Fiona Scott Morton provides her initial thoughts on the Department of Justice’s lawsuit against Apple, how it compares to current and past tech cases, and the arguments she anticipates each side will make.
Also, read analysis on the Apple lawsuit from Herbert Hovenkamp, Randy Picker, and Maurice Stucke.
The range of digital platform cases brought by the United States antitrust agencies has now arrived at the state that many reformers and thoughtful observers expected: the Department of Justice Antitrust Division and Federal Trade Commission have, across five major cases, sued the four modern businesses currently controlling economic activity on the internet: Google, Meta, Amazon, and Apple. The Google Search case came first in 2020, perhaps because it was best understood (in part due to European enforcers). The complaint takes aim at a known form of anticompetitive conduct: exclusive contracts. Shortly thereafter in 2020 came the FTC’s case against Meta, which explained that Meta protected its market power from being lost to more exciting new entrants by systematically removing those threats. Meta carried out a “buy or bury” strategy and purchased many nascent competitors in the process, while foreclosing others. A significant harm in both the Google search and Meta cases is harm to innovation. Search rivals could have offered different types of search, whether along technological or business lines, while personal social networking rivals could have offered innovation in quality, safety, or types of curation.
Third on the list is the case against Google in the ad tech market, which was filed in early 2023. Google began a pattern of anticompetitive behavior by purchasing the tool (DoubleClick) used by publishers to fill their empty ad inventory and continued by distorting all kinds of contracts and auction design to steer that publisher demand to Google’s ad exchange and Google’s advertisers, thereby disadvantaging meritorious rivals in the ad tech stack. The conduct is complex and long-lasting, involving both the acquisition of complements over time and the foreclosure of rivals by various methods.
Then later in 2023, the FTC sued Amazon for, among other conduct, running an effective most-favored nations policy that foreclosed rival ecommerce platforms. Amazon made it prohibitively costly for merchants to offer lower prices on Amazon’s rivals by punishing them through a drop in their Amazon sales. Amazon monitored merchant prices on rival sites that might, for example, charge those merchants lower fees, and used its power to keep merchant prices high on those rival sites, thus blocking the ability of such a rival site to offer a value proposition to consumers. This and the Google ad tech case have as a primary harm the price that end users (consumers and advertisers) as well as business users (merchants and ad tech complements) paid to the platform.
And, last, we have the DOJ’s Apple case filed in March 2024. This complaint describes how, through different policies, Apple blocked or disadvantaged modern “middleware” and other tools that allow consumers to switch to rivals. Middleware is software that could “commoditize” the Apple handset by allowing consumers to switch to rival products and services more easily, and in that way stimulate the entry of rivals. This case returns the digital enforcement theme of the last five years to harm to innovation. Apple’s actions, by preventing diversity of rival app stores, preventing desired functionality in browsers, preventing competition in digital wallets, and blocking the use of “super apps” has reduced innovation and controlled its direction. By lessening innovation and directing it in a way that profits itself, Apple lowers the benefits users get from mobile ecosystems and reduces entry by new platforms.
The lesson this complaint expounds is old and well-established: society is harmed when the incumbent monopolist controls the direction of innovation. The AT&T case separating transmission from equipment allowed the computer hardware industry to flourish. The antitrust case that forced IBM to relax its tie between hardware and software allowed the PC software industry to flourish. The case and appellate decision that prevented Microsoft from taking over the internet allowed digital platforms to grow and become dominant themselves. Today we have cases against Google in search to allow the development of new ways to explore the internet, and against Apple in handsets to ensure that consumers choose the next generation of technology, not Apple. To give a simpler example of the problem, Kodak invented a digital camera in the 1970s but chose not to develop it. Kodak’s profits came from selling chemical film and therefore it steered innovation away from disruptive digital products. Suppose a small rival had offered an innovative digital camera in 1980 and Kodak had had the means to block it. Consumers would have been harmed by that lessened innovation, which is why society needs competition laws to protect innovators and innovation in these situations.
Apple will likely argue that it should be allowed to design its product any way it wants. Yet 25 years ago, Apple would probably not have agreed that Microsoft should be permitted total design freedom—at which time Microsoft might well have wanted to block Apple’s exciting new products and shut off its growth. When a digital platform (at that time, Windows, today the iPhone) is a bottleneck in getting to end users, its technical choices have competitive significance for the sector as a whole. At that point, its behavior is the proper focus of competition laws in a way that it was not when the corporation was very small. The question of exactly what size threshold defines when a company moves from being so small that its actions have no appreciable impact on others to being sufficiently large that it affects the course of innovation is a great research topic, but not one that needs to be answered in a complaint. Rather, the government’s case must establish that Apple’s bottleneck is harming innovation.
