The DOJ Sues Apple for Alleged Antitrust Violations
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From the The Morning Dispatch on The Dispatch
Happy Tuesday! The NFL is continuing its global push, announcing on Monday plans to expand efforts to promote fandom of specific teams in 19 overseas markets. After examining the list, we’re wondering what Spain and the United Kingdom did to NFL Commissioner Roger Goodell to make him saddle them with the Chicago Bears. (Editor’s Note: Rude.)
Quick Hits: Today’s Top Stories
The U.N. Security Council passed a resolution on Monday demanding an immediate ceasefire in Gaza during the Muslim holy month of Ramadan, which ends in two weeks, after the U.S. abstained from voting. U.S. Ambassador to the U.N. Linda Thomas Greenfield said the U.S. could not support the resolution because it did not condition the ceasefire on Hamas’ release of the remaining hostages, but chose not to block it because it does include a demand to release the hostages. The U.S. had previously vetoed four previous ceasefire resolutions, though National Security Council spokesman John Kirby insisted yesterday’s abstention did not indicate a shift in White House policy on Israel’s war against Hamas. In response to the move, Israeli Prime Minister Benjamin Netanyahu canceled an upcoming visit to the U.S. by two top advisers to discuss alternatives to Israel’s planned ground offensive in Rafah. Meanwhile, Gideon Sa’ar, a member of the Israeli unity government aligned with opposition leader Benny Gantz, resigned on Monday after being left out of Netanyahu’s war cabinet. “I can’t carry the responsibility if I do not have, in my judgment, a real possibility to influence the direction of policy,” Sa’ar said.
The Justice Department on Monday unsealed an indictment against seven China-based hackers accused of targeting businesses, politicians, journalists, and international critics on the Chinese government’s behalf. The DOJ alleges the seven hackers were part of a state-sponsored group that, over the course of 14 years, sent more than 10,000 malicious emails to collect information about their targets and enable additional and even more intrusive hacking efforts. White House staffers, U.S. senators and members of Congress, and employees of various cabinet agencies were all allegedly targets of such efforts. The U.S. and United Kingdom also sanctioned two of the defendants, as well as a firm in Wuhan, China, which the Treasury Department said served as a front for hacking operations.
A New York appeals court on Monday reduced the bond former President Donald Trump will have to pay the state of New York as he appeals the judgment in the civil fraud case against him, which concluded he and his associates had committed financial fraud. The order—which came the same day New York Attorney General Letitia James could have begun to seize Trump’s assets in the enforcement of a more than $450 million judgment—reduced the bond to put the judgment on hold while he appeals to $175 million. That sum is due within 10 days, and he will reportedly be able to secure the requisite funding. Meanwhile, in a separate criminal case related to allegations the former president paid a porn star to keep quiet about an affair ahead of the 2016 presidential election, New York Judge Juan Merchan set a trial date of April 15.
Trump’s social media venture, Trump Media & Technology Group Corp., is set to begin trading on the Nasdaq exchange as a public company today. The corporation, which operates Trump’s social media platform Truth Social, completed a merger with an already-public shell company on Friday, allowing it to avoid an initial public offering. Trump will not be able to cash out his shares unless the business’ board, on which his son Donald Trump Jr. and other Trump allies sit, changes the “lock-up” policy that prevents people with knowledge of the business from selling shares within six months of public trading.
Florida Gov. Ron DeSantis signed a law on Monday barring social media companies from offering accounts to minors under the age of 14. The first-of-its-kind legislation, set to take effect on January 1, 2025, would also require companies to close the existing accounts of children believed to be younger than 14. Fourteen- and 15-year-olds would be allowed to hold accounts with a guardian’s consent, and platforms would be required to delete the existing accounts of minors of that age in the absence of parental consent.
The Francis Scott Key Bridge in Baltimore, Maryland, collapsed early Tuesday morning after a container ship traveling along the Patapsco River hit a central column supporting the roadway. Dali, the cargo ship that hit the bridge, is reportedly Singapore-flagged and managed by Synergy Marine Group. At least seven vehicles were traveling along the bridge and fell into the water when it collapsed, according to a Baltimore Fire Department spokesman, and rescuers are looking for as many as 20 people in the water. The spokesman described the collapse as a “mass casualty incident,” and Maryland Gov. Wes Moore has declared a state of emergency.
‘Buy Your Mom an iPhone’
If you’re anything like your Morning Dispatchers and fretted deeply in middle school over whether it was illegal to “jailbreak” your iPod Touch to get access to more features—all the cool kids were doing it—competition authorities have finally heard your struggle.
The Department of Justice (DOJ), along with the attorneys general of 15 states and Washington, D.C., filed a landmark antitrust lawsuit against Apple on Thursday, alleging the company has attempted to monopolize the smartphone market through anti-competitive practices that hurt users and degrade innovation. The suit—the culmination of a years-long investigation—sets the stage for a fierce legal battle with one of the world’s largest companies as Biden administration appointees attempt to reimagine American antitrust policy.
The White House has made expanding antitrust enforcement one of its signature issues. Proponents of the “hipster antitrust” or Neo-Brandeis movement—a school of thought that wants to broaden the approach of antitrust beyond a legal focus on low prices and consumer protection—heralded President Joe Biden’s selection of Assistant Attorney General Jonathan Kanter, the head of the Justice Department’s antitrust division, and Federal Trade Commission Chair Lina Khan as a big win for the trust-busting cause. Supporters believe antitrust policy should target market concentration as inherently harmful and corrosive to competition and economic equality, even if that concentration isn’t necessarily reflected in higher prices.
Tim Wu, a former competition policy czar in the Biden White House, explained in a New York Times opinion essay published yesterday how antitrust policy fits into the administration’s approach to the economy. “The Biden administration, in a break with center-left orthodoxy, seeks to address economic inequality not through taxation and transfers but through policies that allow more people and businesses to earn wealth in the first place,” he wrote. “It is at the heart of the Justice Department’s continuing New Deal-style antimonopoly campaign, which has already prevented dozens of unwise mergers.”
Kanter clearly sees the Apple lawsuit as a large piece of that campaign, comparing the suit to the major antitrust cases the government won against Standard Oil and Microsoft that bookended the 20th century. “Today, we add to that distinguished legacy by announcing an antitrust lawsuit against Apple for monopolizing smartphones,” he said at a press conference on Thursday.
Antitrust authorities sometimes target a few practices by a company they believe are anti-competitive and sue for remedies. However, with Apple, the DOJ complaint presented a broader case that the tech giant—the world’s second-largest company by market capitalization—“has long relied on contractual restrictions rather than competition on the merits to fortify its monopoly power.”
The Justice Department homed in on five areas where Apple allegedly suppresses competition to protect its profits and hurts users in the process. The scrutinized practices include Apple’s alleged restriction of so-called “super apps”—multifunctional applications like WeChat that are popular in Asian markets—and kneecapping of cloud streaming game apps that lift some of the computational burden from devices by running games in the cloud, enabling users to play games on older hardware. The DOJ alleges that Apple tried to make the gaming experience on your four-year-old iPhone untenable by restricting cloud gaming apps, thereby increasing the likelihood you buy a shiny new iPhone to support your gaming habit.
The complaint also alleged the company prevents text message interoperability—in other words, those green text bubbles for messages from non-Apple devices—“deliberately degrading quality, privacy, and security for its users,” and suppresses iPhone compatibility with third-party smartwatches. Lastly, the suit argues Apple blocks cross-platform digital wallets, hampering users’ ability to switch between iPhones and alternative devices.
Competition enforcers argue these allegedly anti-competitive behaviors have enabled Apple to exercise monopoly power among smartphone companies. According to the complaint, Apple maintains control of 65 percent of the American smartphone market. In the fourth quarter of 2023, tech research firm Counterpoint found that Apple had a 62 percent market share—with the next closest competitor, Samsung, at 17 percent.
