On March 21, 2024, the U.S. Department of Justice (DOJ) and the attorneys general for 15 states1 and the District of Columbia filed a complaint against Apple in the District of New Jersey.2 The complaint alleges that Apple violated Section 2 of the Sherman Act and New Jersey and Wisconsin law by monopolizing or, in the alternative, by attempting to monopolize the markets for “smartphones” and “performance smartphones.”
Notably, the complaint hearkens back to the DOJ’s early enforcement efforts against technology companies, alleging that the case the DOJ brought against Microsoft Corporation in the 1990s (United States v. Microsoft) and the consent decree that followed, paved the way for Apple to compete in the industry. But, it’s alleged, Apple failed to learn the lessons of Microsoft and engaged in similar practices to exclude competitive threats.
The 77-page complaint details the background of the industry, the history of Apple’s business, and varied allegedly anticompetitive conduct in which Apple engaged throughout the years. The DOJ also sprinkles in quotes from Apple employees and executives to add color.
The following provides a summary of the key allegations in the DOJ’s complaint.
Relevant Markets
The DOJ alleges that the relevant markets are for smartphones (65 percent market share by revenue, not units) and “performance smartphones”3 (70 percent market share) in the United States. Performance smartphones are characterized as flagship or premium phones in comparison to entry level phones with cheaper components. The complaint does not specify any bright line test or price point to determine what constitutes a performance smartphone. The DOJ contends that the relevant geographic market is the U.S. due to the involvement of U.S. carriers in the sale and support of smartphones.
Conduct
The DOJ alleges Apple monopolized the smartphone and performance smartphone markets through i) selective enforcement of contractual restrictions on app distribution and control of its “app review” process and ii) denying app developers access to APIs that could be used to develop cross-platform technologies in messaging, smartwatches, and digital wallets. The DOJ contends that Apple sacrifices short term profits and lowers the quality of its devices in order to maintain a “moat” around its platform by preventing innovation that could allow for easier switching to competing devices such as those from Samsung.
Contractual Restrictions / App Review Process
Super Apps: Super apps can provide users access to “mini programs” within the app (analogous to “middleware”) and could allow developers and users to bypass Apple’s App Store and facilitate user switching when users access super apps on rival devices. The complaint alleges that Apple, fearing disintermediation, prevents super app developers from monetizing mini programs by blocking super app developers’ access to APIs and prevents use of in-app payment methods other than directly using Apple’s in-app payment (IAP), while allowing other app developers to do so.
Cloud Streaming Game Apps (CGAs): CGAs do complex computing in the cloud thereby reducing user dependence on the latest iPhone hardware and making it easier for users to switch to smartphones with less expensive hardware. Apple allegedly i) required developers to submit each game (and any corresponding updates) as stand-alone apps to Apple for approval; users had to separately download cloud streaming software for each game; and ii) required developers use Apple’s proprietary payment system, which effectively forced developers to build iOS-specific versions of their CGAs.
Denying Access to APIs
Messaging: The complaint alleges that Apple reduces the functionality of third-party messaging apps on the iPhone, for example, by limiting access to the APIs for SMS messages, showing non-iPhone messages in green, and preventing access to or degrading access to the iPhone camera. Although Apple recently stated it would support cross-platform technology (RCS), the complaint alleges it has not done so and only plans to support an outdated 2019 version.
Smartwatches: The complaint alleges that Apple discourages users from switching to third-party smartwatches and Android phones by i) blocking compatibility between Apple Watches and Android devices,4 and ii) limiting iPhones’ compatibility with third-party smartwatches. Apple allegedly also limits the quality of Bluetooth and cellular connectivity between iPhones and third-party smartwatches.
Digital Wallets: Apple’s digital wallet, Apple Wallet, incorporates Apple Pay and uses iPhone near-field communication (NFC) technology to enable tap-to-pay. The complaint alleges that third-party digital wallets cannot access the iPhone NFC chip or be used for in-app payments, and that banks pay a premium (0.15 percent) to Apple for Apple Pay transactions; in comparison, Samsung/Google transactions are free to issuing banks.
The complaint also makes references to other ways that Apple allegedly undermines user switching away from the iPhone:
- degrading third-party competitors and steering users to Apple’s services like FaceTime, Safari (requiring all browsers to use Apple’s rendering engine WebKit), cloud storage (iCloud), and voice assistant (Siri);
- undermining cross-platform technologies such as digital keys, which must be used through Apple Wallet; and
- offering its own subscription services (music, TV, news, gaming, fitness) that could be used to keep users tethered to the platform by increasing switching costs among iPhone users while preventing developers from making iPhone users aware they can purchase subscriptions at lower prices outside the App Store.
Anticompetitive Effects
The DOJ alleges that Apple’s conduct harms the competitive process by suppressing the apps, innovations, and technologies that would reduce user costs to switch to non-Apple smartphones. The DOJ contends that less competition results in fewer choices, less innovation, lower quality products, and higher prices for consumers. It also contends that Apple extracts monopoly rents from third parties in a variety of ways, including app fees and revenue-share requirements, and repeatedly chooses to make its products worse for consumers. The DOJ argues that the cumulative effect of Apple’s conduct is to maintain and entrench its smartphone monopoly at the expense of users, developers, and other third parties, according to the complaint.
Relief Requested
The plaintiffs request declaratory relief and an injunction to cure alleged anticompetitive harm and restore competitive conditions. Specifically, the plaintiffs seek to enjoin Apple from i) “using its control of app distribution to undermine cross-platform technologies such as super apps and cloud streaming apps,” ii) “using private APIs to undermine cross-platform technologies like messaging, smartwatches, and digital wallets,” and iii) “using the terms and conditions of its contracts with developers, accessory makers, consumers, or others to obtain, maintain, extend, or entrench a monopoly.”
If you have any questions about this client alert or how this case may affect your company, please contact Jeff VanHooreweghe, Beau Buffier, Maureen Ohlhausen, or any member of Wilson Sonsini’s antitrust and competition practice.
[1] The plaintiff-states are: New Jersey, Arizona, California, Connecticut, Maine, Michigan, Minnesota, New Hampshire, New York, North Dakota, Oklahoma, Oregon, Tennessee, Vermont, and Wisconsin.
[2] Complaint, United States v. Apple, Inc., No. 2:24-cv-04055 (D.N.J. Mar. 21, 2024) (https://www.justice.gov/opa/media/1344546/dl?inline).
[3] The DOJ alleges that the performance smartphone market is a more expensive segment of the broader smartphone market, consisting of smartphones that “typically have higher quality cameras, better battery life, wireless charging, and advanced biometrics such as face scanning.” Id. ¶ 153. The DOJ notes that performance smartphones include “those smartphones that compete with most iPhones and excludes the lowest-end smartphones[.]” Id. ¶ 165. The DOJ does not allege any price point threshold above which a smartphone becomes a part of the performance smartphone market.
[4] For example, the complaint alleges that third-party smartwatches cannot respond to certain notifications (including text messages) on iPhones.