By Jonny Evans
“I’m telling you there is no merit to this case,” said Mad Money host Jim Cramer in reaction to the Justice Department’s antitrust lawsuit against Apple. Justice officials announced the lawsuit Thursday.
Cramer's reaction reflects the opinion of most industry observers who see the weaknesses of the allegations it contains.
Apple is facing regulatory action across the world. The EU has already forced the company to make changes that open its platform. But the Department of Justice (DOJ) litigation is far more ambitious and aims at Apple’s control of the ecosystem — it’s an existential attack some say will require the courts to accept a redefinition of decades old antitrust law.
Attorney General Merrick Garland even argued that Apple’s been doing well, not because it is making its own products better, but because it somehow makes other products worse.
The DOJ’s flawed history with the iPod also seems central to its case. And yet, in making that argument, it ignores so many aspects of the success of that product. Another troublesome element is that some of these arguments have been raised before when a judge decided Apple did not violate antitrust law.
Weak arguments don’t make the grade
Fair weather stock dealers might be exiting Apple’s stock on the news, but analysts are more sanguine. They know two things:
Apple’s now-muddy walled garden will likely emerge with a couple of additional gates, but the substance of the case is unlikely to stand the test of time.
In its lawsuit, the DOJ makes numerous arguments, some of which seem to betray a twisted view of reality.
“Reading the DOJ/Apple lawsuit again and some of this, such as the bizarre iPod history, is like a ChatGPT hallucination,” said Chance Miller on X/Twitter. "I’d argue it’s like a bad acid trip at the Homebrew Computer Club.
I’m hearing similar verdicts from the analyst community.
“I think the arguments are weak," Creative Strategies President and analyst Carolina Milanesi told me. "First, Apple does not have a monopoly — even in the US, which is one of their strongest markets, they have less than half of smartphones sales.”
"While Apple arguably leverages its power and platform when it comes to the App store, it clearly doesn't have a monopoly in smartphones in the US market, so the focus of the US Department of Justice antitrust lawsuit seems a bit misguided,” said Bob O’Donnell, president and chief analyst at TECHnalysis Research.
Inventing a new term for monopoly
This is not the same as the 1990s antitrust suit against Microsoft. Windows then truly dominated PC software with more than 90% of the world’s PCs running the operating system. Right now, Apple holds about fifty percent of the US smartphone market with the rest running Android. That divide rises and falls, but has been pretty steady for a decade.
To make its argument, the DOJ simply invented a new market segment to accuse Apple of dominating: “performance smartphones."
But even with those massaged “performance smartphone” figures, the department can only claim Apple runs 70% of all smartphones in the US – and this is not replicated internationally.
The DOJ also uses revenue rather than unit sales to support its argument and accuses Apple of attempting to build a monopoly through its various businesses.
Jason Snell has an excellent look at the department’s arguments. “Apple’s position in the U.S. market is certainly strong, but regardless of how you view its behavior, it will be interesting to see if the DoJ can make a convincing case that Apple is actually a monopoly, given the presence of Samsung and Google in the market,” he wrote.
I say it seems twisted to define a market Apple doesn’t dominate by stressing the one section of that market it actually does. It’s the equivalent of saying Koenigsegg monopolizes the car market because it dominates the market for super-fast cars; that kind of market segmentation isn’t a monopoly, it’s just a definition developed to fit the argument the DOJ wanted to make.
On user privacy
The department really seems to have one area of the Apple business in its sights. That part is, of course, the privacy law enforcement has been trying to erode for so long.
In its litigation, the DOJ says: “Apple wraps itself in a cloak of privacy, security, and consumer preferences to justify its anticompetitive conduct. Indeed, it spends billions on marketing and branding to promote the self-serving premise that only Apple can safeguard consumers’ privacy and security interests."
It even argues (based on no reality I’ve ever been in) that by securing its platform Apple erodes the evolution of the security market — presumably, it sees platform insecurity as a small price consumers can pay so security firms can sell them varying degrees of security and hackers can build their business on the back of attacked iPhones.
This is by no means a new battle.
Former Apple product designer Michael Darius sees privacy and Apple’s attempts to protect it as the main target in the litigation. On X/Twitter he wrote: “Apple has been fighting the DOJ for more than 20 years over the ability to protect user privacy. District court judges have no idea how their personal quality of life is actually protected by making sure Apple devices are more secure than their competitors. People are so disconnected from understanding how the work Apple does to protect their privacy personally benefits them it disgusts me.”
It's amusing to note that the DOJ has sued companies for inadequate privacy protection in the past, but now argues Apple is at fault for doing its very best to protect user privacy.
