The DOJ’s Weak Antitrust Case Against Apple

Among several major antitrust lawsuits the U.S. government is currently pursuing against America’s tech giants, the U.S. Department of Justice (DOJ) complaint against Apple is perhaps the most puzzling. Apple recently filed its motion to dismiss the government’s case, raising a number of compelling points that mirror the opinions of many outside antitrust experts who are skeptical of the complaint. Nevertheless, it is likely that the case will proceed and take several years—and vast quantities of legal fees—to resolve.

According to the DOJ Antitrust Division, Apple stands in violation of Section 2 of the Sherman Antitrust Act, having “willfully monopolized the performance smartphone market in the United States through an exclusionary course of conduct and the anticompetitive acts described herein.” The complaint alleges that Apple not only possesses monopoly power in the U.S. smartphone market, but that it also suppresses competition by “delaying, degrading, or outright blocking technologies that would increase competition in smartphone markets.”

The monopolization claim itself is a bit strange, bypassing the standard hypothetical monopolist test in favor of metrics that are, as renowned antitrust scholar Herbert Hovenkamp put it, “not well designed for identifying monopoly.” Apple does have the largest single share of the U.S. smartphone market (currently about 55 percent), but that is hardly a monopoly. The iPhone’s market share has fluctuated in that 53-62 percent range for a number of years. Moreover, the complaint fails to acknowledge that Apple has never held more than a 25 percent market share globally and currently sits at under 20 percent.

The DOJ attempts to boost its case by defining a market for “performance smartphones” in which Apple holds a nearly 70 percent share. But this is an arbitrary market division that consumers have to opt into in a market with easily available, high-quality alternatives such as Samsung’s and Google’s top-end phones.

The complaint thus focuses on the control Apple wields over its platforms (most notably, its App Store) and specifically on the lack of support between their own accessories and outside products. These concerns echo the worries about “self-preferencing” that underlay the challenge by video-game developer Epic Games to Apple’s app store policies in Epic v. Apple. However, in that case, the U.S. 9th Circuit Court upheld nearly all of Apple’s prerogative to set their own contract terms on the platform they built. Under U.S. antitrust law and its prevailing consumer welfare standard, an antitrust suit must prove harm to consumers; but as it turns out, self-preferencing can facilitate a streamlined, efficient product experience that frequently benefits consumers. A great example of this is how Google integrates its search engine with a number of its other products such as Maps and Google reviews.

The DOJ picked a handful of relatively minor practices that it claims demonstrate how Apple’s exclusionary product designs harm consumers, specifically:

• Not allowing the development of “super apps” for its App Store.
• Not allowing outside cloud-gaming apps in its App Store.
• Not fully integrating its messaging app with others.
• Not making the Apple Watch interoperable with outside operating systems, thereby restricting the functionality of non-Apple products.
• Restricting system access to cross-platform digital wallets by not allowing these wallets to use Apple’s “tap-to-pay” feature.

What is remarkable about these charges—even taken at face value—is that they represent a desire to force Apple to redesign its products in ways that accommodate its competitors. The idea seems to be that these interoperability barriers harm consumers by degrading the experience of using Apple products. This contention might make sense if Apple were a true monopoly and its customers had no choice but to live with a suboptimal user experience. But in reality, customers who feel exploited by Apple’s non-interoperability are very much free to choose other manufacturers’ products, which exist in abundance.

Apple’s entire business model has always been to build their own line of vertically integrated products that work seamlessly together. For instance, the Apple Watch is custom-designed to integrate with its own operating system and other Apple hardware. If Apple chooses to optimize its smartwatch to work only with its operating system and not its rivals, then why shouldn’t they be allowed to do so?

Indeed, a problem throughout the DOJ case lies in its failure to demonstrate that consumers are somehow trapped in Apple’s product ecosystem instead of choosing it in spite of (or, in some cases, because of) its limitations. That consumers would voluntarily pay Apple’s premium prices would make little sense if they felt Apple gave them a degraded product and user experience. While a minority of users might truly yearn for Apple’s products to interoperate more smoothly with third-party devices and apps, it hardly seems the government’s job to save those customers from switching to Android.

Current antitrust law supports this common sense approach; it is well established (most specifically in Verizon v. Trinko) that antitrust law does not require a company to design its products to accommodate those of its rivals. In fact, the Trinko precedent has been noted by many antitrust experts as a difficult barrier for the DOJ to surmount and, not surprisingly, is a prominent element of Apple’s motion to dismiss the DOJ complaint. The late Justice Antonin Scalia’s majority opinion in Trinko makes clear that imposing a “duty to deal” upon a company should be permissible only in certain exceptional cases. On the contrary, Justice Scalia argues, a company that manages to achieve an actual monopoly in a market because of a superior product actually violates no law. Companies, he goes on,

“…may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers. Compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.”

All of this is not to say that Apple is permitted to indiscriminately impose any condition it wants for using its platform. For example, even though Apple won its antitrust dispute with Epic Games, the company was forced to end its prohibition against app developers for advertising their own payment systems outside of Apple’s App Store. But forcing a company to design its platforms and hardware to redesign its products for its competitors’ benefit is well outside the letter and spirit of U.S. antitrust laws.