To Prevail Against Apple, the DOJ Must Show Exclusionary Conduct

To make headway in its antitrust lawsuit against Apple, the Department of Justice must show Apple has monopoly power in the smartphone market, and willfully maintained that power through exclusionary conduct that harmed the competitive process without procompetitive justifications.

The DOJ’s Antitrust Division and several state attorneys general filed a federal lawsuit in the District of New Jersey on March 21, accusing Apple of unlawfully monopolizing the market for smartphones.

At its core, the complaint alleges Apple makes it harder and more expensive for users and developers to switch from its ecosystem to rival smartphones by stifling various apps, products, and services that would otherwise erode the iPhone’s “stickiness.”

The five “competitive threats” are super apps that provide broad functionality across devices, along with cloud-based gaming apps, smartwatches, digital wallets, and messaging apps.

The DOJ’s antitrust enforcers argue that these offerings were capable of chipping away at Apple’s monopoly power; that Apple imposed contractual restrictions, fees, and taxes on app creation and distribution; and manipulated “critical access points in the smartphone ecosystem” to “build and reinforce the moat around its smartphone monopoly.”

Regarding the first prong, monopoly power is the ability to “control prices[,] exclude competition,” or “force a purchaser to do something [it] would not do in a competitive market.” The government may prove this element directly or indirectly.

Direct proof would show Apple increased the price of iPhones above the competitive benchmark or prevented actual or potential competitors from gaining a foothold in the smartphone market. Indirect proof would require antitrust enforcers to establish that Apple has a significant market share protected by high barriers to entry. Here, the government alleges Apple’s market share is 65-70%, durable, and insulated by network effects and significant switching costs.

Second, the government must show that Apple maintained its alleged monopoly through exclusionary conduct, rather than by competing on the merits and offering a better product than its rivals. That means establishing that any (or all) of the five technologies cited in the complaint “reasonably constituted nascent threats” to Apple’s smartphone monopoly, and that Apple’s conduct in impairing those apps and functionalities was “reasonably capable of contributing significantly” to its monopoly.

It’s important to understand, however, that the government isn’t required to prove that any of these technologies would (or even could) have become a replacement for smartphones. Rather, the antitrust enforcers’ burden is to show that these technologies, absent Apple’s conduct, could have disrupted Apple’s monopoly or enabled other companies to do so.

Finally, if the government establishes these two elements, Apple will have an opportunity to argue that its practices and policies were necessary to achieve procompetitive benefits such as better security, privacy, or functionality. If Apple can articulate a procompetitive justification that is not merely pretextual, the burden would then shift back to the antitrust enforcers to show Apple could have achieved these benefits through conduct that is substantially less restrictive of competition.

We can expect Apple to respond to the government’s allegations by moving to dismiss the lawsuit, arguing: it faces robust competition in the smartphone market; its policies are necessary to protect the security and integrity of its ecosystem for the benefit of users; and it has no duty under antitrust laws to make its products interoperable with any other companies.

The first and second arguments are primarily factual in nature, so they are unlikely to persuade a court to dismiss the case at this early stage. The third argument, however, raises important legal issues that could be dispositive. Antitrust laws generally allow businesses—even monopolists—to unilaterally refuse to deal with their actual or potential competitors, but there are exceptions where a monopolist terminates a prior profitable relationship or executes an exclusionary scheme to obtain or maintain market power.

The government argues that its case “is about freeing smartphone markets” to lower prices for consumers, reduce fees for developers, and preserve “innovation for the future.” Apple has responded that the lawsuit threatens “who we are and the principles that set Apple products apart in fiercely competitive markets.” Over the next several years, this litigation could have massive implications for a diverse range of sectors, including financial services, fitness, gaming, social media, news, and entertainment.

The case is United States et al v. Apple, Inc., D.N.J., 2:24-cv-04055, 3/21/24.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Henry Hauser is antitrust counsel at Perkins Coie, and was previously an antitrust enforcer with the Department of Justice and Federal Trade Commission.

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