The Government’s New Apple Antitrust Case Would Force iPhones to Look Like Androids
Like That Your iPhone “Just Works”? Better Hope That This Lawsuit Fails
Bloomberg reported Wednesday that the Biden Administration’s Department of Justice will imminently file an antitrust lawsuit against Apple — accusing the company of “violating antitrust laws by blocking rivals from accessing hardware and software features of its iPhone.”
This suit has been rumored for months, so we have a good idea of what it will include. It will likely force iPhones to work more like Android devices.
If you’re among the millions of Americans who have purchased an iPhone because of integrated features like Find My Phone, Apple Pay, iMessage, or integration with Airpods and Apple Watch, you better hope that this lawsuit fails.
Because if it succeeds, there will no longer be any difference between your iPhone and an Android device.
What We Know About the Case
Thanks to advance reporting by the New York Times, Bloomberg, and the Wall Street Journal, we know that the case is likely to target the integration of software and services on iPhones, including:
- “How Apple has used its control over its hardware and software to make it more difficult for consumers to ditch the company’s devices, as well as for rivals to compete” (NYT)
- “How the Apple Watch works better with the iPhone than with other brands,” like Garmin watches (NYT)
- “How Apple locks competitors out of its iMessage service” (NYT)
- “Apple’s payments system for the iPhone, which blocks other financial firms from offering similar services” (NYT)
- “How Apple has blocked cloud gaming apps, which let users stream a multitude of titles to their phones, from being offered in its App Store.” (NYT)
- “Apple’s policy of applying fees to purchases made inside of iPhone apps” (NYT)
This lawsuit wasn’t spurred by consumer or voter complaints. Instead, companies like Tile, Beeper, Spotify, Match Group (a former client of DOJ Antitrust Chief Jonathan Kanter), banks, and payment apps have all spent months pushing the DOJ to bring this lawsuit. They would be the largest beneficiaries of the lawsuit.
Effort to Relitigate Old Losses
The Justice Department and many of the companies backing this lawsuit spent two years lobbying Congress to pass the American Innovation and Choice Online Act (AICOA) and Open App Markets Act (OAMA), which would have banned Apple and other Big Tech services from offering integrated services to consumers.
They failed. And one prominent law professor said the bills “deserved to die.”
Around the same time, the Justice Department intervened in Epic Games’ antitrust lawsuit against Apple, over Apple’s App Store commissions and rules. But Epic — and by extension the Justice Department — lost that case in court.
This new lawsuit is the Justice Department’s attempt at a do-over for those losses.
And while Congress rejected AICOA and OAMA, Europe adopted its own similar “Digital Markets Act.” And DOJ and its allies are transparent about trying to use this lawsuit to expand that law’s requirements to the United States. From NYT:
“The resolution of the Justice Department’s investigation could be affected by the details of how Apple complies with European regulations, said two people with knowledge of the matter..”
Here’s what’s at stake for iPhone users.
Millions of People Choose iPhone Because “It Just Works”
More than 135 million Americans own an iPhone. And for many of them, the ease and simplicity of iPhone’s integrated experience is why they purchased the device in the first place.
I have owned Tile tracking devices. Apple’s AirTags and Find My Phone work much better.
I have owned Android Watches. But the connection between my Apple Watch and my iPhone is seamless.
When I pop in my AirPods, my iPhone recognizes them right away. And iMessage just works across my phone, computer, and iPad.
When I purchase an app on my phone, it’s automatically available on my iPad too.
Despite years of hype over “mobile payments,” I never even considered leaving my traditional wallet at home until I started using Apple Pay.
Beyond these integrated conveniences, the Justice Department may fail to appreciate that millions of Americans prefer iPhones over Android due to Apple’s more curated and integrated experience. As Steven Sinofsky writes:
People like to say things like “I know my parents can use the App Store” but that is an ageist way to say that normal people can just use a vast array of software without even thinking about potentially horking their PC.
I understand fully why Tile, Beeper, and Match Group have agitated for this lawsuit. It would surely benefit them. But US competition law is designed to help consumers, not competitors. And this suit will force Apple to break the seamless experience that millions of customers have chosen.
