Explaining the antitrust lawsuit against Apple that could dethrone the iPhone

The Biden administration filed a wide-ranging antitrust lawsuit against Apple on Thursday targeting the iPhone, a product that has been a major revenue driver for the company’s $2.76 trillion business.

The Justice Department, along with 16 state attorneys general, accused Apple in federal court in New Jersey of maintaining a monopoly on the U.S. smartphone market, of which the iPhone accounts for 65%. The complaint alleges that Apple intentionally interfered with apps, products, and services that would make it easier for users to switch from their iPhones to other smartphones and reduce costs for consumers and developers.

The company countered in a public statement Thursday that the lawsuit sets a “dangerous precedent that gives governments greater power over the design of people’s technology.”

Apple is one of the last remaining large tech companies that has yet to face such a large-scale antitrust lawsuit. There are also pending lawsuits against Facebook’s parent company Meta, Amazon, and Google.

“Antitrust law has changed, basically going back to FDR style,” said Tim Wu, a Columbia Law School professor and architect of the Biden administration’s antitrust policy. “I think the hallmark of FDR-style antitrust law was that they were not risk-averse. If they thought an industry was anticompetitive, they would take everyone, including the biggest monopolies, away from the core of the business. I filed a lawsuit over something.”

Contents of the lawsuit

Fiona Scott Morton, a professor at the Yale School of Management and former chief economist of the Justice Department’s antitrust division, said the lawsuit is “very much about innovation and interference with the path to innovation to maintain existing monopolies.” It’s a story about control.” .

The complaint cites five examples of how Apple allegedly suppressed technologies that would have improved competition in the smartphone market.

• It limits “super apps,” which offer a wide range of functionality such as e-commerce, food delivery, transportation, financial services and social networking, because it reduces users’ dependence on Apple’s ecosystem.

• Until recently, the Apple App Store restricted the availability of cloud gaming apps that could be played without expensive hardware such as an iPhone. The idea is that if consumers are into gaming, that’s what Apple wants. Those that require advanced cell phones like theirs.

• It prohibited third-party messaging apps from sending and receiving SMS messages over your phone carrier’s network (as opposed to your data network) and called them “overall worse” compared to Apple’s native messaging apps.
• This prevented third-party smartwatches from accessing key features when paired with an iPhone.
• Denied users access to an enhanced digital wallet that works across smartphone platforms.

The complaint cites internal communications and messages from Apple executives, including emails and meeting notes, that show the company was aware of the anticompetitive effects of its App Store policies.

All of this adds up to the market for “high-performance” smartphones and smartphones in general, defined as smartphones with “higher quality cameras, better battery life, wireless charging, and advanced biometrics such as facial scanning,” according to the complaint. It is said to have a negative impact on

“They’re saying that Apple has a monopoly on this kind of market, the most lucrative market. I think the definition of the market will be very important to the success of this case,” Wu said.

But the main challenge for the government is that it will never know what other products would have been developed without Apple’s alleged anticompetitive conduct, Scott Morton said.

Still, she said the recent Federal Trade Commission lawsuit against Illumina, a maker of gene-sequencing equipment, suggests the government may have an opportunity. The FTC argued that Illumina’s acquisition of Grail, a start-up cancer test developer, would stifle innovation and raise prices for consumers. But Illumina said this argument is just speculation because it is impossible to predict what cancer tests will be invented in the future.

The FTC won the lawsuit, and Illumina was forced to sell in December. The same thing could happen with Apple.

“When you’re in an innovation race, it’s hard to pinpoint specifics,” says Scott Morton. “But at the same time, that innovation is of great value to consumers. So these are very important markets to protect.”

Apple’s most likely defense is that users simply prefer its devices, and the choices outlined by the Justice Department were made to protect user privacy, Wu said. In fact, Apple is an industry leader in protecting user privacy.

But the complaint alleges that Apple “selectively violates privacy and security interests when it serves Apple’s own economic interests,” using privacy as a blanket defense against accusations of anticompetitive conduct. I’m trying to get ahead of the idea that I can do it. For example, text messages sent from an iPhone to an Android are not encrypted, but they can be easily encrypted.

“In most cases, there are non-anticompetitive ways to ensure privacy,” says Scott Morton.

Will this lawsuit dethrone Apple as the king of smartphones?

The government has not ruled out structural remedies in the lawsuit, including drastic solutions like breaking up Apple’s operations and other, less powerful ways to restore competition in the app distribution market. may be included. The lawsuit accuses Apple of using private APIs (tools for communicating with other software) to infringe on Super Apps and cloud streaming apps on the App Store, or to interfere with third-party messaging, smartwatches, and digital wallets. ).

Wu said he expected the government would not settle easily.

Comparing the Biden administration to the Bush and Obama administrations, he said, “What I think is completely different about this administration is that they don’t try to take 20 cents on the dollar.”

Apple stock fell more than 4% on Thursday. But the company’s core business is a gigantic enterprise. The iPhone is the most expensive smartphone on the market, costing $1,599 for the most expensive model, but its market share has only grown in recent years, overtaking challengers like Samsung and Huawei.

However, as Scott Morton stated, if Apple is forced to end some of the practices that have allowed it to make a fifth of the profits, in the long run Apple, or new companies entering the market, will It’s hard to predict what will happen to innovators. World smartphone sales and numbers.