Justice Department Wants To Take Its Bite Out Of Apple

Over the course of the last few years, it feels like the FTC & DOJ have slowly started getting better at figuring out how to craft a better antitrust lawsuit. The earliest attempts were often beyond silly, but the more recent cases (while far from perfect) have finally started alleging things that seem like potential actual anticompetitive behavior.

The problem, to me, though, is that nearly every one of them overreaches, such that even when they allege things that seem potentially anti-competitive, they burden down the complaint with nonsense. But still, it feels like at least some of the early failures are leading to at least some more careful pleading in more recent cases. Not everyone agrees, though. An analysis by Daniel Crane, based on surveying various antitrust experts, seems to suggest that some of the more recent antitrust cases are on shaky ground (though it sounds like many of the experts think all the big tech antitrust cases are poorly argued).

As you’ve likely heard, the latest is last week’s move by the Justice Department and a bunch of states to sue Apple for a variety of antitrust violations. Depending on who you talk to, the case is “even stronger than imagined” or it’s patently “absurd.”

After spending a few days reading and rereading the complaint, talking to various experts, and thinking about it, I come down somewhere in the middle. There are parts of the complaint that do seem pretty ridiculous. And there are parts that at least raise legitimate concerns. But, even those legitimate concerns may still fail due to the market definition which, in this case, seems… aggressive?

The complaint itself is surprisingly readable for an antitrust complaint. That’s often a sign of a weakness in the underlying antitrust case. The more readable antitrust complaints frequently seem designed to sway the public by telling a good narrative, rather than getting to the heart of the legal issues in court.

The key part that makes this case stronger than others is that it actually shows the real potential for consumer harm, rather than relying on some of these newfangled competition theories that you don’t need to show consumer harm for an antitrust case.

But, still, some of the claims seem overblown. The DOJ’s lead argument is that the lack of super apps seems proof of Apple suppressing competition:

Super apps provide a user with broad functionality in a single app. Super apps can improve smartphone competition by providing a consistent user experience that can be ported across devices. Suppressing super apps harms all smartphone users—including Apple users—by denying them access to high quality experiences and it harms developers by preventing them from innovating and selling products.

The argument here is basically that if so-called “super apps” were allowed, users would let those apps mostly take over everything important on a phone. This would make the hardware layer less important, making it easier to switch from an iPhone to any other phone.

But… what a weird argument. The only major “super app” is WeChat in China. And there really are no super apps in the US. I guarantee that if there was a super app… the DOJ would likely be suing it for anticompetitive behavior. The fact that we don’t have super apps in the US seems like a sign of more healthy competition in the app market, and not proof of anti-competitive behavior by Apple.

It is true that the DOJ has emails from Apple execs fearing the rise of potential super apps, but this still doesn’t make much sense in the context of the larger complaint:

Apple recognizes that super apps with mini programs would threaten its monopoly. 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.”

The lack of an anti-competitive app at the app level doesn’t seem like a particularly strong argument for anti-competitive behavior at the hardware/OS level.

The second concern also seems weak, at best. It’s the lack of success of cloud streaming games on iOS devices:

Cloud streaming game apps provide users with a way to play computing intensive games in the cloud. Cloud streaming games (and cloud streaming in general) can improve smartphone competition by decreasing the importance of expensive hardware for accomplishing high compute tasks on a smartphone. Suppressing cloud streaming games harms users by denying them the ability to play high-compute games, and it harms developers by preventing them from selling such games to users.

Once again, this all seems very speculative. People have been predicting big things for cloud gaming for many, many years now, and it’s never really caught on anywhere. And it’s not just because Apple doesn’t like them. Remember, Google had a whole big cloud gaming initiative that fizzled. It’s hard to blame that on Apple’s iOS policies.

From there, though, we get to a few arguments that should at least raise some eyebrows. Some of the decisions seem to have little purpose other than to limit competition and harm end users. I’ve gotten sick of antitrust cases trying to take things that have perfectly legitimate reasons for being done and casting them as being done for anti-competitive reasons, but here there are a few decisions that seem hard to justify by Apple (of course, we still need to hear Apple’s side of the story).

The strongest of these is how Apple has deliberately degraded messaging services. We’ve discussed this somewhat in the context of Apple and Beeper, where Beeper offered a third-party service that would make anyone’s messaging more secure by end-to-end encrypting messages between iMessage users and non-iMessage users. Apple blocked Beeper from doing so, claiming it was necessary for security purposes. But that made little sense.

And here, the DOJ calls out Apple’s behavior:

Messaging apps are apps that allow users to communicate with friends, family, and other contacts. Messaging apps that work equally well across all smartphones can improve competition among smartphones by allowing users to switch phones without changing the way they communicate with friends, family, and others. Apple makes third-party messaging apps on the iPhone worse generally and relative to Apple Messages, Apple’s own messaging app, by prohibiting third-party apps from sending or receiving carrier-based messages. By doing so, Apple is knowingly and deliberately degrading quality, privacy, and security for its users and others who do not have iPhones. Apple also harms developers by artificially constraining the size of their user base.

