buy these things to use them, not to be seen with them.

I'm not talking about what impacts people over, say 50, but 15 year olds.

I was bullied mercilessly for only having two pairs of Jordache jeans when I arrived in the US. I could give a crap nowadays. But those 15 year old are "but Mommmmmmm"ing their way into $900 phones instead of $200 ones. By the millions. And that's intentional.

 

[Gumby]

....On my previous post I meant no disrespect for the public legal beagle servants but I wonder how many outside legal firms are going to be contracted for both the government as well as Apple to run this thing to its logical conclusion. Again, I would posit there is going to be some wealth spread throughout the legal community for this case.

The DOJ and State AGs will do this entirely in house, as we did when we sued Apple in 2012 for violating the antitrust laws by price fixing ebooks in connection with the introduction of the iPad in 2010. (I was co-lead counsel for the state AG group). Apple will hire outside counsel, who will unquestionably be expensive, but that occurs anytime the government sues a company.

 

[Al18]

Part of this lawsuit is the 30% cut Apple is taking from their largest developers. This seems unusually large and doesn't seem fair compared to the competition.

 

[Qs Laptop]

Part of this lawsuit is the 30% cut Apple is taking from their largest developers. This seems unusually large and doesn't seem fair compared to the competition.

Are you talking about the commission that Apple receives for developers listing their Apple apps in the Apple app store? Because I think it's more like 40%.

 

[MichaelB]

Appel charges 30% of revenue for all apps downloaded from its app store. They were sued by Epic Games, the case went to court and was settled last year. Neither company achieved all of its objectives but the Apple app store 30% was allowed to continue.

Note, Google was sued for a similar practice and lost. The reason Google lost was not the fee, it was the fact that some developers were charged a lower fee.

 

[CaptTom]

I'm not talking about what impacts people over, say 50, but 15 year olds...

Sorry, yeah, I wasn't in the "in" crowd when I was 15, either. Didn't have designer clothes or whatever else was in fashion back then. My first car cost me $100 and I had to go repair it myself, where it broke down, to bring it home.

Those lessons have served me well over the years, and now I find I don't need to show off an Apple logo on everything electronic I own, or a designer label on my clothes, or own one of those giant water jugs everyone is carrying around.

I'm not complaining by any means. I find just as much joy in life as those who care about impressing others. I have nothing against people who choose to BTD on whatever they want. Keep the economy going!

 

[Turbo29]

This! Those of us who are Android users (and who communicate with their Apple using friends) know all about it

I like it. When my Apple friends start sending messages I'd rather ignore for a while they have no idea whether or not I even saw their message so they don't know that I am ignoring them for the moment. Regarding the grainy video thing: I just tell them if you want to send me a video, send it to my email. Save me from having to waste time watching a lot of their videos.

 

[tenant13]

DOJ will not only have to prove that Apple illegaly limited competition but also that consumers would be happier if changes were forced on the company. I’m not sure this will be particularly easy: you can switch to another phone if you like, it’s not as hard as DOJ alleges.

I’ve gone through some of their allegations and a few are downright silly: iMessages restricting quality of files being sent to Android? Blue bubbles? Everyone I know uses WhatsApp, Messenger, Discord, Signal and other chat apps that work identically on all platforms. Nobody’s forcing us to use iMessage.

Apple also apparently caused Amazon’s phone to fail and pushed other companies out of the phone market. Amazon’s phone was just an awful marketing tool for trying to sell more stuff - it didn’t even have App Store. And that’s Apple’s fault?

 

[jimbee]

I’ve gone through some of their allegations and a few are downright silly: iMessages restricting quality of files being sent to Android?

Videos sent from Apple phones to Android phones via Apple's message app look like they are rendered using about 4 pixels. They are intentionally borked. You may not think it's a problem, but others don't like it.

 

[USGrant1962]

Appel charges 30% of revenue for all apps downloaded from its app store. They were sued by Epic Games, the case went to court and was settled last year. Neither company achieved all of its objectives but the Apple app store 30% was allowed to continue.

Note, Google was sued for a similar practice and lost. The reason Google lost was not the fee, it was the fact that some developers were charged a lower fee.

And 40% markup (~30% of sales) from wholesale to retail is pretty standard across most products. I don't understand what the case is here.

 

[indiajust]

High Purchase Price Yes, but long term value

Support tends to run from six to eight years. And Apple still will offer security updates to the iOS of some even older phones.

I have to agree with Chuckanut here. The initial price is higher, but the product lasts and even improves with software and security updates. Apple earned my business.