As Alex Tabarrok wrote in Marginal Revolution:
Apple’s promise to iPhone users is that it will be a gatekeeper. Gatekeeping is what allows Apple to promise greater security, privacy, usability and reliability. Gatekeeping is Apple’s brand promise. Gatekeeping is what the consumers are buying.
As Sinofsky notes, Apple’s “brand promise” isn’t for everyone — but those consumers can and do have Android as an alternative:
Family sharing, Apple Pay, Apple ID, Key Chain, SharePlay, Apple’s own services, and so many more are all examples of building to a brand promise…While at every step people will take the cynical view that Apple is controlling the device when it should not be, the flip side of this is that Apple is continuing to expand the brand promise into new domains and new capabilities. It is building out a brand promise that delivers. And at each step, if you do not want the brand promise, an Android is a phone-trade in away.
Case Faces Legal Hurdles
Beyond the harms to iPhone users, the Department of Justice faces several important legal hurdles in this case. These include:
Courts Have Found that iOS Doesn’t have Market Power
While Android has a much bigger market share than iPhones globally, the U.S. is a closely contested market for mobile devices. Per StatCounter, Apple currently has 60% of US mobile device share, while Android has 40%:
According to the Justice Department’s own website, courts have rarely found a firm dominant based on a 60% market share:
The Fifth Circuit observed that “monopolization is rarely found when the defendant’s share of the relevant market is below 70%.”(22) Similarly, the Tenth Circuit noted that to establish “monopoly power, lower courts generally require a minimum market share of between 70% and 80%.
Furthermore, Judge Yvonne Gonzalez Rogers found in the Epic v. Apple case that:
Apple’s market share is below the general ranges of where courts found monopoly power under Section 2…[the] Court cannot conclude that Apple’s market power reaches the status of monopoly power in the mobile gaming market.
Courts Have Hailed “Procompetitive” Competition between iPhone and Android
Again in the Epic v. Apple ruling, federal Judge Yvonne Gonzalez Rogers found that iOS closed models competes fairly against Android’s more open model in a pro-competitive way:
It is…interbrand competition that “the antitrust laws are designed primarily to protect.” Here, centralized app distribution and the “walled garden” approach differentiates Apple from Google. That distinction ultimately increases consumer choice by allowing users who value open distribution to purchase Android devices, while those who value security and the protection of a “walled garden” to purchase iOS devices. This, too, is a legitimate procompetitive justification.
Apple Doesn’t have “Duty to Deal” With Other Companies
DOJ’s case is likely to be based on a legal argument that Apple has a legal “duty to deal” with competitors like Tile and Garmin. But this doctrine has been largely rejected by courts. As law professor Eleanor M. Fox told Recode:
“Our law is very, very conservative…Companies — even monopoly companies — do not have a duty to deal, and they don’t have a duty to deal fairly.”
The Supreme Court has ruled in two major cases — Aspen Skiing Co. v. Aspen Highlands and Verizon v. Trinko — that “refusal to deal” case should face a high hurdle.
Courts Frown on Single-Company Markets
The Justice Department’s case is likely to argue that the iPhone is its own “relevant market”, that its services “dominate.” But federal District Court Judge Yvonne Gonzalez Rogers already rejected this idea of a “monopoly of one” in the Epic v. Apple case:
Disneyland vs. Yosemite National Park
I have owned both Android and iPhone devices at different times. They are both great, for different reasons. Androids are highly customizable and integrate with a wide range of services, but I also love the way that my iPhone easily integrates with my Mac, Airpods, and Apple Watch.
It’s great for consumers that we have these two alternative models of mobile devices — one closed and integrated, one open and flexible. People vote with their pocketbooks — and have switched back and forth between Androids and iPhones.
So why should the government force iPhones to look more like Androids?
I enjoy visiting the safe, sanitized environment of Disneyland and the wild of Yosemite National Park. But I would hate to see the government force Disneyland to look more like Yosemite (or vice versa).
That’s what this case is about — denying consumers the choice between two very different alternatives. Not because consumers are clamoring for this action — but because several of Apple’s competitors have.
Happy iPhone users should hope that this lawsuit fails.
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