A group of 16 state and federal solicitors general, along with the U.S. Department of Justice, sued Apple this morning in federal court for antitrust violations. The lawsuit says that the company has an unfair advantage in the high-end smartphone market and does many illegal things to keep that advantage.
You can read the whole lawsuit here if you’re interested in the specifics of those methods and whether they were legal. The case is a lot like the DOJ’s antitrust suit against Microsoft in the 1990s, which I wrote about at Directions on Microsoft from 2000 to 2010. Even Merrick Garland, the attorney general, saw the similarities and said, “In the landmark Microsoft case, an antitrust law was used to hold a monopolist responsible for abusing its market power to weaken technologies that would have made it easier for users to choose different computer operating systems.” The lawsuit filed today says that Apple has used many of the same strategies that Microsoft did.
One big difference between the two cases, though, is that Microsoft had a clear hold on the market for personal computer operating systems. It’s not nearly as clear that Apple has a monopoly.
Garland also said in his news conference that having a monopoly is not against the law. But it is against the law to use certain methods to keep that monopoly going. To prove this, you have to show that the defendant has enough market power to keep competition out.
When it came to operating systems for home computers, Microsoft Windows had a market share of well over 90%. Not long before smartphones, it was so popular that a Goldman Sachs study said Microsoft operating systems were on 97% of all computers in 2000.
A lot of the penalties in the antitrust case against Microsoft were thrown out on appeal, including the decision to split the company into two. This could be called a mixed victory for the DOJ. However, the facts of the case clearly showed that Microsoft had monopoly power. That made it possible for a number of private cases to follow, most of which Microsoft settled.
Apple’s Market Share Is Much Smaller When You Just Look At The Numbers
The DOJ says in its lawsuit that Apple has more than 70% of the smartphone market in the U.S. based on sales. If you look at it in terms of units shipping, Apple has a much bigger share (64% as of the last quarter of 2023, according to Counterpoint Research), far ahead of Samsung, which is in second place with 18%. The DOJ, on the other hand, says that there are other signs that show how popular the iPhone is, like the fact that most young people choose iPhones over Samsung phones that run Google’s Android system. People from wealthier families are also more likely to choose the iPhone.
The government also says that the U.S. is an important market because most people buy smartphones through carriers and because new companies that want to enter the market have to follow U.S. telecommunications rules, among other things. This argument is important because Apple has a much smaller share of the world market (23% vs. 16%), with Samsung coming in second. The number one spot is marked as “Others,” and most of the phones there are cheap Android phones. It’s clear that the world market is still broken up, which changes the way competition works. For example, developers have a lot of reasons to make apps for Android. When you compare this to Microsoft’s world market dominance, there were almost no good alternatives at the time.
The most important part of the DOJ’s case starts on page 66, where it says, “Apple has monopoly power in the smartphone and performance smartphone markets.” Barriers to entry are at the heart of the issue.
First, the DOJ says that most people who buy a new smartphone already have one and are upgrading. Since most of these people already have an iPhone, they’re more likely to choose another iPhone. As an example, the DOJ says Apple has made it hard to switch by creating artificial barriers like the blue and green bubbles for messaging iPhone and Android phone users. Apple is also said to have limited the functionality of third-party cross-platform video apps to force people to use FaceTime, which only works on Apple products. People who switch have to pay money and deal with problems like getting used to a new interface, buying new apps, moving data, and so on.
Second, the DOJ lists a long list of technical barriers to entry, such as the need to buy expensive parts, make complicated hardware and software, get distribution deals, and so on. There is also a lot of evidence that points in that direction, like the fact that Apple makes huge and long-lasting profits from iPhone sales.
A judge might find these reasons strong in this case. But Apple could say that differentiating and integrating products is not the same as making it impossible for new companies to enter the market. It’s easy and convenient for customers to use a fully integrated platform with built-in apps for things like web browsing and videoconferencing. They choose this platform because they like it, not because they’d like to move to Android but can’t because of artificial barriers.
In the second case, Apple could point to the huge amounts of money it has spent over the last 15 years building supply lines and relationships with carriers and developers. It would be fair to ask why it should be punished now for doing what it needed to do to get ahead.
In the tech world, that’s how antitrust suits usually go. An innovator gets to the top by working hard, being lucky, and being tough in business. Network factors help them build an unbeatable lead. Competitors are upset. Governments step in. New competitors find a way to get in when the big player is held up for long enough. This is similar to what Apple and Google did to Microsoft in the 2000s with their smartphone operating systems, which made traditional PCs and Windows much less useful.
Also Read: Apple Buys an Ai Company That Focuses on Missing Parts for Manufacturing
After That, The Process Starts All Over Again
- The DOJ is suing Apple over charges that it has a monopoly on the iPhone.
- Why Apple’s case against unfair competition could be good for Epic Games
- Epic, Spotify, Deezer, Match Group, and other companies support the DOJ’s case against Apple.
- Apple is blamed by the DOJ for breaking the iMessage-on-Android answer, Beeper
- What the DOJ suit might mean for Apple Watch
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