Tearing apart the user experience
“The argument I struggle with the most is that they want to pull apart what makes the Apple experience,” said Milanesi. “At the end of the day, someone who uses an iPhone is getting an experience that is made of the hardware, the software, the apps, and the services. Arguing that Apple should accept other payments other than Apple Pay makes no sense, as the experience would just not be the same.”
"While we understand the logic behind the lawsuit, it's also very clear that Apple's competitive moat is a result of its seamless integration of hardware, software, and services, which creates an unmatched closed ecosystem of hardware and solutions offerings," said Morgan Stanley analysts.
They argue that it is Apple’s innovation, rather than any monopolistic behavior, that's contributed to its success. This has generated US consumer satisfaction of 99%, they argue, and the DOJ’s arguments seem to overlook the value consumers place in Apple’s unique platform.
Milanesi again: “I would also say that consumers are free to go where they want if they are not happy with the services; there is a world of Android that offers viable alternatives, both in hardware and services. If they stay with Apple, it's because there is a value delivered to them. Even the people who complain that they are locked in because the family uses FaceTime could use Teams or WhatsApp for calls on an iPhone — the reason they don’t is because FaceTime is a seamless experience.”
The argument is that people are free to buy what they want to buy. Not only that, but consumers have purchased Apple’s products because they like the integration — even though other platforms do exist.
But apparently it's Apple's fault that other platforms have not succeeded.
Can Apple do mind control?
The DOJ burned my eyes with arguments that Apple in some way caused the truly dreadful Amazon Fire Phone to fail. It did, but only by delivering a far, far better product.
The regulators made similar arguments that Apple was somehow responsible for the market defeat of Windows Mobile, but that’s really difficult to accept, given the sheer scale of Microsoft’s competitive foray into the market.
(People at the DOJ may want to note that Microsoft spent billions on the acquisition of Nokia.)
Writing on X/Twitter, Joanna Stern, senior personal tech columnist at the Wall Street Journal wrote, “Oh yes, I’m remembering it now, Apple made Amazon use a dumb 3D screen and slow processor. It was the same day Apple made Microsoft acquire Nokia.”
“The more of this DOJ lawsuit I read, the more sloppy it gets,” wrote analyst Benedict Evans. “It reminds me of that FTC case against Meta that just...forgot to define Meta's 'monopoly.' The judge threw it out and the FTC had to refile the whole thing.”
Is this an existential attack?
With such labyrinthine twists and turns to its case, it’s almost as if the DOJ is engaged in an existential attack against Apple’s entire business model on very slim arguments.
“Regulators hate successful companies,” Cramer said.
O’Donnell also criticized the approach taken by the DOJ.
“The company could certainly do a few things with regards to messaging apps, wallet apps and a few others to level the playing field, but the company has stubbornly refused to do those kinds of things up until now. The recent EU-driven changes to the App store seem like more the thing the US government should focus on."
Anecdotally, another point of interest to all of this is that within minutes of the DOJ revealing its case, my email box seemed to become infested by a scourge of legitimate seeming opinion providers I’d never heard of before wanting to make arguments supporting the DOJ case. I’ve only ever seen such coordination during media launches and political elections....
Former Microsoft President Steven Sinofsky published an interesting and extensive set of comments about the case. He points to dozens of examples of poor arguments and states: “This is far more ideological and political than it is legal or business. It is not just that it is weak, but the foundation is based on ahistoric tales of the past.”
You should read his entire thread here.
What happens next?
Despite being based on so many risible arguments, the case will proceed.
Thousands of lawyers will be involved, Apple’s executives will be called in to depositions, and vast quantities of company resources will be squandered over a period of years on the case.
Could things have been different?
Perhaps if Apple had proactively loosened up more elements of its business it might have blunted the appetite for action against it.
JumpCloud’s Tom Bridge wrote on Mastodon: “No matter what you think of the DOJ's suit against Apple, there are a number of things that Apple could've done over the years to prevent it from ever getting to this state. Their refusal to do so was dogged, determined, and baffling.”
For Apple, the case will dent its productivity and distract its top executives. In a couple of years, the case might get to trial, there will be appeals and at some point, probably around 2030, a judgement will be made. The DOJ has been clear that the idea of forcing the break-up of Apple is on the table.
Such a dramatic outcome seems unlikely. Bernstein analysts believe the “worst case” scenario will be that Apple ends up being forced to pay a fine.
One harsh accusation came from GigaOm founder Om Malik, who wrote: “I think regulators both in the US and Europe actually need to ask the paying customers why they use Apple products. Also, my opinion of regulators hasn’t changed. They are just trying to secure their post-government gig.”
If Malik's criticism were true, it's unlikely that gig will be in Cupertino.
Expect this saga to run on and on.
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