Apple can attack market definition, evidence, legal theory in defense against US monopoly suit

Apple can attack market definition, evidence, legal theory in defense against US monopoly suit

To defend against government claims that it is a monopolist, Apple can cite its success in recent court cases brought by private plaintiffs and dispute the government's narrow market definition. The company can also point to its relatively small global market share, and can be expected to dispute the government's allegation that its user security and privacy policies are pretexts used to lock competitors out of its so-called walled garden.

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22 March 2024
By Khushita Vasant and Alex Wilts

Apple has several available lines of defense as it confronts US government charges of illegal monopolization of smartphones.

Market definition is typically at the heart of competition cases, and Apple can be expected to argue that the relevant market is broader than the "performance smartphone" market asserted by the US Department of Justice and its state allies. The government's definition of performance smartphones excludes entry-level smartphones.

The iPhone maker is also disputing the underpinning legal theory, and the evidence supporting that theory.

The government's lawsuit, filed in New Jersey federal court by the DOJ and 16 states and territories, accuses Apple of illegally maintaining a monopoly in violation of Section 2 of the Sherman Act. The government says Apple's conduct is exclusionary and anticompetitive, offering consumers fewer choices, higher prices, lower quality and reduced innovation. The company's rules for developers insulate Apple from competition, the government alleges.

Apple was swift in its response.

"This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets,"  an Apple spokesperson said after the 88-page complaint dropped. "If successful, it would hinder our ability to create the kind of technology people expect from Apple — where hardware, software, and services intersect."

Apple casts the antitrust complaint as an assault on a transformative and beloved consumer product.

"It would also set a dangerous precedent, empowering [the] government to take a heavy hand in designing people’s technology. We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it," the spokesperson said.

The government argues that Apple imposes burdens on consumers who want to leave its products, rather than enhancing those products to keep customers onboard. Apple argues that consumers love its products, and the government is asking a US judge to become an engineer and reformulate the entire Apple ecosystem.

Legal theory

In its defense, Apple can cite the outcome of its 2021 court battle with Epic Games, in which a California judge rejected the game company's assertion that Apple is a monopolist. US District Judge Yvonne Gonzalez Rogers said that Apple's market share of over 55 percent, along with its high profit margins, did not constitute an antitrust violation.

“Success is not illegal,” she said.

Gonzalez Rogers did, however, find that Apple engaged in anticompetitive conduct under California’s competition law, and ruled that Apple will have to change its business practices.

Apple contends that the DOJ, in the absence of evidence or harm, has changed the theory underlying its complaint at least 6 times over four years as federal courts determined repeatedly that Apple has acted in accordance with federal antitrust laws.

In the Northern District of California, Gonzalez Rogers found for Apple regarding its App Store rules, and the Ninth Circuit Court of Appeals upheld her ruling. Apple likewise defeated claims by AliveCor that the tech giant acted anticompetitively by purposely degrading the functionality of its heart rhythm analysis to undermine competitors.

Apple maintains it has no obligation to redesign its products to help rivals.

Citing a US Supreme Court 2009 duty to deal case — Pacific Bell Telephone Co. v. linkLine Communications, Inc. — Apple says that the foundation of the DOJ lawsuit rests on a theory that has no basis in antitrust law, and which has been rejected by the US Supreme Court and other federal courts.

The high court unanimously held that Pacific Bell didn’t violate US antitrust law by charging allegedly excessive fees to allow other Internet providers to deliver an Internet connection through its lines. Apple can likewise argue that it isn't required to adopt the preferences of its competitors, particularly when doing so would worsen iPhone users' experience.

Apps, games

Apple can be expected to dispute the government's factual case, too.

The DOJ has challenged the smartphone maker’s control over app creation and distribution, claiming Apple impeded the development of apps that provide broad functionality in a single app — so-called "Super Apps" built with programming languages such as HTML5 and JavaScript.

The DOJ and states rely on statements from Apple officials, such as a quote from a company manager, who allegedly said that 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” and diminish “iOS stickiness.”

Apple, however, points to iPhone Super Apps such as Tencent’s WeChat in China and Tata’s Data Neu in India, which have not been popular with US customers. Over time, the company says, it has offered more tools for super app developers.

The government lists Apple’s allegedly “exclusionary” rules and conduct that discouraged innovation and stifled the popularity of mini programs. The DOJ also cited Apple’s “onerous requirement” that any cloud streaming game — or any update to a game — be submitted as a stand-alone app for Apple approval, increasing the cost of releasing games on the iPhone.

DOJ’s selective picture

The DOJ, Apple contends, disregards the fact that the iOS platform originated a new market that has helped millions of developers offer products to hundreds of millions of users. Likewise, the quotes the government cites in its complaint were only snippets of conversations that do not capture the full picture, according to Apple.

The DOJ cites a March 2016 email in which Apple’s senior vice president of worldwide marketing forwarded a message to CEO Tim Cook that said: “moving iMessage to Android will hurt us more than help us.”

Apple argues that it has changed its practices in recent years to become more open, working to balance third-party access to its platform with security requirements.

The DOJ said that in response to pressure from the market and international regulators, Apple plans to adopt RCS, or Rich Communication Services, allowing iPhone users to exchange messages with non-Apple devices. The government said many non-iPhone users have experienced “social stigma” for “breaking” group chats where other participants own iPhones and the text bubbles become green rather than blue.

Without explicitly citing the Epic Games litigation, the DOJ complaint pointed out that Apple was enjoined from enforcing its anti-steering provisions related to in-app purchases in its agreements with app developers. But Apple, the complaint said, responded by simply creating a “different set of onerous restrictions” to achieve a similar result.

When it has its day in court, Apple is sure to tell the judge that it faces intense competition from other global smartphone makers such as Samsung, Google, Xiaomi and others, who have a combined global market share of 80 percent. The company can also be expected to attack the DOJ for discounting iPhone privacy and security features as pretextual, and to allege a government effort to define a market narrow enough to support its monopolization theory.

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