I have much more doubt about the veracity and utility of the anti trust folks than I do about Apple value. It's better, better performing, and cheaper in the long run.

 

[indiajust]

I do think that the mandatory 30% cut of revenue from supported apps/games is aggressive and might support an anti-competitive narrative. But nothing beyond that holds merit. I am uncertain how to defend/attack any specific percentage as legit.

 

[indiajust]

I find myself leaning into MidPack here. Simply False covers 95% or more of the product line. I don't see Apple purchases as blatant consumerism. Certainly a gold plated Apple Watch is intended and understood as such. But a mini Iphone 13 is hardly a status symbol. They offer products from the leading to the trailing edge of technology. Choose. It's not arrogance or monopoly. It's choices.

 

[tenant13]

I feel that a lot of what this suit is about revolves around Apple either doing certain things better or first. Which results in consumers choosing Apple over other options. iTunes and Apple Wallet are good example of Apple being on the vanguard of technology. When they first started selling music digitally and allowing people to use their phones for payments, they were ridiculed. Now, when they have most of the market, everyone else is salty about it and tries to get the piece of Apple business by signing on to this lawsuit.

It’s not always the case: Apple Music for streaming and Apple Maps are awful so most people opt for
Spotify and Google Maps. Superior products win.

 

[indiajust]

Public Choice Theory

It’s pretty simple, the justice department has been annoyed at Apple for years because they make it difficult for them to access secure data on iPhones.

Apple continues to improve their encryption technology (for example, they recently added an extra layer of encryption to Messages to foil quantum computing-based attacks, technology the government has been poring research money into). If you don’t play ball, they will go after you.

The Justice Department may not be paid in cash, but they do compete and accrue power, influence, control, and knowledge which can later be monetized once the public servant leaves the fold. And these folks compete internally for cases. Wings and halos are not granted upon hire.

A successful judgement against Apple is a life-altering CV boost for a prosecutor. And the JD lawyers know it.

The decision to support customer privacy over government access was deliberate and provocative. Apple policy (once implemented as code) put them on a collision course with the security state. The choice of who to sue with scarce resources is the esssence of public choice theory. Capitalism expressed within the bureaucracy.

No junior intern made this decision lightly. Such a choice comes from the executive branch leadership.

 

[indiajust]

colored audio

Maybe if they relied just on their superior products, this would not be needed.

But they didn't. If you have a teenager with an android, ask them about their angst with the green bubble.

Apple didn't HAVE to make it clear who has their phone and who doesn't, but they did. If you have ever been a teenager who had the store-brand sneakers, or the wrong jeans, and been bullied for that? Same thing, only worse, because it's by design.

At last, I understand the colored bubble statements. If I understand Aerides comment, it seems Apple coded envy via the text bubble color.

I'm not sure if this can be legislated, due to my own ignorance more than anything else.

In my case.... no color comes up when I just call and ask What's the Good Word? I guess Apple has not found a way to color audio.

 

[Qs Laptop]

DOJ will not only have to prove that Apple illegaly limited competition but also that consumers would be happier if changes were forced on the company. I’m not sure this will be particularly easy: you can switch to another phone if you like, it’s not as hard as DOJ alleges.

The DOJ has to prove consumer's happiness? C'mon. How can someone prove another's emotional disposition? MichaelB, is this actually a legal component?

I’ve gone through some of their allegations and a few are downright silly: iMessages restricting quality of files being sent to Android? Blue bubbles? Everyone I know uses WhatsApp, Messenger, Discord, Signal and other chat apps that work identically on all platforms. Nobody’s forcing us to use iMessage.

"Everybody I know"--Anecdotal evidence is not proof.

Once again, on the blue bubble/green bubble issue and texting in general. Apple knows there is a technical fix for this, refuses to make changes because they know it entraps young people to stay loyal to iPhone and then tells them "if your Mom doesn't like it, tell her to buy an iPhone."

Apple also apparently caused Amazon’s phone to fail and pushed other companies out of the phone market. Amazon’s phone was just an awful marketing tool for trying to sell more stuff - it didn’t even have App Store. And that’s Apple’s fault?

I'd really like to know what your banging on about here? How did Apple cause Android phones to fail? What is an Amazon phone? As to no app store, Google Play is where you get Android apps and has been since 2012.

 

[statsman]

Once again, on the blue bubble/green bubble issue and texting in general. Apple knows there is a technical fix for this, refuses to make changes because they know it entraps young people to stay loyal to iPhone and then tells them "if your Mom doesn't like it, tell her to buy an iPhone."

