Apple Antitrust Lawsuit - March 2024

Monday, April 15, 2024 · 20 min read · Apple Lawsuit ·

On March 21, 2024, the United States Justice Department and 16 States filed suit against Apple for monopolistic practices in the smartphone market. The main allegation is that Apple has violated antitrust laws by making it difficult for competitors and other third-parties to interoperate with the iPhone (and with iOS), and as a result they have a monopoly on the smartphone market in the US. This was certainly an interesting thing to hear about and it seems to have come out of nowhere. It is a complex case, and despite what others are saying, it is not completely related to the whole “green bubble” situation with iMessage.

Disclaimer

I’m Canadian so this lawsuit doesn’t directly affect me, but the decisions that come out of this case will certainly force changes across the entire iPhone ecosystem and for Apple in general. I am not a lawyer or a legal expert in this area, so I cannot say for certain what is going to happen because of this lawsuit. I am also not defending Apple for anything, and I also won’t defend other smartphone platforms either. However, as an owner of an iPhone 12 Pro Max, and a previous owner of an iPhone 4S, iPhone 7 Plus, and an iPhone XS, I do have some comments and observations.

As an IT professional I have spent a considerable amount of time deploying and supporting iPhones in a corporate environment, so I have a good understanding of the underlying software and platform in general. I have also done a lot of work with Android phones and Windows phones, and I also spent at least 4 years supporting BlackBerry devices and the various services that were involved in that.

U.S and Plaintiff States v. Apple Inc.

The full details of the lawsuit and several related documents can be found below:

I made a local copy of the Press Release and the full complaint document since these things can change or get lost over time, and they can be found here. I have also mirrored the main contents of the lawsuit here to make it easier to read.

From the Press Release is the main complaint that prompted the lawsuit to be filed in the first place:

The complaint, filed in the U.S. District Court for the District of New Jersey, alleges that Apple illegally maintains a monopoly over smartphones by selectively imposing contractual restrictions on, and withholding critical access points from, developers. Apple undermines apps, products, and services that would otherwise make users less reliant on the iPhone, promote interoperability, and lower costs for consumers and developers. Apple exercises its monopoly power to extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others. Through this monopolization lawsuit, the Justice Department and state Attorneys General are seeking relief to restore competition to these vital markets on behalf of the American public.

There are five main points that are brought up in the Press Release where Apple has allegedly acted in an anticompetitive manner, and those are:

Blocking Innovative Super Apps - Apple has disrupted the growth of apps with broad functionality that would make it easier for consumers to switch between competing smartphone platforms.
Suppressing Mobile Cloud Streaming Services - Apple has blocked the development of cloud-streaming apps and services that would allow consumers to enjoy high-quality video games and other cloud-based applications without having to pay for expensive smartphone hardware.
Excluding Cross-Platform Messaging Apps - Apple has made the quality of cross-platform messaging worse, less innovative, and less secure for users so that its customers have to keep buying iPhones.
Diminishing the Functionality of Non-Apple Smartwatches - Apple has limited the functionality of third-party smartwatches so that users who purchase the Apple Watch face substantial out-of-pocket costs if they do not keep buying iPhones.
Limiting Third Party Digital Wallets - Apple has prevented third-party apps from offering tap-to-pay functionality, inhibiting the creation of cross-platform third-party digital wallets.

Let’s break down these points and determine what they mean, and how it can be applied to Apple and other competitors in the Smart Phone market.

Blocking Innovative Super Apps

Super apps provide a user with broad functionality in a single app. Super apps can improve smartphone competition by providing a consistent user experience that can be ported across devices. Suppressing super apps harms all smartphone users—including Apple users—by denying them access to high quality experiences and it harms developers by preventing them from innovating and selling products.

First, what exactly is a Super App? At a high-level it is an app that encompasses multiple functions and services and is essentially an ecosystem all on its own. This has advantages and disadvantages, and virtually all Super Apps exist outside of North America and Europe and are extremely popular in Asia.

The most obvious example of a Super App is WeChat. It combines social media, instant messaging and payments into a single app that is run by a single company (and its subsidiaries). There are other functions as well, including search, shopping, built-in applications, translation services, photos, maps, games and more. For a lot of users, that encompasses most of the functionality that they require from a smartphone, and you use WeChat for everything without ever using native apps or other third-party apps. Since WeChat contains all that functionality, it has the benefit of being somewhat platform agnostic since it can be compatible with multiple operating systems. It also has the benefit of having over 1.2 billion active users per month as of this writing, so it certainly meets the criteria for being a Super App, and it is widely used and accepted as the de facto standard in the countries where it is popular.

Remember how a Super App is all encompassing? This means that if I am using a Super App for all my daily tasks on an iPhone, that means I can just switch to Android and use the same app if the publisher has made it available on that platform. This goes both ways; I can switch to Apple from Android and my daily workflow would remain mostly unchanged.

