A week later finding its business end to a major lawsuit by the United States Department of Justice, Apple strongly denies any parallels between itself and Microsoft in the 1990s. It is a comparison that US Attorney General Merrick Garland leaned heavily on in the deposition of last week.
While portions of United States v. Microsoft Corp. were partially overturned, the Windows maker eventually had to modify some business practices deemed monopolistic by the government. Garland and the 16 state attorneys general involved in Apple’s lawsuit are no doubt seeking a similar result to curb practices she believes give the $2.65 trillion company an unfair advantage.
“In 1998, Apple co-founder Steve Jobs criticized Microsoft’s monopoly and ‘dirty tactics’ in operating systems to target Apple, prompting the company to ‘go to the Department of Justice’ in hopes of making Microsoft ” to play fair.” notes the suit, heavily implying hypocrisy on Apple’s part. “But even back then, Apple didn’t face the same types of restrictions that it imposes on third parties today. Apple users could use their iPod with a Windows PC, and Microsoft didn’t charge Apple a 30% fee for every song they downloaded from Apple’s iTunes store. Similarly, when Apple brought the iPhone to market in 2007, it benefited from competition between component manufacturers and wireless carriers.”
For its part, Apple reports worldwide iPhone numbers that are nowhere near the 90+% market share that Windows enjoyed before the turn of the millennium. Lawsuits like this are a rare opportunity to see a big company brag about how few devices they have sold relative to the wider market. Indeed, with numbers hovering around 20% worldwide, it’s hard to argue that the company is dominating the competition like Microsoft did a quarter of a century ago.
It’s true that the iPhone is doing particularly well domestically, where it faces less direct competition from many of the low-cost devices that dominate India and China (the number one and two markets, respectively). Apple suggests, however, that the Justice Department’s claim that “its share of the entire US smartphone market exceeds 65%” is misleading, as it refers to revenue, not sales. Of the latter, the company believes it owns less than half of its domestic market.
The distinction between these items is due to the price per unit. It’s here, DOJ suggests Apple owns 70% of ‘performance’ smartphone market. Sure, it’s true that Apple’s devices fall heavily into the premium category, of which the company controls a large chunk here in the states. The DOJ will likely have a hard time proving that this—by itself—constitutes a monopoly.
That’s why much of the 88-page complaint focuses on aspects like Apple’s tight control of the App Store, the watch’s inability to interface with Android devices and — of course — the dreaded green bubbles. Taken together, the attorneys general who drafted the lawsuit suggest that this evidence proves the company is using its market position to coerce third parties and generally make life more difficult for Android developers.
Among the most interesting aspects of the lawsuit is the claim that such actions have led to the collapse of Amazon, HTC, LG and Microsoft’s efforts to compete in the space.
“Many prominent, well-funded companies have tried and failed to successfully enter the relevant markets because of these barriers to entry,” the lawsuit notes. “Past failures include Amazon (which launched its Fire mobile phone in 2014, but was unable to sustain its business profitably and exited the following year); Microsoft (which spun off 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 significant competitors in the US performance smartphone market. The barriers are so high that Google is a distant third to Apple and Samsung, despite the fact that Google controls the development of the Android operating system.”
Apple practically laughs at the suggestion that such market failures are the fault of anyone but the companies behind them. Competitors consulted by the Justice Department in writing the case probably have different views on the direct role the iPhone maker played in their inability to capture significant market share (and each of the above cases is dramatically different from one another), but In case of the Fire Phone, at least, Amazon should be pointing the finger right at itself.
As for why companies like Huawei aren’t challenging Apple domestically, the US government should take a hard look in the mirror.
The smartwatch example is an interesting one. Even Cupertino’s highly paid legal team would have a hard time arguing that Apple Watch owners aren’t hindered by iOS exclusivity. For its part, however, the company suggests that technical limitations are the reason for this. Apple says it spent three years trying to build WatchOS/Android compatibility, only to give up, citing security and privacy concerns.
Similarly, while Apple points to the recent announcement that it will support RCS messages on the iPhone, the company insists that the continued presence of dotted green bubbles is necessary to differentiate encryption and compatibility with some Messages features.
The complaint cites internal emails from Apple executives suggesting that removing the green bubbles would be bad for business.
Ultimately, Apple believes the lawsuit seeks to effectively turn iOS into Android. The company points to the 2008 Supreme Court case Pacific Bell Co. v. LinkLine Communications. The court unanimously ruled in favor of Pac Bell, stating that the telecommunications company did not violate antitrust rules and is able to determine the companies it chooses to do business with.
When it comes time for Apple to make its case, the company will likely argue that it’s not Apple’s job to support competitors.
“If it succeeds, [the lawsuit] it would hinder our ability to create the kind of technology people expect from Apple – where hardware, software and services intersect,” he said in a statement issued shortly after last week’s filing. “It would also set a dangerous precedent by allowing the government to take a heavy hand in designing people’s technology. We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it.”
For more on Apple’s antitrust lawsuit, check here:
