Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Apple’s iPhone is one of the world’s most innovative and popular gadgets. With more than 1bn daily users, it has created a whole new industry and forms of digital behaviour. But critics point to the downsides. They say the iPhone’s 65 per cent share of the US smartphone market by revenue — and the tight technological integration that underpins Apple’s ecosystem — threaten to distort competition in the tech world, with potentially serious social, political and economic consequences.
Politicians and regulators need to police this concentration of power in digital platforms and ecosystems, especially when dominance in mobile platforms could potentially transfer to others ranging from self-driving cars to virtual reality. But they must do so without killing innovation or unfairly penalising a company for its own success. The US justice department’s landmark case against Apple is an important attempt, but it faces an uphill battle. Existing laws do not give regulators the tools they need to address all the novel competition issues thrown up by Big Tech.
The DoJ has gone after the integration between hardware, software and services that make Apple’s approach so distinctive. Its case rests in essence on two arguments. One is that Apple blocks the distribution of some apps and services that might threaten its model. These are “superapps” that enfold many different services and would make the App Store less central, and cloud gaming services that can rely on less powerful handsets, weakening the need for an iPhone.
The second argument is that the iPhone has private APIs, or programming “hooks”. These make it work better with Apple’s in-house services such as its digital wallet, and accessories such as its smartwatches, than those produced by third parties.
Apple is not obliged to open its ecosystem to all comers, or allow rivals’ devices to connect seamlessly with its own. But Section 2 of the 1890 Sherman Act, under which the case has been brought, is a tool US trustbusters have revived in other recent cases against Big Tech. It conveys sweeping powers against firms that “attempt to monopolise” a market. It was used a quarter of a century ago against Microsoft, which lost an initial court case after evidence that some of its actions had been designed to squash competition.
The DoJ case against Apple will turn on whether it can show the company has monopoly power in the smartphone market — and whether its evidence is similarly deemed strong enough to show that Apple deliberately took decisions aimed at shutting out competitors.
Apple will be able to point to aspects of its technology that outweigh any anti-competitive effects. The improved security, privacy and user experience it brought to smartphones revolutionised the market.
Critics claim Apple has used security and privacy claims as a smokescreen to cover its anti-competitive behaviour. Proving a pattern of such behaviour would enable the government to argue for a drastic remedy, perhaps forcing Apple to open up its tech ecosystem or even breaking it up. But even clear-cut evidence against Microsoft did not bring structural change. The question of whether concessions Microsoft made in a settlement had any real impact on competition has been debated in tech circles ever since.
Whatever its outcome, the case will take years to play out. In Brussels, Europe has already moved ahead with a Digital Markets Act that rewrites antitrust doctrine for the tech era and is designed to force open the most powerful tech ecosystems. Proposals for similar legislation in the US have come to nothing. At some point, American politicians will have to grasp this nettle.
