April 05, 2024

Written by Tim Colucci

The Impact of the Department of Justice/Apple Lawsuit

For years, Apple has positioned itself as the Big Tech underdog. That stance took a blow recently when the U.S. Justice Department sued Apple for antitrust violations. Let’s dig into what this case is all about.

Why the Department of Justice Sued Apple

The Department of Justice (DoJ), along with multiple state attorneys general, argue that Apple has established an illegal monopoly on the smartphone market. This is a violation of Section 2 of the Sherman Antitrust Act, which prohibits monopolies or attempted monopolies. The DoJ accuses Apple of using its dominance to stifle competition and harm consumers via:

  • Control over payment systems: forcing developers to use Apple’s in-app payment processing system, preventing alternative payment options that could have lower fees.
  • Blocking competing technologies: creating technical barriers that make it difficult for competing app stores or innovative technologies to operate on iPhones.

As a result of these alleged violations, the DoJ says that Apple’s control inflates prices for apps and digital purchases (ultimately passed onto consumers); makes it harder for smaller developers and potential competitors to thrive (limiting consumer choice); and discourages developers from creating new and potentially better products/services.

Possible Outcomes

The legal action seeks to compel the court to halt Apple’s ongoing activities, which encompass obstructing cloud-streaming applications, hindering messaging interoperability between different smartphone platforms, and barring the development of alternative digital wallets.

A DoJ official told The New York Times that the Justice Department is authorized to propose structural modifications to Apple’s operations, potentially including a division of the company. The outcome of the lawsuit, which is expected to extend over several years before reaching any form of conclusion, remains uncertain for consumers. Apple intends to submit a request to dismiss the lawsuit within the next 60 days. In its submission, Apple will argue that antitrust laws allow it to implement policies or designs that may be contested by its rivals, especially if such designs enhance the iPhone user experience.

Apple Disputes Claims

Apple has already disputed these claims in the news media. Apple says that consumers choose iPhones because of the superior experience and that they do face competition from Android devices; that its tight control is necessary to protect users from malware and privacy breaches that could occur with less-regulated app distribution; and that the App Store’s success fuels innovation, providing resources and incentives for developers.

An Apple spokesperson told The New York Times, “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets. If successful, it would hinder our ability to create the kind of technology people expect from Apple — where hardware, software, and services intersect. It would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.”

Epic Games versus Apple

The lawsuit follows a contentious anti-trust lawsuit that Epic Games filed against Apple. Epic also contended that Apple’s 30 percent commission on in-app purchases was anticompetitive and harmed consumers by inflating prices. In addition, Epic demanded the ability to offer its own payment system within its app, bypassing Apple’s system and the commission. As a result of the lawsuit, in January the Supreme Court required Apple to allow app makers selling to U.S. customers to add links and buttons inside their apps that bring users out to a website where they can input their credit card information. This was previously banned. In the past, Apple developers had to use Apple’s billing system for digital goods like game coins (which takes a 15 percent to 30 percent cut) and couldn’t tell users that prices can be cheaper on the web.

At the time, Epic Games CEO Tim Sweeney said that the Supreme Court did not go far enough. He said, “The court battle to open iOS to competing stores and payments is lost in the United States. A sad outcome for all developers.”

But as it turns out, the Epic Lawsuit was a taste of things to come.

Implications of the Lawsuit

The DoJ lawsuit has major implications for:

  • The future of tech regulation:it could set precedents for regulating large technology companies and their control over digital marketplaces.
  • Consumer welfare:the outcome could influence app prices, choices available to consumers, and the landscape for developers.

This case directly challenges the power that platforms like Apple and Google have over the distribution of software and services on their devices. If the courts side with the DoJ, it would signal that platform owners cannot use their dominance to restrict competition or extract unfair profits from others who depend on their platforms. A win for regulators could embolden them to pursue similar cases against other tech giants accused of anticompetitive practices. This could lead to more lawsuits, regulations, and potentially even legislation aimed at limiting the power of Big Tech companies.

Longer Term Implications

Ultimately, I see the Big Tech companies such as Apple and Google gradually loosening their grip on the digital landscape that they helped create. There will be longer-term implications for businesses, including advertisers, that seek to prosper in that landscape.

For example, if Apple is forced to open the iOS ecosystem, smaller developers would potentially face fewer barriers to entry. Reduced App Store commissions could boost profitability for app developers. This creates room for more niche and innovative apps catering to specific audiences, which businesses can use as new avenues for reaching consumers.

In addition, more competition in the app distribution space might mean more opportunities for businesses to advertise outside of the dominant platforms. Smaller app stores might offer tailored advertising options or lower fees compared to Apple. This could diversify ad spend and strategies, especially for small- and medium-sized businesses currently heavily reliant on Apple’s advertising network.

For now? Businesses should keep an eye on the evolving landscape but expect no immediate changes. The Apple lawsuit is likely to drag on for years through appeals and legal challenges.

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