A review of DoJ's complaint against Apple

On March 21st, 2024, the DoJ (Department of Justice), alongside 16 plaintiff states, filed a complaint against Apple for its conduct in the smartphone and performance smartphone market in the U.S. Holding roughly 70% of the U.S. smartphone market, Apple faces scrutiny over its product deployment strategies, app development conditions, and app distribution mechanisms. In this complaint, the DoJ has defined that Apple’s anticompetitive conduct is in violation of Section 2 and 4 of the Sherman Act, Section 12 and 16 of the Clayton Act, New Jersey Antitrust Act, and Wisconsin state’s competition law.

In its 88-page complaint, the DoJ highlighted 3 key areas of anticompetitive behavior – firstly, the imposition of restrictions, fees, and taxes on app creation; secondly, the usage of private APIs and critical access points to control the behavior and innovation of third parties; and thirdly, the application of anticompetitive playbook across related devices and services.

1. Imposition of restrictions, fees, and taxes on app creation

Apple earns its revenues in a variety of ways, in part from fees charged on services it did not produce. These come from transactions made on its App Store and other pre-installed applications. Apple charges, on average, 30% fee on app download revenues and in-app purchases and a 15-basis point fee on all transactions made through Apple Pay. The complaint states that Apple has revenue sharing requirements and regulations that force app developers to follow its protocols which, in one way or the other, prevent users from enjoying the benefits of a given application across competing devices. While all fees and charges provide significant revenue for Apple, they also provide a significant financial burden for developers. The complaint alleges that, due to limited choices in the market and non-negotiability of terms, developers are forced to accept Apple’s anticompetitive regulations.

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2. Usage of private APIs and critical access points to control behavior and innovation of third parties

In light of maintaining its stronghold on the market, Apple has rules and regulations that it enforces, often conditionally and driven by self-interest. As highlighted in the complaint, this gives Apple control over both app distribution and creation. The complaint further states that Apple has used this control across four core segments – messaging, smartwatches, digital wallets, and app development – and its control over these four segments has not just reduced competition but also negatively impacted consumer experience.

Apple currently uses its own messaging platform for SMS, called iMessage, and prevents the usage and installation of third-party SMS-based services on its smartphones. When iPhone users communicate with non-iPhone users, iPhone users experience worse-off quality of voice, image, and video transmission, primarily due to Apple’s communication protocols and private APIs that prevent cross-platform integration. Apple also marks messages from non-iPhone users with a “green bubble” that has been known to cause social stigmatization, especially among teens.

The DoJ has also scrutinized Apple for its usage and promotion of specific apps and associated services on its smartwatch and digital wallet. For reference, a user with an Android-operated smartphone cannot access all the features offered on Apple’s smartwatch. Furthermore, Apple only allows Apple Pay to use its NFC services and charges a 15-basis point charge to banks for every transaction. On the other hand, apps like Google Pay provide a similar service free of charge. The complaint alleges that this increases the implicit non-monetary costs associated with moving from an Apple device to an alternative device.

Lastly, the DoJ has accused Apple of stifling innovation through its continued pushback against the development of super-apps. These super-apps, designed to package multiple applications into one, facilitate seamless cross-platform communication and sharing of services, exemplified by WeChat in China. Historically, Apple has halted the publication and distribution of these applications on its App Store, fearing they would undermine the usage of its proprietary features and services, such as iMessage, FaceTime, Apple Pay, etc.

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3. Application of anticompetitive playbook across related devices and services

Apple’s success in the support-device and software market has stemmed from its dominance in the smartphone market as Apple continues to exploit anticompetitive practices to further expand its ecosystem integration. The DoJ alleges that with the development of products like the Apple Watch, AirPods, AirTag, CarPlay, Apple Music, and several others, the company has prevented cross-platform integration that would allow non-Apple users to access these services. As a result, users who are willing to switch their phone to a non-Apple device are unable to, given their tie-ins with Apple’s proprietary applications.

Additionally, Apple strongarms developers to comply with its practices that prevent the promotion of innovative technologies. For example, as the complaint mentions, a car manufacturer decided not to offer users a digital car key in part because Apple required that company to add any features related to the key to its Apple Wallet. Similarly, Apple prevents users with competing devices from enjoying full service of its products, effectively increasing the friction associated with changing devices.

The complaint goes on to dismiss Apple’s claims that their restrictions are based on privacy and security. The DoJ mentions that Apple has conditionally applied its rules and restrictions, primarily based on self-interest. Apple’s transaction with Google to make google chrome its default browser, involvement in data sharing agreements and unencrypted texting methodologies are some examples used by the DoJ to justify their claim. Furthermore, they also mentioned that restrictions with respect to app store downloads are non-existent for Mac devices and yet, users continue to have a safe and secure experience.

Summarizing its claims, the DoJ states that Apple’s behaviors harm competition, reduce innovation, decrease the choices available for consumers (smartphone and apps) and prevent growth of super-applications (all-in-one applications for general activities). Further, they state that given Apple’s dominance in the market, it is likely that they will apply their playbook across forthcoming products and apps and therefore, prevent innovation overall.

While there have not been any actions since the complaint filing, it is plausible that Apple will contest the DoJ's complaint, potentially arguing for the necessity of its practices in safeguarding its ecosystem’s security and enhancing consumer safety. However, if proven guilty, the ramifications of this decision would be felt across industries, particularly in the smartphone and app markets, by increasing competition, reducing barriers associated with changing smartphone manufacturers, and expanding the market for app development.

• Article image source: Medriva.com (link: https://medriva.com/business/apple-and-the-antitrust-debate-a-look-at-the-ftcs-stance-and-the-implications-for-tech-industry-regulation/)
• Article contents: DoJ (& 16 plaintiff states) v. Apple, Complaint, published on 3/21/2024