Firms that care strongly about having unfettered design freedom are free to limit their sales so that they never become a significant bottleneck for access to many consumers. Raising the price of the product in order to limit quantity demanded is a time-tested method of achieving niche status. Such firms can also consider achieving dominance in jurisdictions without competition laws. But U.S. law reaches harms to competition that arise when a large platform with market power makes technical choices that prevent rivals from functioning, particularly while lessening the platform’s own profits because users want those services.
Apple may further argue that privacy and security requires that it make these design choices. Privacy and security are indeed important, but it is also important for the government to demonstrate when they are being used as a pretext to exclude versus when the conduct is the least anticompetitive choice available to protect consumers. The complaint explains that Apple decided not to encrypt messages going to Android, thereby exposing Apple users who send such messages. Apple does not allow rival app stores with stricter standards for security and privacy to operate on iOS. Apple decided to make the Google search engine, the biggest surveillance business on the internet, the exclusive default on Apple. These choices raise the possibility that Apple’s concern to protect user privacy and security took a back seat at times to a concern to protect its monopoly.
Apple may question how there could be competitive harm since the company does not appear to be foreclosing any entrant in handsets. Often in antitrust there is a “dead body,” a rival that can be identified, tried to enter, and was foreclosed—and this type of concrete example often helps with analysis. But in the Microsoft case Bill Gates clearly explained that Netscape was the middleware that would commoditize the operating system and allow for rival OS’s to enter. The fact that those rival operating systems had not appeared at the time of the case was no barrier to liability, nor did the court expect to see examples of such “dead bodies” before concluding there had been harm to competition. Apple’s concern about “commoditization of smartphone hardware” in paragraph 66 of the complaint demonstrates that Apple is experiencing the same strategic realization and may be taking a page out of that old Microsoft playbook. If the government can establish the similarity of the settings and conduct, the law should deliver the same answer that we got in the Microsoft case.
Apple is a popular company, and some may query whether it is wise for the government to sue them for that reason. A careful reading of the complaint brings up another side to this story, however. While consumers may love Apple, the businesses on the other side of its two-sided platform are a second group of end users; these businesses pay Apple’s fees, are limited by its restrictions, and may not be such strong fans. Banks want to offer their own digital wallets; auto and transport companies want to control the interface of their vehicles; the gaming industry wants more competition in app stores; content providers from video to music to text also want lower prices and more choice in distribution; and merchants of all kinds do not want to pay an additional Apple fee on top of the transaction fees they already pay. More generally, the problem is that consumers “single-home” on their handsets, meaning that they carry only one. That means that a business user who wishes to gain digital access to a particular consumer must go through either Google (Authorized Android) or Apple (iOS). Suppose Apple demanded that Tesla, American Airlines, Citibank, and others like them each pay $10 million per year to distribute apps through the Apple App Store. Would those companies ultimately pay? The large number of businesses offering desirable products and services through apps, and who increasingly appreciate their lack of power, could become an asset for the government.
The strength of the government’s evidence will matter greatly to the success of the litigation. And the success of the litigation may depend on another team of enforcers, since these cases typically take four years to get to the first decision, and then more time for appeals. That timing brings up another interesting aspect of the case. Almost every piece of Apple’s conduct the government complains about is covered by the European Digital Markets Act. For example, the complaint describes how Apple does not permit any digital wallet except its own. The DMA explicitly requires Apple to allow competing digital wallets in Europe. The complaint describes how Apple does not permit any app store on iOS except its own. The DMA explicitly requires that competing app stores be allowed in Europe. In Europe, Apple must allow functional web apps. Third party app stores and web apps will enable the entry of super apps and more platform-agnostic activities like cloud gaming. The DMA further requires that rival hardware and software have access to the same APIs as Apple’s own products (without charge). This rule ensures that a rival watch or messaging app has the opportunity to match the Apple functionality.
Developments in Europe are important because if the government should win the case, a court will need to impose a remedy. By the time the U.S. monopolization case gets to that stage, the DMA will be well underway, and the DOJ can point to the lessons learned from these European solutions—particularly if they are successful. First, a solution in Europe demonstrates that one is possible; secondly, that it increases competition; third, that it does not unduly harm security and privacy. An Apple service in Europe that complies with the DMA becomes an attractive option if a U.S. court is concerned with a remedy’s engineering cost to Apple, or its risk to consumers. Without effective remedies, a government win in the case will not help consumers very much. Therefore, the success of the DMA is critical to the success of the DOJ’s Apple case.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
