By: Mica Karanovic
The modern era witnesses a concerted effort to rein in the expansive influence wielded by Big Tech, with a particular emphasis on scrutinizing their pivotal roles as gatekeepers of commerce and communication. Traditionally, antitrust regulators focused predominantly on assessing how dominant companies could adversely impact consumers by hiking prices or constraining choices in the market. However, figures like Jonathan Kanter, U.S. Assistant Attorney General, and Lina Khan, Chair of the Federal Trade Commission (FTC), have pioneered initiatives to broaden the scope of the U.S. government’s oversight. They are increasingly delving into the intricate strategies employed by businesses to leverage emerging technologies for gaining an unfair competitive advantage. Consequently, this shift has prompted heightened scrutiny of potential mergers and business practices across a spectrum of industries, from retail behemoths like Kroger to aviation giants such as JetBlue Airways, by regulatory agencies such as the U.S. Department of Justice (DOJ) and the FTC.
Amid mounting apprehensions about the overwhelming economic sway held by major technology conglomerates, a substantial 56% of Americans are advocating for stricter regulatory measures. These sentiments underscore concerns over the unchecked dominance of these entities, prompting regulatory bodies to conduct a more thorough examination of their activities. However, recent setbacks in court have sparked doubts regarding the effectiveness of the government’s regulatory approach. Since 2021, the DOJ has embarked on legal battles involving six of the so-called “magnificent seven” Big Tech entities, which include Apple, Microsoft, Nvidia, Tesla, Meta, Alphabet, and Amazon. Notably, the defeat against Meta, alongside the ongoing challenges in the Amazon case, serve to underscore the intricate challenges inherent in regulating these tech giants.
Within this landscape, Apple finds itself at the center of allegations of monopolizing smartphone markets and stifling competition. Legal actions initiated by both the DOJ and the European Union (EU) underscore the global concerns surrounding Apple’s conduct and its potential repercussions for consumer choice and innovation.
In March of this year, the DOJ, along with 16 state attorney generals, filed a case against Apple for monopolization or attempted monopolization of smartphone markets, citing violations of Section 2 of the Sherman Act. It’s crucial to note that monopolies themselves are not illegal under antitrust laws; rather, “monopolization” is prohibited. Antitrust laws forbid conduct by a single firm that unreasonably restrains competition by creating or maintaining monopoly power. Courts first assess if the firm has “monopoly power” in any market, conducting an in-depth examination of the products sold by the leading firm and any available alternatives. They then evaluate whether the leading position was gained or maintained through improper conduct, excluding factors like product quality or superior management. Both monopolization and attempted monopolization require a “bad act” with specific intent to exclude competitors without justification.
The DOJ’s case against Apple alleges that the company has responded to competitive threats by making it more difficult or expensive for users and developers to leave its ecosystem than to stay. The complaint asserts that Apple’s smartphone business model encourages participation from as many users and third-party developers as possible, while imposing substantial fees through contractual terms. Additionally, Apple restricts its platform participants’ ability to negotiate or compete down its fees through alternative app stores and in-app payment processors. This positioning allows Apple to derive ancillary fees by acting as an intermediary between customers and the products and services they access.
Citing internal documents from Apple, the complaint highlights discussions among top executives on strategies to further lock customers into their ecosystem and enhance its stickiness. Allegedly, Apple reduces competition in the smartphone market by delaying, degrading, or outright blocking technologies that would increase competition and enhance user experience on any smartphone. This suppression of innovation is facilitated through contractual restrictions selectively enforced through its app distribution and review process, as well as by denying access to key points of connection between apps and the iPhone’s operating system.
The complaint identifies five examples of Apple employing these mechanisms to stifle competition among smartphones, ranging from blocking innovative super apps to limiting third-party digital wallets. It asserts that Apple’s conduct results in fewer choices, higher prices and fees, lower quality smartphones, apps, and accessories, and stifled innovation.
