Apple antitrust suit mirrors strategy that beat Microsoft, but tech industry has changed

The US government’s antitrust lawsuit against Apple (AAPL.O) draws on the watershed 1998 case that broke Microsoft’s stranglehold on desktop software, but that may prove to be an imperfect blueprint for addressing smartphone competition.

The market for the iPhone today looks very different from the near-monopoly enjoyed by Microsoft’s (MSFT.O) Windows operating system two decades ago, and the government as a result may face a tougher time in taking on Apple, legal experts said.

The Department of Justice, along with 15 state governments, accused Apple of unlawfully monopolizing the smartphone market through restrictions on app developers that curb choice and innovation, which it said forces consumers to pay higher prices.

Apple said the government is wrong on the facts and law.

The government has to prove that Apple’s business practices were “exclusionary” and harmed consumers by degrading the quality of rival products, according to several legal experts.

The government accused Apple of suppressing technologies that would have increased competition among smartphones in five areas: so-called “super apps,” cloud streamed gaming apps, messaging apps, smartwatches and digital wallets.

One example the government gave is familiar to anyone who texts from an iPhone to a user of an Android phone — the dreaded “green bubble” that results in hindrances such as grainy photos sent by text that don’t apply when texting between two phones using Apple’s iOS operating system.

Antitrust enforcers said Apple was rapidly expanding its influence and power in industries including content creation and financial services.

By comparison, Microsoft was accused of abusing its market dominance to impede users from freely installing software on computers using the company’s operating system.

That might sound similar to Apple’s control over the app store, but legal experts said there are important differences.

Apple can contract with whom it want and to design products as it sees fit, legal experts said.

It becomes a problem when a company with monopoly power takes steps to lessen short-term profit in order to keep rivals out in the longer term, said Douglas Ross, an antitrust scholar at University of Washington’s law school.

“The fundamental assumption DOJ seems to have is that Apple must cooperate with its rivals to allow rivals to compete with Apple,” Ross said. “That has antitrust law backwards.”

MARKET SHARE

Microsoft was forced to open its operating system because it controlled 95 per cent of desktop operating systems in the 1990s. By comparison, Apple had 55 per cent of the North American market for smartphones at the end of September based on shipments, with the rest largely made up of phones using Google’s Android operating system, according to Canalys, a market analysis firm.

The Justice Department seeks to define the market as that of smartphones in the United States. Apple representatives said they will try to persuade the court to define the market as the global smartphone market.

Apple and rival Samsung Electronics (005930.KS) each had about a 20 per cent market share globally in 2023, though Apple beat Samsung slightly on shipments, Canalys data showed.

Microsoft “clearly was a monopolist and there were no effective competitors in the PC operating system space,” Ross said. On the other hand, Android “is very popular, especially in the rest of the world, and is a very effective competitor with iOS.”

Ross predicted it would be harder for the Justice Department to prevail against Apple than it was in the Microsoft case.

Some of these allegations have been touched upon before in court.

In 2021, in an antitrust case brought by “Fortnite” creator Epic Games, a federal judge found after a trial that Epic failed to prove that Apple users were “locked-in” to their iPhones and would not switch to Android devices.

Of course, government attorneys know these differences and still brought the case.

Legal experts said that reflects the viewpoint within the DOJ and the Biden Administration’s Federal Trade Commission about challenging cases.

“They are happy to take on the risk of a really big case,” said plaintiffs’ lawyer Patrick McGahan, whose firm is involved in litigation against Apple.

Litigator Melissa Maxman in Washington said the Microsoft case changed the tech landscape and lauded the government’s lawsuit as a step toward greater competition in the smartphone market.

“If you open up the market for other competitors to get in you will see prices go down and quality go up,” Maxman said. “That’s exactly what was said in Microsoft — and guess what, it was true.”