Section 2 of the Sherman Antitrust Act, which the DOJ says Apple is violating, makes “monopolizing”—but not monopoly—illegal. “Obtaining a monopoly by superior products, innovation, or business acumen is legal,” the Federal Trade Commission explains. “However, the same result achieved by exclusionary or predatory acts may raise antitrust concerns.” To win its case, the government will have to show that Apple not only has a monopoly but also that the company maintains it through anti-competitive practices.
Apple strongly disputed the allegations in the suit. “We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it,” the company said in a statement. “If successful, it would hinder our ability to create the kind of technology people expect from Apple—where hardware, software, and services intersect. It would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.”
The case will hinge on whether Apple can justify its distinctive practices—creating a so-called “ecosystem” for its products—as providing value to consumers. Critics of the complaint believe Apple has a strong defense. Alden Abbott, former general counsel at the Federal Trade Commission, said the company “will undoubtedly explain that its actions are all aimed at creating a curated experience for customers with enhanced security, conferring major benefits on Apple consumers—and a major economic efficiency.”
“Such actions are not ‘exclusionary’ in the antitrust sense,” Abbott argued, “and thus there is no monopolization or attempted monopolization under Sherman Act Section 2, which bars such practices.”
To that end, some argue that the government has no place in making business decisions for Apple. “Why should Apple have to make its smartwatch compatible with smartphones other than iPhones?” asked Elizabeth Nolan Brown in the libertarian Reason magazine. “Perhaps this helps steer Apple Watch owners to buy iPhones. But it may instead (or also) be true that owning an iPhone steers people to buy an Apple Watch, or that the exclusive arrangement leads some people to avoid both Apple Watches and iPhones. In any event, none of this is the government’s business.”
Other observers, however, warn against dismissing the DOJ’s entire suit as frivolous. “It is a complex case,” Brian Albrecht, the chief economist for the International Center for Law and Economics, told TMD. “Anyone who mocks [it] as obviously ridiculous overall, is overstating it.”
Rebecca Allensworth, an antitrust law professor at Vanderbilt University and proponent of the suit, said the outcome of the case will come down to Apple’s ability to justify its practices. The DOJ will have to prove that “there’s something that consumers want that Apple is denying them, not because it’s unsafe for their data, not because it will degrade the overall Apple experience, but just because it gives a competitive toehold to their competitors,” she told TMD. “The question is just will it hold up when Apple says, ‘No, that’s not why we’re doing it. We’re doing it because this is truly a better experience for the consumer.’”
If you’ve ever received an exceptionally grainy picture from an Android-using friend or relative, the DOJ would argue you’ve been a victim of Apple’s anti-competitive behavior. The iPhone messaging app, iMessage, does not work with non-Apple devices. Instead, iPhones receive messages from Android phones via SMS and MMS, outdated services that can’t share high-quality images and don’t encrypt text messages. “If Apple wanted to, Apple could allow iPhone users to send encrypted messages to Android users while still using iMessage on their iPhone, which would instantly improve the privacy and security of iPhone and other smartphone users,” the Justice Department argued. Security concerns aside, critics of the case knocked the complaint for taking things too far by also arguing that the “social stigma” of “green bubble” texters “reinforces switching costs” and discourages people from making the leap to a non-Apple device.
The complaint cites emails from Apple executives acknowledging that supporting better cross-platform messaging “would simply serve to remove [an] obstacle to iPhone families giving their kids Android phones” and that “moving iMessage to Android will hurt us more than help us.” When asked publicly about messaging issues at a conference in 2022, Apple CEO Tim Cook told a questioner frustrated that he can’t send his mom videos, “Buy your mom an iPhone.” Apple announced last fall that it plans to enable iPhones to receive Android messages via Rich Communication Services (RCS). The change would support image sharing and encryption but would not fully integrate RCS into iMessage.
A challenge for the government, if it can defeat Apple’s arguments, is sorting out effective court remedies for highly technical practices. Allensworth acknowledged critics’ worries about the danger of allowing the court to micromanage business decisions. “I think those are real concerns,” she said. But she went on to argue that the “stakes of not doing that are so high that it’s a necessary trade-off.”
The Apple suit—which, if not dismissed, could take years to litigate—will serve as yet another indicator of whether competition enforcers can succeed in reorienting antitrust law. “This case is a perfect example of what happens when somebody who wants to, in some ways, radically reform antitrust has to do so through the common law process,” Allensworth told TMD, arguing that the Justice Department’s approach “is totally possible under the law as it is right now.”
Despite some bipartisan enthusiasm, the new antitrust movement has had decidedly mixed results in court so far, drawing equally bipartisan criticisms from left-leaning commenters and libertarians alike. Jason Furman, the chair of the Council of Economic Advisers during President Barack Obama’s second term, warned against using antitrust too broadly. “It is good to step up antitrust enforcement,” he tweeted yesterday in response to Wu’s essay. “But go too far and you can end up harming everyone else in the process of preventing people from innovating, starting new businesses, and growing.”
“If you raise taxes on owners of Apple’s stock (as Biden has proposed) you can raise money to help, say, children in poverty,” he added. “If you reduce Apple’s stock price through antitrust enforcement you probably won’t do much to reduce poverty—and maybe not even help anyone.”
Worth Your Time
Is Dune: Part Two conservative? In Law & Liberty, Kody W. Cooper argued the film’s themes of human dignity and reason are conservative in the best way. “In our fractured constitutional republic, more and more Americans across the political spectrum are questioning republicanism,” he wrote. “Substantial portions of Democrats and Republicans believe that our republican system is no longer viable and alternatives should be explored. Hence, as Joseph Holmes points out, more and more Americans are flirting with tyranny, understood as ‘raw power to effect change.’ Dune’s conservative teaching is that the cult of personality and its telltale signs of demagoguery and millenarist scheming are dangerous and, implicitly, that political moderation, prudential compromise, and incremental change should be prized in politics. The temptation to imbue even the most attractive personages with raw power, unconstrained by constitutional norms and the rule of law, should be resisted. Even if the political messiah can successfully implement the desired changes, he will inevitably unleash innumerable furies. Of peoples who succumb to fideistic and rationalistic political faiths, it must be said with the prophet Hosea: ‘They sow the wind, and reap the whirlwind.’”
This week marks the Hindu holiday of Holi, the “festival of colors,” when people toss brightly covered powder at each other in celebration of the deities Radha and Krishna. “Participants gather to welcome the arrival of spring, commemorate Krishna’s pranks, and allow one another a chance to drop inhibitions and simply play and dance together,” Alan Taylor explained for The Atlantic in his preface to a series of stunning photos of the festivities around the world. We’re particularly amused by the one with the bees.
Presented Without Comment
Business Insider: A Texas Man is Running for President After Changing His Name to ‘Literally Anybody Else’
Also Presented Without Comment
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Toeing the Company Line
It’s Tuesday, which means Dispatch Live (🔒) returns tonight at 8 p.m. ET/5 p.m. PT! Kevin and the team will discuss the news of the week and, of course, take plenty of viewer questions! Keep an eye out for an email later today with information on how to tune in.
In the newsletters: Drucker, Mike, and Charles investigated whether Trump is using the RNC to pay his legal fees, Kevin dove into (🔒) how election deniers are laying the groundwork for political violence, and Nick panned (🔒) NBC News’ decision to hire former RNC chair Ronna McDaniel.
On the podcasts: David and Sarah are joined on Advisory Opinions by David Lat, who shares original reporting on the exodus of Judge Aileen Cannon’s law clerks, and later by Judge David Proctor to discuss the history and function of the federal judiciary.
On the site: Kevin argues that Trump’s New York fraud wasn’t a “victimless” crime, Chris marks Holy Week by explaining why a decline in church attendance in the U.S. may not be the worst thing, and Scott Gosnell unpacks the looming battle over reauthorizing Section 702 of the Foreign Intelligence Surveillance Act.
Let Us Know
Do you think Apple’s distinctive features—including the green bubbles—are anti-competitive or part of a unique ecosystem that its users value?
