Will the DoJ Take a Bite Out of Apple?

On March 21^st the US Department of Justice (DoJ), fifteen states, and Washington, D.C. filed a sweeping antitrust lawsuit accusing Apple of unlawfully restricting and suppressing competition in the smartphone market. According to the complaint, Apple’s famously tight control over the iPhone and the iOS ecosystem may be less about quality and data security than squashing competition and forcing users and developers to pay hefty fees.

The complaint lays out five examples of how Apple has used its market power, control over app distribution, and restrictive policies around Application Programming Interfaces (APIs) to maintain its smartphone monopoly:

• Messaging Apps
• Super Apps
• Cloud Gaming Apps
• Smartwatches
• Digital Wallets

Messaging Apps

The complaint alleges that Apple has gone out of its way to drive its users away from third-party messaging apps and Android phones in favor of its own proprietary Apple Messages app.

Apple has put several restrictions in place that hobble third-party messaging apps. It prevents third-party apps from using the ubiquitous SMS message protocol, preventing them from texting anyone who isn’t using the exact same app. Third-party apps are not allowed to run in the background, impeding users’ ability to send and receive messages, and they aren’t even allowed to use the more robust Rich Communication Suite (RCS) protocol that was intended to replace SMS as the universal standard.

If an iPhone user wants to message someone, they’re essentially forced to choose between Apple’s app or an app that is less functional and less useful — and it’s all by design. The message and effect are obvious: Why bother using another app when Messages can do all the same things, only better?

Apple’s treatment of messages sent by non-iPhone users is just as egregious. Messages sent between iPhone users show up in the Messages app as blue bubbles, signifying that the other party is also using an iPhone. These messages are encrypted, can be edited on the fly, reacted to, and supplemented with high-quality videos, images, and other content, giving iPhone users’ group chats a compelling dynamism that users value.

If, however, a single Android user joins the group, everything stops working. The Android messages are not encrypted. They can’t be edited, they can’t react to other users, and the only content they can attach comes out looking grainy and low-res. Worse, the presence of even a single Android user causes the group chat to "break," which can lead to teasing, exclusion, and even bullying among younger users.  

Super Apps

Super apps are apps that combine a number of different mini-programs with different functionality into a single platform-agnostic program. For example, China’s WeChat combines messaging, banking, payments, e-commerce, streaming video, location services, search, and social media features into one app, just to name a few. Many have mini-programs that can theoretically be accessed on an iPhone, an Android, or a web browser without issue.

According to the complaint, Apple kept super apps off of its platform for years because it feared the impact super apps might have on its business. They worried that super apps’ functionality might reduce users’ reliance on Apple’s first-party apps, and they feared that super apps’ ability to add functionality without the use of the App Store would rob them of fees and control. At worst, the super apps’ platform-agnostic design might cause users to leave the iOS ecosystem altogether.

Cloud Gaming Apps

Cloud streaming game apps allow users to stream games from servers located elsewhere, theoretically allowing users to play the latest games on the cheapest hardware. Apple didn’t like the idea of gamers having high-quality gaming experiences without paying for expensive Apple hardware, so they blocked cloud gaming apps on their platform for years.

The complaint alleges that this behavior hurt their users who would have liked to have access to cloud gaming, stifled the growth of cross-platform apps on other smartphones, prevented the emergence of technologies that could lower the price of iPhones, and inadvertently robbed themselves of potential revenue from third-party developers.

Smartwatches

Smartwatches are expensive accessories that pair with their users’ phones and allow them to do things like check notifications, send messages, make payments, and monitor health data while their phones are stowed.

Apple’s smartwatch, the aptly named Apple Watch, is by far the most popular smartwatch on the market. Though there are a number of models available from prominent manufacturers like Samsung, Google, and Huawei, none come close to the Apple Watch’s whopping 30% market share even though many offer much of the same functionality at a much more reasonable price point.

According to the complaint, much of this is by design.

The Apple Watch is the only smartwatch on the market that is solely compatible with iPhones. All other smartwatches are at least technically compatible with both operating systems. The complaint alleges that this was a purposeful decision intended to limit consumer choice, as Apple realized users would be more likely to stick with their iPhones if they knew they couldn’t take their Apple Watches with them if they switched.

The complaint also alleges that Apple has willfully degraded the functionality of third-party smartwatches that would otherwise be able to work on iOS without issue. Apple allegedly interferes with the ability of third-party smartphones to maintain a stable connection with iPhones and actively undermines the performance of smartwatches that connect directly to cellular networks. Worse, Apple forbids third-party smartwatches from responding to notifications, robbing them of one of their primary uses.

Digital Wallets

Digital wallets are apps that let users store credit cards, identification, digital car keys, and other credentials in one place. Some also use near-field communication (NFC) technology to allow users to make digital payments by tapping their devices on payment terminals, also known as tap to pay.

Android is home to several digital wallets with tap to pay functionality, including Google Wallet, Venmo, and PayPal. iOS has Apple Wallet.  

According to the complaint, Apple has leveraged its technical and contractual control over API access to prevent third-party developers from using the iPhone’s NFC capabilities outright, effectively blocking all other digital wallets from offering tap to pay functionality.

In addition to the power this gives Apple over its users, the NFC payment prohibition also allows Apple to extract a fee of 15 basis points (0.15%) from banks every time iPhone users make transactions through Apple Pay. Samsung and Google’s payment apps do not charge fees to issuing banks.  

Bruised or Rotten?

If the DoJ’s allegations are true, Apple has engaged in a slew of anticompetitive practices that have warped the smartphone, smartwatch, and app markets in potentially irreparable ways. The iPhone and its peripheral businesses have earned Apple enormous wealth and popularity around the world, but would that be the case if Apple hadn’t used underhanded tactics to squash its competition? Would we even be using iPhones now if Apple had played fair? How many companies would have grown and new technologies emerged if Apple hadn’t smothered them in their infancy?

Related Resources:

• Watch Out, Apple (FindLaw’s Law and Daily Life)
• Taylor Swift v. Apple in Court of Public Opinion (FindLaw’s Legally Weird)
• Will Upcoming Battle Royale Against Google and Apple Finally Lead to App Store Changes? (FindLaw’s Technologist)