There are however some issues with Super Apps, and why they can cause potential issues:

If your primary account is compromised, all your data on a single app is exposed.
If you lose access to your account, you lose access to many services simultaneously.
If you have all your data in one app, then it is in a single platform, and you are effectively stuck on that platform.

The question is, why aren’t Super Apps common outside of Asia? It is tough to say, but they do exist to a degree and more of them are coming. The one example that currently qualifies is Uber, and X (formerly Twitter) is planning on evolving into a Super App as time goes on.

What is Uber? It is a taxi service, it is a food delivery service, it runs errands for you, it delivers packages, and if you want to make money you can start driving for Uber and doing everything previously mentioned. All of this from the convenience of a single app. It doesn’t have payments in the traditional sense, but I can load an Uber Wallet or use Uber gift cards and pay for things that way, and partially bypass the native payment processing in the operating system. Does this count as a Super App? That is certainly up for interpretation, but I think it is worthy of mentioning here. As for X (formerly Twitter), nothing has happened with it regarding adding additional functionality (payments is in their short-term plans), and it is currently just a social media app, but that can change in the future and that is currently the plan for it.

So, is the lack of Super Apps in North America the fault of Apple? Not necessarily. They don’t exist on Android in North America either, so it cannot be the fault of either platform that they don’t exist. It just boils down to choice, and what a developer is willing to create and what the users want to use on their devices.

At the end of the day, the idea of a Super App can be considered monopolistic in its own way. If they did become more popular then it is entirely possible that they would run into the same antitrust issues that are currently plaguing Apple.

Suppressing Mobile Cloud Streaming Services

Cloud streaming game apps provide users with a way to play computing intensive games in the cloud. Cloud streaming games (and cloud streaming in general) can improve smartphone competition by decreasing the importance of expensive hardware for accomplishing high compute tasks on a smartphone. Suppressing cloud streaming games harms users by denying them the ability to play high-compute games, and it harms developers by preventing them from selling such games to users.

This is a relatively new feature on smartphones in general, and it allows a relatively limited device the ability to play graphically intensive games on their devices when those devices have no business running those games due to their specifications. They can do this because cloud services are running the actual game on a remote server, and the smartphone is just displaying the output. Since most of the processing is occurring elsewhere, this also allows game publishers the ability to have a single app that can play multiple games and have access to a large library of games that users can play or purchase. If those same publishers don’t want to use an app, they can stream those games through a browser and avoid using an app altogether. This is especially useful if a publisher wants to avoid paying fees for distributing their app through an app store.

Cloud streaming apps broadly speaking-not just gaming-could force Apple to compete more vigorously against rivals. As one Apple manager recognized, cloud streaming eliminates “a big reason for high-performance local compute” and thus eliminates one of the iPhone’s advantages over other smartphones because then “all that matters is who has the cheapest hardware.” Accordingly, it reduces the need for users to buy expensive phones with advanced hardware. This problem does not “stop at high-end gaming,” but applies to “a number of high-compute requirement applications.”

The point that this issue extends beyond cloud gaming is certainly relevant. This would technically apply to a wide range of applications, all of which include the various digital assistants such as Siri and Alexa, which offload a lot of the tasks that they perform to the cloud as well. This would also apply to other applications such as photo processing as well, as some features are handled by remote servers to perform analysis of those photos and some image processing.

There are potential changes that are coming that can possibly remove the reliance on certain cloud functionality. Smartphone vendors, and computer vendors, are in the process of adding “AI chips” to their devices as a method of reducing reliance on cloud services to perform these tasks. How effective this will be remains to be seen, and no one will know until those updated devices come to market.

Excluding Cross-Platform Messaging Apps

Messaging apps are apps that allow users to communicate with friends, family, and other contacts. Messaging apps that work equally well across all smartphones can improve competition among smartphones by allowing users to switch phones without changing the way they communicate with friends, family, and others. Apple makes third-party messaging apps on the iPhone worse generally and relative to Apple Messages, Apple’s own messaging app, by prohibiting third-party apps from sending or receiving carrier-based messages. By doing so, Apple is knowingly and deliberately degrading quality, privacy, and security for its users and others who do not have iPhones. Apple also harms developers by artificially constraining the size of their user base.

The messaging situation with iPhones and other platforms is complicated, but only in a few parts of the world. I could write a lot about it the entire mess with iMessage and the issues with interoperability with Android phones, but that has been discussed at length by others and there is nothing more that I could add to that. There were a lot of points brought up in the lawsuit filing, but there were a few points that stuck out for me.

Apple undermines cross-platform messaging to reinforce “obstacle[s] to iPhone families giving their kids Android phones.” Apple could have made a better cross-platform messaging experience itself by creating iMessage for Android but concluded that doing so “will hurt us more than help us.” Apple therefore continues to impede innovation in smartphone messaging, even though doing so sacrifices the profits Apple would earn from increasing the value of the iPhone to users, because it helps build and maintain its monopoly power.

At the end of the day the entire issue with this is both the fault of Apple and Google, but Google had multiple opportunities to create their own iMessage-like solution and they never have. It also doesn’t help that because of the nature of Android, and the way that OEMs create their own messaging apps for their devices only creates confusion on what exactly is the standard or default solution on an Android phone. Google has put a lot of effort into using RCS (Rich Communication Services) over regular SMS, but the adoption requires all vendors to use it for it to be successful. Apple is supposed to be bringing RCS support to iMessage in 2024, so only time will tell on how much of a difference it makes.

If Google really cared about this issue, they would have put the effort into making it more widely adopted. I also have no confidence in Google being able to bring any app to market since they have an absolutely horrible reputation when it comes to supporting apps and platforms that they create (Killed by Google). Google has tried using marketing tactics to get Apple to release an iMessage app on Android (Get The Message), and the fact that they have had to go that route only shows how behind they are in this area.

In 2022, Apple’s CEO Tim Cook was asked whether Apple would fix iPhone-to-Android messaging. “It’s tough,” the questioner implored Mr. Cook, “not to make it personal but I can’t send my mom certain videos.” Mr. Cook’s response? “Buy your mom an iPhone.”

Well, he wasn’t wrong with his response. If the “green bubbles” bother you that much, then there is an option to solve it. It is not perfect, but if it is something that matters to you then that is the one thing you can do to resolve it. There are third-party solutions like WhatsApp that is widely used worldwide, and it has no issues with sending and receiving multimedia files. The one positive thing that you can say about iMessage versus other third-party messaging solutions, is that iMessage fails back to SMS when it doesn’t work correctly, or it is sending to a different number that doesn’t support it.

Diminishing the Functionality of Non-Apple Smartwatches

Smartwatches are an expensive accessory that typically must be paired to a smartphone. Smartwatches that can be paired with different smartphones allow users to retain their investment in a smartwatch when switching phones thereby decreasing the literal cost associated with switching from one smartphone to another, among other things. By suppressing key functions of third-party smartwatches—including the ability to respond to notifications and messages and to maintain consistent connections with the iPhone—Apple has denied users access to high performing smartwatches with preferred styling, better user interfaces and services, or better batteries, and it has harmed smartwatch developers by decreasing their ability to innovate and sell products.

Smartwatches typically require a smartphone for it work correctly, and the connection almost always uses Bluetooth to transmit data back and forth (usually text messages and phone notifications). There are APIs present on both devices that allow for interoperability and the ability to have shared apps on both. There are even smartwatches, Apple Watch included, that have cellular capabilities and can act somewhat autonomously on their own, and that functionality will likely only increase as time goes on.

Apple’s smartwatch-Apple Watch-is only compatible with the iPhone. So, if Apple can steer a user towards buying an Apple Watch, it becomes more costly for that user to purchase a different kind of smartphone because doing so requires the user to abandon their costly Apple Watch and purchase a new, Android-compatible smartwatch.

Apple confirmed that it spent 3 years trying to get Apple Watch to work with Android. Apparently, they ended up scrapping their plans to add the necessary support to the Apple Watch, or watchOS to work correctly with Android. I can’t speak for the technical reasons why they couldn’t make it work, and I would certainly be interested in knowing what the issue was that prevented it from working.

By contrast, cross-platform smartwatches can reduce iPhone users' dependence on Apple’s proprietary hardware and software. If a user purchases a third-party smartwatch that is compatible with the iPhone and other smartphones, they can switch from the iPhone to another smartphone (or vice versa) by simply downloading the companion app on their new phone and connecting to their smartwatch via Bluetooth. Moreover, as users interact with a smartwatch, e.g., by accessing apps from their smartwatch instead of their smartphone, users rely less on a smartphone’s proprietary software and more on the smartwatch itself. This also makes it easier for users to switch from an iPhone to a different smartphone.

Even though I don’t consider them to be smartwatches, I have owned several Fitbit trackers since 2015 and I have never had an issue with them. I have used them with Windows Phone, Android and iPhones and they have always worked correctly.

Limiting Third Party Digital Wallets

Digital wallets are an increasingly important way that smartphones are used and are a product in which users develop a great deal of comfort and trust as they typically contain users' most sensitive information. Digital wallets that work across smartphone platforms allow users to move from one smartphone brand to another with decreased frictions, among other things. Apple has denied users access to digital wallets that would have provided a wide variety of enhanced features and denied digital wallet developers—often banks—the opportunity to provide advanced digital payments services to their own customers.

There are already third-party digital wallet apps that exist on iOS and on Android, so I am not sure what the issue here is. Payment apps such as PayPal and Venmo allow for payments and are already cross platform. As mentioned above, there are already apps such as WeChat and Uber that have payment processing within the apps as well. Apple Pay only works on iOS devices and is heavily integrated into the iPhone and macOS ecosystem. At the same time, Google Wallet and payment services only seems to work on Android devices.

Apple Wallet is Apple’s proprietary digital wallet on the iPhone. Apple Wallet incorporates Apple’s proprietary payment system Apple Pay, which processes digital payments on the web, in apps, and at merchant points of sale.

This is a good thing. Payment processing is extremely complicated and allowing unsecured solutions to be widely adopted will only cause issues if those services get compromised. Apple and Google have built out the infrastructure to securely process payments and have sufficient arrangements in place with financial institutions to allow for payments using their services. It is extremely convenient to be able to walk into any store in Canada that accepts Interac and be able to use my iPhone to pay for things.

App Store

That strategy paid off. Over more than 15 years, Apple has built and sustained the most dominant smartphone platform and ecosystem in the United States by attracting third-party developers of all kinds to create apps that users could download on their smartphones through a digital storefront called the App Store. As developers created more and better products, content, apps, and services, more people bought iPhones, which incentivized even more third parties to develop apps for the iPhone. Today, the iPhone’s ecosystem includes products, apps, content, accessories, and services that are offered by content creators, newspaper publishers, banks, advertisers, social media companies, airlines, productivity developers, retailers and other merchants, and others. As Apple’s power grew, its leverage over third parties reinforced its tight control over how third parties innovate and monetize on and off the smartphone in ways that were anticompetitive and exclusionary.

When the iPhone was originally released there was no App Store whatsoever, and it was not until the release of the iPhone 3G that there was even the ability to install additional apps on the iPhone. Unlike the app ecosystems on other platforms, the App Store offers a unified way of finding, installing, and managing apps that are installed on the iPhone. If you are a developer and charge for your app, then Apple will take a certain percentage (30%) on sales of your apps, and a smaller percentage for subscriptions for your apps (15%). I will admit that I like the convenience of the App Store, it makes it very easy to find and install what I am looking for. I have never been compelled to install an app on my iPhone that wasn’t in the App Store, and in the past, I did try jailbreaking my iPhone to see what was available.

In a somewhat related topic to the App Store, in a corporate environment, deploying apps to an iPhone or an Android phone is basically the same. An administrator can use tools such as Intune or other MDM solutions to securely deploy apps to a corporate device. They can also use those tools to enforce policies that are not configurable to the end user to help secure the device. I have helped deployed thousands of iPhones and Android devices over the last decade and it has never been easier to support those devices.

Dead Smartphone Platforms

Many prominent, well-financed companies have tried and failed to successfully enter the relevant markets because of these entry barriers. Past failures include Amazon (which released its Fire mobile phone in 2014 but could not profitably sustain its business and exited the following year); Microsoft (which discontinued its mobile business in 2017); HTC (which exited the market by selling its smartphone business to Google in September 2017); and LG (which exited the smartphone market in 2021). Today, only Samsung and Google remain as meaningful competitors in the U.S. performance smartphone market. Barriers are so high that Google is a distant third to Apple and Samsung despite the fact that Google controls development of the Android operating system.

Full disclosure, I really liked BlackBerry. I owned several BlackBerry devices between 2007 and 2011 (BlackBerry Curve 8330 and BlackBerry Curve 8530) and I never had any complaints until the first time I used an iPhone. I also owned a Google Nexus 6P briefly in 2016, but I had a lot of hardware issues with that device, and I never got another Android phone after that. I also really liked Windows Phone, and I owned several of them including the Samsung Ativ S, the Nokia Lumia 830, and finally the Microsoft Lumia 950 XL before I finally moved to iPhone.

I am not defending Apple, but to blame Apple for the failures of any of these platforms is absolute insanity:

BlackBerry failed to innovate and allowed their platform to deteriorate. When the original iPhone was released, it virtually made all BlackBerry phones obsolete.
Windows Phone was an excellent platform that was marketed towards consumers, but there was never any widespread app support from major companies.
Amazon Fire Phone was too expensive, and it had too many concessions to make it successful. It was based on Android, but lacked app support that you would expect from Android phones.

I would get into other companies failures in the market such as LG or HTC and the issues that they had in the market, but those are both complicated cases and worthy of a separate post on what exactly went wrong.

Future

I am going to keep an eye on this case. It has a lot of implications on future tech products, and I am interested in where the case goes.

At the same time, I am not actually expecting anything to come out of the lawsuit. The most likely outcome of the lawsuit will be like the EU, which forced Apple to allow for third-party App Stores. There will likely also be changes to the fee structures that Apple is allowed to charge.