This morning, the U.S. Department of Justice, alongside attorneys general from 16 states and the District of Columbia, filed a lawsuit against Apple in federal court. The lawsuit accuses Apple of monopolizing the premium smartphone segment, employing various unlawful strategies to maintain this monopoly.
While the specifics of these tactics and their legality are detailed elsewhere there are several similarities between this case and the antitrust lawsuit filed against Microsoft in the 1990s, a period I covered extensively in Directions on Microsoft from 2000 to 2010. Even Attorney General Merrick Garland drew parallels between the two, noting, “The landmark Microsoft case held a monopolist liable under the antitrust laws for leveraging its market position to undermine technologies that would have made it easier for users to choose different computer operating systems. Today’s complaint alleges that Apple has engaged in many of the same tactics that Microsoft used.”
However, there’s a significant distinction: Microsoft’s monopoly in the operating systems market for personal computers was undeniable. Apple’s supposed monopoly in the premium smartphone market is far less clear.
Owning a monopoly isn’t illegal, as Garland also mentioned. But employing specific tactics to maintain such a monopoly is, provided it can be proven that the defendant has enough market power to exclude competitors.
Microsoft’s Windows held a commanding share of over 90% in the personal computer operating system market, dominating to the extent that, by 2000, it was reported that Microsoft’s operating systems were used on 97% of all computing devices.
Though the Microsoft antitrust case ended with a somewhat mixed outcome for the DOJ, with many proposed penalties overturned on appeal, the facts from the case did prove Microsoft’s monopoly power. This verdict led to several subsequent lawsuits, most of which Microsoft settled.
Apple’s market share, by contrast, is significantly lower. According to the DOJ, Apple commands over 70% of the U.S. smartphone market when measured by revenue. However, when looking at units shipped, Apple’s market share nears 64% as of the last quarter of 2023, as per Counterpoint Research, significantly ahead of Samsung at 18%. The DOJ also suggests that Apple’s dominance is evident through other metrics, such as the preference for iPhones among younger users and higher-income households.
The government emphasizes the U.S. market’s relevance, arguing that the unique conditions of U.S. telecommunications laws and consumer purchasing patterns through carriers make it a distinct market. This is crucial because, on a global scale, Apple’s market share is much lower (only 23%, with Samsung following at 16%), with the market remaining fragmented and competitive, especially among lower-cost Android devices.
The crux of the DOJ’s argument, starting on page 66 of the lawsuit, focuses on Apple’s alleged monopoly power in the smartphone and high-performance smartphone markets, highlighting barriers to entry such as the switching costs for consumers who already own iPhones and technical hurdles like securing components and distribution agreements. Apple’s substantial profit margins from iPhone sales also come under scrutiny.
Yet, Apple might counter that its integrated ecosystem and product differentiation, offering ease of use and customer preference for its integrated services, do not constitute anti-competitive behaviour.
Antitrust cases in the tech industry often follow a pattern where an innovator achieves dominance through innovation, strategic decisions, and sometimes aggressive tactics, leading to a cycle of government intervention and the eventual emergence of new competitors. This case against Apple could be the latest iteration of this ongoing cycle in the tech world.
