#104 APPLE INC
DOJ TAKES ON THE BIG TECH TITANS IN USA v. CUPERTINO, CASE 2:24 CV 04055
By PETER THOMAS BUSCH
The Apple Inc playbook is under scrutiny with the application of antitrust laws to ‘business as usual’ practices by marketplace law enforcement officials.
The United States Department of Justice (DOJ) has put Apple Inc on notice that the business practices developed by the company are full of illegal tricks and anti-competition activities.
Apple has developed a highly stylized product line popular with high tech consumers. But the way growth of the tech company’s market share has been nurtured is problematic, according to the DOJ in United State of America, et al v. Apple Inc, Case 2:24 CV 04055.
Competition drives capitalism and democracy in America. But big tech has been left alone too long. The founding economic principles meant to encourage innovation and drive down prices for consumers have become distorted.
Instead of patented Americana, Apple Inc has developed an aggressive brand of market compartmentalization.
AGGRESSIVE BRAND OF MARKET COMPARTMENTALIZATION
The Sherman Antitrust Act of 1890 came into force when America was replacing the plantation economy, made profitable by slave labour, with an industrial economy compelled by wage labour. That same year, impressionist painter Vincent van Gogh died in poverty after selling only one painting.
The DOJ alleges that Apple Inc has been capturing an ever greater share of the tech market with exclusionary practices while receiving higher returns than would normally be the case in a more competitive market for smart phones and other high tech gadgets.
Essentially, the exclusivity allows for the high price of products that would otherwise be available at lower prices to consumers in a naturally unincumbered competitive marketplace.
That exclusionary conduct is the very reason Apple Inc has a loyal following of friends and enemies. Friends love the exclusivity of highly stylized products. Enemies hate the inability to access Apple devices with non-Apple products.
That same thunderbolt cable that turns on a Cupertino loyalist also shuts off everyone else. The product is stylish and offers the exclusivity of an expensive tech hub while turning away the universal user exploring new apps and new devices at a lower cost than similar Apple products made by Third Party designers.
Apple deters innovation and lower prices by replacing outside product developers with sometimes inferior and more expensive products developed internally.
The hubris of believing that the beauty of Apple Inc products is the only way forward, regardless of the cost, has now been checked by market law enforcement officials in Washington DC.
Apple joins Google on the Most Wanted list of Big eTech companies violating the Sherman Antitrust Act of 1890. The DOJ previously sued Google for the exclusivity of the tech giant’s search engine in 2020 and again for not sharing with any great certainty the company’s advertising technology (adtech) in 2023.
The same bureau of economic management filed an antitrust suit against Microsoft in 2001 which allowed Apple Inc to survive near bankruptcy and create their exclusive product set. Microsoft eventually negotiated an amicable settlement with government officials.
The European Commission has already found Google guilty in three anti-competition cases in which the tech giant was fined $8 billion Euros. Google still dominates the big tech search engine market, though, and all things search related.
Google even entered into an agreement with Apple to share advertising revenue when Apple search triggers advertising in Google search. Consumers cannot get away from Google search, even by using Apple devices.
Instead of competing and creating less expensive options for the consumer, Google was apparently too big even for Apple.
GOOGLE WAS APPARENTLY TOO BIG EVEN FOR APPLE
This limited partnership between Apple and Google underscores the dominance of a few players in an expensive, multi-billion dollar game played by giants.
Even more concerning is what the DOJ refers to as the Apple ecosystem by which the tech giant earns high margins for a variety of product sales to a captivated marketplace.
Apple allegedly maintains market dominance by imposing contractual restrictions and limiting interoperability of third party applications and devices.
When consumers buy into the specific set of products created by Apple, they simultaneously limit access to less expensive secondary devices manufactured by non-Apple developers.
This corporate playbook is harmful to consumers because the approach enables tech giants to maintain higher prices for devices than a naturally competitive market would otherwise allow.
And then the supply of new products is often out of time and in insufficient quantities, year after year, thereby creating demand and a buy at any price consumer atmosphere.
This exclusivity also stifles innovation by deterring third party product development that might be more beneficial to consumers in terms of quality and the range of services offered at lower prices.
For example, smart watches usually require a smart phone. And Apple iPhones only work with Apple Smartwatches. Third Party watch developers automatically lose out on Apple’s 29% smart phone, market share, while iPhone users must pay whatever Apple charges for the Apple Watch.
In part, by deterring competition in this way, Apple generated $383 billion in net annual profit and $97 billion in net annual income in 2023, while charging upwards of $1500 USD for an iPhone.
The DOJ action comes as the tech industry begins moving toward ever increasingly exclusive technologies such as those operated using artificial intelligence.
Instead of participating in the sharing of products within a horizontal market, the big tech titans maintain vertical markets by which consumers are funnelled into the heavily branded product lines.
Apple loyalists experience everything Apple, including the high prices.
Apple has also intensified the game by expanding into other tech products that could have been acquired in a horizontal market, such as video communication, news subscriptions, entertainment, and location services.
In a democratic horizontal market, Apple might use a third party video communication app, while other software brands sell products that connect to Apple devices. This approach would eventually result in a smaller Apple Inc while generating more third party players.
In the current market, new innovators are too small to survive regardless of the novelty of the invention.
Rather than accepting third party innovation, Apple only allows Apple devices to be compatible with products developed within Apple and for Apple, and for and by no one else.
Electric vehicle manufacturer Tesla raised development cash by providing the drive train and battery power to competing automakers through a horizontal market.
This sharing of EV technology has resulted in, perhaps only after a bit of a wait, an increasingly competitive market for electric vehicles with prices coming down after entering the marketplace as an exclusive luxury vehicle.
The automotive industry has a vigorously competitive marketplace in which the exclusive vertical market proved to be unprofitable as consumers were unwilling to pay the higher retail prices.
Instead, in a horizontal automotive market, third party developers compete with each other to provide vehicle components to the manufacturers, which ultimately improves the finished product and lowers the final unit prices.