Apple: what to expect from the antitrust process in the US – 03/22/2024 – Tech

A famous Apple ad campaign urged customers to “think different.” American justice now alleges that the iPhone maker had betrayed that slogan, trapping millions of its users in a powerful monopoly that made it one of the most valuable companies in the world.

The long-awaited lawsuit is a pivotal moment for Apple. For years, it was one of the few big technology companies to avoid significant U.S. antitrust action. It is now under intense scrutiny from regulators in two of its main markets, the US and the EU. His answers indicated that he is preparing for an existential battle.

Apple said the U.S. case threatens who the company is and the principles that differentiate Apple products in “fiercely competitive” markets.

A defeat would set a “dangerous precedent” by allowing the government to influence the development of technology markets, he added.

The new U.S. lawsuit is broad and detailed, painting a picture of a company that has spent years fending off competitive threats to its ecosystem, whether in the App Store, in messaging with competing Android phones, in its “tap-to-pay” service or in smartwatch market.

The US portrayed the alleged scheme as extending back to Steve Jobs, the company’s iconic founder who passed away in 2011.

It was Jobs’ vision to maintain an oppressive monopoly, identifying at an early stage the power the iPhone could wield over the online economy – and going so far as to direct executives to “force” developers to only use their own payment system. to keep them trapped in its ecosystem, the US alleged.

The crux of the allegation is that Apple uses its market-leading device to attract an increasing share of users’ services revenue by excluding competitors from access.

Services revenue — which includes its App Store, Apple Pay, and streaming TV and music — has been an ongoing success story and an increasingly important source of growth for the company as its hardware sales face challenges.

The lawsuit makes clear that the goal of the case is not just to hold Apple accountable for past violations, but also to prevent it from stifling innovation and competition in future product categories such as automotive systems and financial services.

For the company, the timing of the legal action could not be worse. Global smartphone sales have declined over the past year. Apple is specifically experiencing a decline in device sales in China, which has investors nervous. Its shares are down nearly 8% since the start of 2024.

As the US revealed the lawsuit on Thursday, CEO Tim Cook was in Shanghai on a public relations offensive.

“He certainly knew it was coming this week,” said Gene Munster of Deepwater Asset Management. “Apple is going to war with the Department of Justice, and a settlement is not an option.”

Munster estimated that potential changes the government could impose on Apple’s services business, if its lawsuit is successful, could have a negative impact on profits of 2% to 4%.

Apple representatives said the US government’s intervention showed it was trying to tip the scales in favor of large multinational companies trying to open source their devices, a similar issue it faces in the EU.

Apple was recently forced to make a series of changes by the EU regulator regarding its plan to comply with a new competition law, and has already changed parts of its business model in the bloc as a result. An EU investigation into whether it made enough changes could soon follow.

As early as next week, EU regulators are expected to launch an investigation into whether Apple is adequately complying with the new Digital Markets Act, according to people familiar with the matter. Some app developers have complained about Apple’s new terms and fees as the DMA forces the company to open its tightly controlled App Store.

Google and Meta are also likely to face investigations over their DMA compliance plans, these people said. But privately, regulators say privately that Apple’s handling of the new law has caused the most outrage in Brussels.

While Apple’s problems in Europe deepen, the legal battle in the US is something the company, in some respects, has already passed. Epic Games sued the company over its App Store policies in 2020, alleging that the company imposes an unfair 30% “tax” on certain transactions — a case that Epic largely lost.

But on Thursday, those same allegations were echoed by U.S. Attorney General Merrick Garland. Apple says the DoJ is distorting the facts to suit its theory, pointing to what it says is a 20 percent share of the global smartphone market, which is far from a monopoly.

The government argues that the company wields much more power in the U.S.: about 70 percent of the revenue share in the high-end smartphone market and more than 65 percent of all smartphones.

Apple believes that after the Epic case, case law and facts are on its side. However, a victory in one case does not guarantee the same result in another. Competitors have also been around, with Meta, Microsoft and

“The Justice Department’s case shows a lot of sharp learning from the other legal matters that have involved Apple,” said Bill Kovacic, former chairman of the Federal Trade Commission and professor of competition law and policy at George Washington University Law School. .

The Justice Department’s case, he said, “avoids some of the vulnerabilities” of Epic’s fight, and the case law governing the federal court in New Jersey, where the lawsuit was filed, may be more favorable to the government than that in California. , where Epic’s case was presented.

Antitrust cases can take years to go to trial, and even if Apple loses, any enforcement of the ruling would almost certainly be delayed by subsequent appeals. Meanwhile, its business in the US continues as usual.

There is also the prospect that Joe Biden — and by extension his zealous antitrust enforcers, including Jonathan Kanter, the DoJ’s assistant attorney general for antitrust — will be swept out of office in the November election. But a second Donald Trump presidency wouldn’t necessarily improve Apple’s situation, Kovacic said, as the investigation was launched under his previous administration.

“My intuition, based on Trump’s continued expressions of suspicion about the big technology information sector, is that he would probably turn to his justice department and say, ‘Keep going,'” he said.