While companies are permitted to favor their own products and services, the government must demonstrate why such conduct is problematic. Despite outlining four broad anticompetitive effects, the complaint appears to fall short of proving the necessary harm required for a monopolization or attempted monopolization case. Apple has previously successfully defended its policies as critical for ensuring the privacy and security of its devices. However, questions remain about the government’s evidence regarding specific harms to consumers. While Apple’s dominance allows it to impose stringent restrictions, the government’s case lacks specificity on the harm inflicted, potentially undermining its legal standing in the case.
The EU adopted a distinct strategy in addressing Apple’s dominance. While the DOJ pursued a broader and more ambitious case targeting Apple’s entire ecosystem, the EU opted for a narrower focus on Apple’s App Store practices. In a landmark decision in early March 2024, the EU imposed its first antitrust penalty against Apple, fining the company 1.8 billion euros. This penalty stemmed from Apple’s alleged unfair favoritism towards its music streaming service, disadvantaging rivals like Spotify by prohibiting them from informing users about cheaper subscription options outside of iPhone apps. Consequently, millions of European customers were deprived of the freedom to choose where, how, and at what price to purchase music streaming services. This conduct resulted in users paying higher prices than they otherwise would have. The substantial fine also includes an additional lump sum intended to deter Apple from repeating such offenses and dissuade other tech companies from engaging in similar practices. Furthermore, Apple faces an ongoing EU antitrust investigation into its mobile payments service, with efforts underway to compel Apple to open its tap-and-go mobile payment system to rivals.
The EU’s enforcement actions coincide with the implementation of new regulations aimed at preventing tech giants from monopolizing digital markets. The EU has taken a leading role in global efforts to rein in big tech companies, exemplified by imposing fines totaling more than 8 billion euros on Google, charging Meta with distorting the online classified ad market, and compelling Amazon to revise its business practices. A significant contribution to this crackdown is the introduction of the Digital Markets Act (DMA). The DMA establishes specific criteria for identifying large online platforms as “gatekeepers,” ensuring precise targeting of regulatory measures. Criteria for qualifying as a gatekeeper include having a strong economic position, significant market impact across multiple EU countries, and an entrenched position in the market. The DMA imposes regulations on gatekeeper companies such as Apple, Meta, Alphabet, and TikTok, threatening hefty fines for non-compliance. These provisions are designed to prevent tech giants from engaging in anti-competitive behavior similar to that investigated in the Apple case. Apple has announced its intention to comply with the DMA, including allowing iPhone users in Europe to access alternative app stores and enabling developers to offer alternative payment systems.
Similarly, in the United States, efforts are underway to address the power of app store gatekeepers like Apple and Google. The proposed Open App Markets Act aims to promote competition and reduce gatekeeper power in the app economy. This legislation seeks to increase choice, improve quality, and reduce costs for consumers by prohibiting app stores with over 50 million American users from imposing certain restrictions on developers. Enforcement of the Act’s provisions would be overseen by the FTC and the DOJ, with developers also granted the ability to pursue legal action against violations.
As the DOJ’s case against Apple unfolds over the coming years, developers and other stakeholders affected by these companies are urging lawmakers to pass new legislation to regulate app store practices. The Open App Markets Act represents a step towards addressing concerns surrounding the dominance of tech giants and promoting a fair and competitive digital marketplace. Unfortunately, the proposed bill has remained stagnant in the Senate since its introduction in 2022.
Undoubtedly, there is a pressing need for greater regulation of big tech companies on a global scale. However, finding the right approach remains a significant challenge. The EU’s approach appears to be making strides, as evidenced by its recent actions such as requiring Apple to change the charger of its iPhone in compliance with EU rules starting this fall. If Apple adheres to these regulations, it could potentially provide the United States with leverage in enforcing antitrust laws against Apple. Demonstrating a willingness to adapt its practices to comply with regulatory standards may bolster arguments suggesting that Apple’s conduct is voluntary and not solely motivated by concerns for user privacy and security.
The evolving landscape of tech regulation underscores the importance of ongoing scrutiny and adaptation in response to emerging challenges. The global consensus on the necessity of regulating the power wielded by companies like Apple suggests that significant developments are on the horizon in the coming years. It will be intriguing to observe how regulatory frameworks evolve and how tech giants respond to these changes as the world navigates the complexities of regulating the digital age.
