The Biden administration’s antitrust endeavors target Apple

The Department of Justice under President Joe Biden and 16 state attorneys general have brought an antitrust suit against Apple for allegedly illegally monopolizing the smartphone market.

The complaint, filed in the U.S. District Court for the District of New Jersey, accuses Apple of maintaining an illegal monopoly by “selectively imposing contractual restrictions on … developers” and undermining “apps, products, interoperability, and lower costs for consumers and developers,” according to the DOJ’s recent press release.

More broadly, the suit reflects a larger shift in antitrust law from officials in the Biden administration and some populist allies on the Right. Since a revolution in U.S. competition law in the late 1970s, agencies and courts have held consumer benefit, known as the consumer welfare standard, and economic analysis specific to the case at hand as key to deciding cases.

But the current leaders at the DOJ and the Federal Trade Commission have sought a return to previous antitrust philosophy involving stricter interpretation of market shares that trigger scrutiny and an expanded view of factors that are considered illegal. That’s led to a more “big is bad” approach and the incorporating of harms to competitors over harms to consumers.

Apple is pushing back. It claims its walled-garden approach, differing from Android’s more open ecosystem, provides enhanced ease of use, privacy, and security to users and is its competitive advantage. Apple’s iPhone does not allow sideloading of apps, heavily vets apps offered in its App Store, and sometimes features degraded interoperability with third-party products.

Specifically, the DOJ points to five areas of illegal behavior by the maker of the country’s most popular smartphone: the suppression of so-called super apps, or apps that provide broad functionality to users; cloud streaming game apps; and insufficient interoperability on messaging apps, smartwatches, and digital wallets.

The iPhone enjoys approximately 60% of the market in smartphones in the United States. Smartphones running Google’s Android operating system are Apple’s main competitor, with around 40% of the U.S. market.

Those thresholds were not enough to convince a judge that Apple had a monopoly position in a recent civil trial against the tech giant brought by Epic Games, maker of the popular Fortnite video game. Establishing that a defendant has a monopoly market share is the first step in prevailing in any antitrust trust case.

In a statement, Apple responded that the DOJ allegations “threaten who we are and the principles that set Apple products apart in fiercely competitive markets.” The statement noted that if the suit is successful, “it would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.”

At the crux of the case is whether Apple’s closed ecosystem is, as the government alleges, a collection of “self-interested business strategies” that harm competition or, as Apple claims, its product’s competitive advantage that benefits consumers who choose an iPhone.

The Coalition for App Fairness, an app industry group including Epic Games, Spotify, and Match Group, lauded the case. In a statement, it wrote, “The Department of Justice is taking a strong stand against Apple’s stranglehold over the mobile app ecosystem, which stifles competition and hurts American consumers and developers alike.”

Not everyone agrees with the merits or possible consequences of the suit. Patrick Hedger of Taxpayers Protection Alliance told the Washington Examiner, “Apple’s closed ecosystem is one of the company’s key differentiating factors from its competitors, providing consumers a choice of a more secure and reliable suite of devices at the expense of interoperability with other software and devices.” He continued, “Consumers should be free to weigh that trade-off. If the DOJ prevails, consumer choice at the most important decision point in the market, the device level, will be diminished.”

If the Biden DOJ is successful, iPhone users would likely notice changes in the services at issue, but the government requests for relief are open-ended, making concrete changes difficult to predict at this stage.

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“The green versus blue text bubble issue is effectively a meme that has become a federal case,” Hedger said about one of the more peculiar claims in the suit. The DOJ asserts that users of non-iPhone devices “experience social stigma” when texting with iPhone users. The government argues that suboptimal integration and a color difference in messages drive “users to continue buying iPhones — solidifying Apple’s smartphone dominance.” Whatever the merits of highlighting degraded interaction with outside messaging services, considering “social pressures” is a departure from the scope of recent antitrust considerations.

Apple indicated it will vigorously defend its closed business model, making a settlement to expedite the matter unlikely. Full litigation of the case is expected to take three to five years.