It seems likely that Apple will claim it does this for security reasons, but those reasons seem flimsy. There are many ways in which Apple could make sure that third-party messaging is more secure, but it chooses not to do so.

Again, here, the DOJ has pretty clear evidence that Apple is making that experience worse at least in part to build lock-in and to avoid competitive pressure.

Apple recognizes that its conduct harms users and makes it more difficult to switch smartphones. For example, in 2013, Apple’s Senior Vice President of Software Engineering explained that supporting cross-platform OTT messaging in Apple Messages “would simply serve to remove [an] obstacle to iPhone families giving their kids Android phones.” In March 2016, Apple’s Senior Vice President of Worldwide Marketing forwarded an email to CEO Tim Cook making the same point: “moving iMessage to Android will hurt us more than help us.”

In 2022, Apple’s CEO Tim Cook was asked whether Apple would fix iPhone-toAndroid messaging. “It’s tough,” the questioner implored Mr. Cook, “not to make it personal but I can’t send my mom certain videos.” Mr. Cook’s response? “Buy your mom an iPhone.”

While many will claim Cook was joking with that last quip, there is a valid point here. The reasons Apple made this decision appear to be not for the benefit of users, but for anti-competitive reasons.

The last two areas are a bit more middle-ground: smartwatches and digital wallets. I don’t think that Apple should need to go out of its way to allow third parties to build tools, but the DOJ again suggests that Apple has deliberately, for anti-competitive reasons, sought to limit access to important functionality. On the smartwatch front, Apple has limited access to certain functionality that the Apple Watch gets access to to guarantee that third party smartwatches can’t compete:

Smartwatches are an expensive accessory that typically must be paired to a smartphone. Smartwatches that can be paired with different smartphones allow users to retain their investment in a smartwatch when switching phones thereby decreasing the literal cost associated with switching from one smartphone to another, among other things. By suppressing key functions of third-party smartwatches—including the ability to respond to notifications and messages and to maintain consistent connections with the iPhone—Apple has denied users access to high performing smartwatches with preferred styling, better user interfaces and services, or better batteries, and it has harmed smartwatch developers by decreasing their ability to innovate and sell products.

And, with digital wallets becoming a key payment system, Apple also appears to be limiting third parties from doing much that is useful:

Digital wallets are an increasingly important way that smartphones are used and are a product in which users develop a great deal of comfort and trust as they typically contain users’ most sensitive information. Digital wallets that work across smartphone platforms allow users to move from one smartphone brand to another with decreased frictions, among other things. Apple has denied users access to digital wallets that would have provided a wide variety of enhanced features and denied digital wallet developers—often banks—the opportunity to provide advanced digital payments services to their own customers.

There may be a stronger “security” argument for that last one, but some of it sure looks like it’s only being done for anti-competitive purposes. For example, blocking anyone else from tapping into the NFC tap-to-pay feature:

Multiple app developers have sought direct NFC access for their payment or wallet apps. Yet Apple prohibits these developers from incorporating tap-to-pay functionality in their apps for fear that doing so would “be one way to disable [A]pple [P]ay trivially,” leading to the “proliferation of other payment apps” that might operate cross-platform and ultimately undermine Apple’s smartphone monopoly.

There is no technical limitation on providing NFC access to developers seeking to offer third-party wallets. For example, Apple allows merchants to use the iPhone’s NFC antenna to accept tap-to-pay payments from consumers. Apple also acknowledges it is technically feasible to enable an iPhone user to set another app (e.g., a bank’s app) as the default payment app, and Apple intends to allow this functionality in Europe.

So, in the end, this case strikes me as having some good parts and some questionable parts.

In every antitrust case, the big question is going to be about market definition. Because if Apple doesn’t have a dominant position in whatever market is accepted, then it’s pretty much free to do those anti-competitive things, and if people don’t like it, they should vote with their feet. The DOJ will claim, of course, that many of the decisions above were designed to block the ability to vote with their feet, and I’m sure Apple will insist that the market should be as widely construed as possible and… that could work? Perhaps they can convince a judge (or eventually a jury) that the iPhone isn’t necessarily as dominant as it might otherwise seem. In an era where we’re seeing more and more devices come on the market, some of which you could argue compete with smartphones in new and novel ways, perhaps the market is that broad.

All that is to say, we’ve seen some pretty ridiculous antitrust cases over the last few years. This one, though, seems more on the serious side of the ledger — but with some holes that Apple will look to push back on. Still, this case isn’t a slam dunk either way, and I think Apple has a real fight on its hands.