Do the new iOS 14 privacy features violate antitrust laws? If Facebook brings an antitrust suit against Apple, as it is reportedly considering, there are a number of legal issues that the parties are likely to encounter, writes Herbert Hovenkamp.
Unhappy with Apple’s planned limitations on sharing consumer information collected from iPhone users, Facebook is threatening an antitrust action. But could it win? Should it?
The purpose of antitrust laws is to benefit consumers by encouraging market output as high as sustainable competition permits. Conduct that reduces either the quantity or the quality of products or services unreasonably violates this principle. Output is not always easy to measure, particularly for intangibles such as consumer information. Nevertheless, we can draw some fairly firm conclusions.
Competitor agreements that either disseminate or suppress information can sometimes be anticompetitive. An example of a dissemination restraint is Todd v. Exxon (2001), a case in which then-Judge (and current Supreme Court Justice) Sonia Sotomayor held that an employers’ exchange of salary information threatened to enable price fixing. An example of a suppression restraint is California Dental Association, in which a divided Supreme Court rejected the Federal Trade Commission’s challenge to a dental association’s suppression of price advertising.
The issue in both cases was an anticompetitive agreement, placing them within antitrust’s prohibition of “contracts, combinations or conspiracies.” By contrast, an individual firm’s information practices violate antitrust laws only when the firm threatens to “monopolize” a market. For example, while false advertising can be a tort or a consumer protection violation, it is seldom an antitrust violation because it rarely leads to monopoly. An uncommon counterexample was the Lenox case, where a dominant firm made false statements about the safety of a competitor’s product and nearly drove it out of business.
Facebook’s complaint is that a new version of the iPhone operating system will have a default that suppresses certain types of user information that Facebook’s business clients use for targeted advertising. Under iOS 14’s new privacy features, users who access any program that incorporates user tracking will receive a pop-up informing them that by default the iPhone will not share this information. An iPhone user who prefers to be tracked can opt back in. Some customers may prefer to be tracked, but Facebook’s concern is obvious. To the extent fewer iPhone customers opt in, fewer can be reached by targeted advertising. Some estimate that the new restrictions could result in a 50 percent drop in Facebook’s targeted ad revenues. Facebook observes that people who decline tracking will continue to receive ads, but they will not be specifically targeted based on their consumer information.
Do the new iOS 14 privacy features violate antitrust laws? If Facebook brings an antitrust suit, here are some legal issues that the parties are likely to encounter:
1. Apple’s new practice does not specifically target Facebook.
Where consumer information privacy is concerned, there is no love lost between Facebook and Apple. Facebook has always shared consumer data generously with the various merchants who depend on it for focused advertising. By contrast, Apple has traditionally been more conservative. There is an economic explanation. Facebook is free to consumers but monetized by third-party advertising. By contrast, Apple’s principal products—devices, including iPhones, and their operating systems—are largely monetized upon purchase. While Apple hosts the app store, it operates mainly as a provider of apps to iPhone users, for which it charges a commission. It is not itself a free social media platform.
Nevertheless, Apple’s practice does not facially discriminate. It simply limits the sharing of any consumer information collected from iPhone users. Third parties whose business models are more dependent on targeted ads will suffer the worst.
2. Apple’s conduct appears to be unilateral.
Most antitrust cases about suppression or manipulation of information have concerned cartels or other groups who profit by eliminating competition. By contrast, Apple’s conduct appears to be entirely unilateral. Further, there is no claim that consumers are getting false information. The law of unilateral (as opposed to concerted) refusals to provide something in the United States is extremely conservative.
One thing that cuts in Facebook’s favor, however, is that previously Apple has had a more liberal policy about information sharing and is now changing course. The Supreme Court has held that an unjustified change in a policy of cooperation that injures a rival can be unlawful. That is an issue that may have to be litigated. Apple is likely to point out that worldwide concern about excessive use of consumer information provides the justification.
3. Apple may not have monopoly power.
The antitrust law of unilateral refusal to deal applies to a monopolist, or a firm with a dominant position in its market. Apple controls most of the smartphone market in the United States, but only about 15 percent worldwide. Further, a substantial amount of Facebook usage occurs on other devices, such as Windows or Chrome computers and tablets. iPhone’s overall share of operating system usage in the United States, which includes all Apple and non-Apple devices, is roughly 32 percent. Facebook operates on all the popular systems, both Apple and non-Apple.
Of course, Facebook usage is not necessarily distributed evenly across these. One theory that the Supreme Court accepted in 1992 is that a firm can have more power if customers are “locked in” to its product by previous purchase and cannot readily switch away. Since that time, however, the theory has not found much support in antitrust cases. Further, the fact that the iOS 14 privacy rule is only a default makes it less likely to work here. Is a customer “locked in” if the door has an obvious latch?
4. For some claims, Facebook may lack standing to sue.
Private antitrust plaintiffs can generally sue only for their own injuries. One of Facebook’s claims is that app developers who currently display on Facebook but use ad support will experience declining revenue and may have to charge for their apps. In that case, users who purchase their apps on the iPhone App store will be subject to Apple’s 30 percent commission on app sales. The legality of that commission under the antitrust laws is being separately litigated. In any event, that particular claim raises an issue of “standing” to sue: if third-party developers are forced to charge for an app, or customers to pay for it, they and not Facebook are the appropriate parties to sue.
5. Facebook may have difficulty proving causation.
Even a monopolist does not violate antitrust laws simply by hurting someone. Facebook must also show that Apple’s information restraint enlarges Apple’s monopoly power or makes it more durable. It is not obvious how Apple gains by making Facebook usage less desirable on the iPhone. It might increase Apple’s power if iPhone users prefer it. But improving a product is not a basis for unlawful monopolization.
6. Apple’s policy is only a default.
An iPhone user can opt out of Apple’s personal information restrictions by selecting “don’t allow” on a startup screen. How many users will make this choice is an empirical question. For example, Google search is the default search engine on iPhones and few customers opt away. On the other hand, Bing is the default search engine on Windows 10 devices, but a large percentage of customers opt to switch to Google. The existing antitrust law of refusals to deal requires a “refusal,” which is not the same as a default. Actual consumer choices will be affected by such things as how effectively Facebook informs its users about the policy, and how much those consumers would prefer to receive targeted ads from Facebook’s business partners.
7. An antitrust case may raise other issues.
One of Facebook’s other complaints is that the iPhone App store discriminates in favor of Apple’s own content. That complaint may be related to the information sharing complaint because some of the Facebook clients who are injured by Apple’s policy may also be among the non-Apple-owned apps that are injured by this policy as well. If Facebook has more than one antitrust dispute with Apple, they will likely be combined. Based on existing law, Facebook’s chances of success here do not seem to be much better. Further, the claim raises the same issue of standing: if third-party apps are the targets of Apple’s discrimination, they should be the ones to sue.
8. Facebook is on the wrong side of history.
Finally, the practice of promiscuous use of consumer information by digital marketers without user consent is under attack everywhere. Default rules that require consumers to make choices about how their information is used are already established practice in Europe and are likely to become the norm in the United States, largely as a result of state initiatives. At this writing, Google has announced similar limitations for its Android operating system. Antitrust “reasonableness” requirements are economic, and they require proof that challenged conduct will harm consumers. In this case, the argument for consumer harm appears to be getting weaker by the day. At the very least, consumers appear to be accommodating themselves to the change. They may actually prefer it.