Big Tech Finally Cut to Size?

In recent years, the technology industry has grown dramatically, with businesses such as Apple, Samsung, and Microsoft dominating the industry. These businesses are responsible for powering the digital age, focusing primarily on the production of computers and software, which can include platforms such as social media and cybersecurity. Due to the significant interaction between these technology companies, there is a desire for continuity between brands. In an industry focused on the exchange of information and connectivity between users, a brand that refuses to enable integration will likely find themselves without customers. However, should a firm commit to a policy of such incompatibility with a superior product, they may be able to create a coercive monopoly over a particular sector of the technology sector.

On Thursday, March 21st, the Department of Justice (DOJ) and 16 other states finally sued Apple for its predatory practices which, they claim, significantly stifles innovation within the smartphone market [1]. The petitioners allege 5 primary predatory practices which they believe stifle innovation and break antitrust law:

1. Deliberately blocking the innovation of apps through its integrated appstore.

2. Blocking the development of external hardware and cloud services in order to force consumers to pay for those services through Apple itself.

3. Deliberately limiting the quality of communications with competitors' smartphones.

4. Intentionally limiting compatibility between their products and the smartwatches of their competitors.

5. Hindering the development of tap-to-pay technology in order to stop the creation of cross-platform virtual wallets.

The DOJ also noted that these specific practices extend to other products and services provided by Apple, such as search engines and automotive services [1].

The allegations come from Apple’s “walled paradise” policy. This business strategy seeks to limit connectivity with outside platforms and hardware to ensure that the best way to experience the full range of Apple’s functionality is with strictly Apple products. Christopher Mims of the Wall Street Journal stated that, “the fact that [all Apple products] are integrated—makes it very difficult for Apple customers to use devices outside of it” [2]. This system makes it difficult for innovators to create goods that improve Apple’s services and creates high costs for switching brands. Regulators may interpret these practices as a form of anticompetitive behavior. According to the Cornell Law School Legal Information Institute, a monopoly is legally defined as “used to describe instances where there is a single seller of a good in a market” [3]. Apple effectively establishes itself as the one seller of hardware and software linked to its devices by creating a high switching cost.

Despite Apple’s clearly dominant position within the smartphone market, antitrust cases are challenging to litigate. When seeking to address monopoly power within a market, the plaintiff has a significantly high burden of proof. Under section 2 of the Sherman Act, the plaintiffs must prove “(1) monopoly power and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident” [4]. Under this statute, monopolies can be legal if they occur through coincidence or due to a natural lack of competition. This requires plaintiffs to prove that the anticompetitive business deliberately acted to limit competition. Such a claim could be proven but would require either highly circumstantial evidence or clear statement from executives stating their intent. Notably, even naturally occurring monopolies can be subject to antitrust litigation, as “ antitrust laws are most often viewed as only a means for ensuring free competition in order to achieve the most efficient allocation of society's resources” [5]. However, Apple does not appear to fall in this category as there are businesses such as Samsung that produce similar products.

Despite these difficulties of antitrust litigation, the DOJ seems poised for success. While discovery has not yet occurred and more evidence is likely to be uncovered, the DOJ complaint includes conversations and information that clearly demonstrate Apple's intent to stifle competition and innovation. The DOJ cites Steve Jobs, who discusses the need to “further lock customers into our ecosystem” and “make Apple[s] ecosystem even more sticky” [6]. Along with the other alleged conversations and statements cited in the DOJ’s complaint, it appears Apple intended to create high switching costs and cement its walled-garden approach to technology development. Moreover, the business practices discussed within the complaint and by competitors demonstrate further that Apple acted upon its goal of limiting connectivity and integration with other technology producers. Should the DOJ succeed, the scope and definition of anti-competitive practices will likely expand to include connectivity between products, especially within the technology industry, encouraging innovation and improving the consumer experience.

[1] Department of Justice Office of Public Affairs, Justice Department sues Apple for monopolizing smartphone markets Office of Public Affairs | Justice Department Sues Apple for Monopolizing Smartphone Markets | United States Department of Justice (2024), https://www.justice.gov/opa/pr/justice-department-sues-apple-monopolizing-smartphone-markets (last visited Mar 21, 2024).

[2] Christopher Mims, The main driver of Apple’s success has become its ... The Wall Street Journal (2024), https://www.wsj.com/tech/personal-tech/apple-vision-pro-walled-garden-mac-iphone-app-store-c4838278 (last visited Mar 21, 2024).

[3] Cornell Law School, Monopoly Legal Information Institute (2023), https://www.law.cornell.edu/wex/monopoly (last visited Mar 21, 2024).

[4] DOJ Antitrust Division, Competition, and monopoly: Single-firm conduct under Section 2 of the Sherman Act : Chapter 1 Antitrust Division (2022), https://www.justice.gov/archives/atr/competition-and-monopoly-single-firm-conduct-under-section-2-sherman-act-chapter-1 (last visited Mar 22, 2024).

[5] United States v. American Tel. and Tel. Co., 552 F. Supp. 131 (D.C. 1982).

[6] Complaint, <6>, US v. Apple Inc, No. 2:24-cv-04055 (Dist. Ct. New Jersey Div., NJ.).