So, a decline in parenting and emotional decision-making are reasons to sue Apple? On a forum that espouses LBYM for a more secure, and possibly early, retirement?

 

[Qs Laptop]

So, a decline in parenting and emotional decision-making are reasons to sue Apple? On a forum that espouses LBYM for a more secure, and possibly early, retirement?

No, that's not it.

Child sends mom videos. Mom has an Android phone because it's less expensive and she doesn't want to LBYM. But when mom views the videos on her Android phone they look like pixelated junk. That's because Apple uses their own proprietary texting technology that causes this problem with non-iPhones.

People have been complaining about this for years and years. There is a fix readily available. Apple refuses to implement, knowing it keeps people from buying Android phones, then saying aloud, "tell your Mom to buy an iPhone."

Sounds like a monopolistic strategy to me.

 

[Gumby]

To be clear for those who were not antitrust lawyers -

Having a monopoly is not per se illegal under the antitrust laws. So if it occurs that your product is so superior that people will buy nothing else and all your competitors go out of business, you have not violated the law. What does violate the law is using illegal means to obtain or sustain a monopoly, usually things that preclude competition by means other than just having a great product at a great price, such as tying or predatory pricing.

A monopolization case is what is called a "rule of reason" case, which requires two things 1) a showing of illegal monopolization conduct, and 2) proof of consumer harm, which can include higher prices/lower output than would otherwise be the case, or artificially fewer choices for consumers, which are usually shown by the expert testimony of economists.

Another part of the antirust laws bans collusion or concerted action by competitors, such as price fixing or market allocation. These cases are usually tried under the "per se" standard, which requires only a showing that the defendants colluded. This is because the harm due to such collusive action is deemed to be self evident

 

[Closet_Gamer]

I think Apple has four problems.

1 - Communications Network Externality

Any time you have a communications product there is a need to interconnect with other providers in order for the product to provide value. That's why we have mandatory phone interconnection and the world needs a standard for email. If an incumbent, let's say VZ, was able to say "we will add static to any calls that go to T-Mo" they have an unfair advantage because users who choose an alternate network from a new entrant are punished not because the new entrant is inferior but because the incumbent is leveraging the power of their network. It serves to forestall the development of competition.

iMessage is a communications product that is intentionally harming other network operators. I think this is a legitimate claim.

2 - Agreement to split markets

In business, there are always decisions to outsource and focus but sometimes it reaches the level of agreeing to divide up a market. Ford buying transmissions from a company that specializes in transmissions isn't an issue. But Ford calling GM and saying "we make trucks, you make cars" is illegal.

In the Google antitrust case, it came to light that part of Google's arrangement with Apple for the iPhone search deal was that apple had to stand down their efforts to develop a search engine. That is, in my view, an agreement to divide up a market. Google may make a unilateral decision to change its terms if Apple is seen as an emerging competitor but they cannot make an agreement to stay out of each other's markets.

A similar agreement that Apple must stand down AI development as part of a deal with Google would also be very suspect.

3 - App Store Utility

At a certain point, a platform reaches the status of being a utility where it is not practically possible to be in market without paying that utility. I could make widgets without paying the power company if I built my own power plant, but practically speaking that's not a competitive option. So I have to use the power company.

When something reaches utility status society has a need to create rules on how much rent that utility provider can extract and under what terms. The power company can't say "You owe me 30% of the revenue you get from your widget sales." They also can't say "You can't use the power from my nuclear plant to build solar panels."

The Apple app store may have reached utility status. It is not possible to develop virtually any software and many retail services without relying on the App Store. If so, they can't demand 30% of the retail proceeds from others products nor can they say that companies (e.g., Epic or Kindle) can't set up their own stores within their apps.

4 - Retail price fixing

It is illegal for a supplier to dictate to a retailer the retail price of a product. They can set MSRPs, provide co-marketing funds, etc but they cannot say "The price of a Ford is $1000" and require everyone to do that. A big reason that Apple can get $1400 for an iphone is that behind the scenes they unleash enormous pressure on the carriers to do "free" iphone deals. It could be argued that this pressure reaches the point of price fixing and market manipulation.

These topics are intertwined because, collectively, they build on one another in a way that harms competition in multiple arenas.

The nature of anti-trust is almost always a judgement call between not punishing success and recognizing when someone has unreasonable market power. If I were the DOJ, I would go after them in this order. I think this case should be used as the basis to update antitrust law for the digital age.

My $0.02.