Another milestone in anti-monopoly! In 1998, Microsoft was split up. Will Apple follow the same path this time?

A fiercely unfolding century-old antitrust case is kicking off.

On Thursday, March 21st local time, the U.S. Department of Justice, together with 16 states and the District of Columbia, jointly sued Apple for monopoly. In this 88-page lawsuit, the focus is squarely on Apple's operating system and closed ecosystem.

"Every action taken by Apple has built and strengthened the moat around its monopoly position in the smartphone market," the U.S. Department of Justice wrote in the lawsuit. In the eyes of the Department of Justice, Apple's rise has benefited to some extent from the 1998 Microsoft antitrust case, and now they need another milestone antitrust action to drive technological innovation.

This antitrust lawsuit, targeting the core of Apple's "walled garden" business model, may disrupt Apple's business model, affect the way billions of users use Apple, and has become a significant reason for Apple's overnight market value evaporating by $110 billion (approximately RMB 791.9 billion).

U.S. antitrust law originated from the 1890 Sherman Act, and the main reference case against tech giants is the 1990s Microsoft antitrust litigation, which lasted from 1998 to 2001, ultimately ending with Microsoft paying $1.8 billion in settlement fees, being prohibited from engaging in exclusive transactions that may harm competitors, and opening up some source code.

The antitrust cases against U.S. tech giants are reaching a climax in 2024. In addition to Apple, Google, Amazon, and Meta are also in the dock: Google is embroiled in two antitrust cases, with a search monopoly closing argument scheduled for May and a lawsuit on advertising monopoly earlier this year; Amazon was accused of illegal monopoly in online retail last September; Meta's two deals to acquire WhatsApp and Instagram over a decade ago are under review again.

For the giants, antitrust cases are a long marathon. Legal challenges faced by Apple, Google, Amazon, and Meta may continue for the next few years, posing a significant test to their future revenue prospects and stock prices.

Department of Justice: Failing to Learn from Microsoft's Lesson, Apple Escalates

In the eyes of the U.S. Department of Justice, Apple has not learned from Microsoft's "antitrust" case but has instead "escalated." U.S. Attorney General Merrick Garland bluntly stated that by revenue, Apple controls over 70% of the national smartphone market, a huge market share obtained not through natural competition but through "violating federal antitrust laws." "Apple has used its market position to disrupt the technology that would have made it easier for users to choose different operating systems. The lawsuit mentioned that Apple has adopted many of the same strategies as Microsoft." Garland pointed out at a press conference that having a monopoly position is not illegal in itself, but using certain means to maintain or preserve a monopoly position is illegal.

The lawsuit pointed out that in 1998, Apple co-founder Steve Jobs criticized Microsoft for its monopoly behavior towards Apple in the operating system field and " dirty tactics", and "sought help from the Department of Justice" in the hope that Microsoft could "compete fairly".

Today, Apple itself has imposed stricter restrictions on its competitors. At that time, Apple users could use iPod on Windows computers, and Microsoft did not charge a 30% fee for each song downloaded from the Apple iTunes store.

The Department of Justice statement mainly lists the five typical behaviors of Apple's monopoly and exclusivity:

1. Restricting cross-platform applications: Apple restricts applications, making it impossible for them to provide a consistent user experience across different devices. Users may not get a consistent experience when using the same application on different platforms.

2. Restricting streaming games and applications: Apple's restrictions on streaming services force users to pay more for expensive smartphone hardware. Users could have played these games and enjoyed high-quality videos without buying expensive Apple devices.

3. Poor messaging and video experience for Android users: Apple refuses to integrate messages from other software with its iMessage application, resulting in errors and poor experiences for Apple and non-Apple users when sending videos or receiving messages.

4. Making smartwatches less smart: Apple Watch's dependence on Apple locks users into the iOS ecosystem, and Apple's cooperation with third-party smartwatches is not ideal.

5. Refusing to fully open digital wallets: Apple restricts tap-to-pay functionality and limits third-party development of cross-platform digital wallets, harming the ability of businesses and customers to conduct secure digital transactions on their phones independently of Apple.

At the same time, the Department of Justice listed a series of barriers to entry into the smartphone market, such as high component procurement costs, complex hardware and software design, and the difficulty of obtaining distribution agreements. In recent years, Apple has used these restrictions to charge a 30% "tax" on apps downloaded and purchased from the App Store In response to a long list of accusations from the Department of Justice, Apple immediately responded, stating that the U.S. federal government's legal actions will set a "dangerous precedent", which is a move to forcibly suppress technological innovation.

In a statement released on the morning of March 21st, Apple pointed out that they have emerged in the fiercely competitive market based on their own strength.

Paul Swanson, antitrust partner at Holland & Hart LLP, believes that antitrust laws generally do not require a company to cooperate with other companies. Apple's actions to enhance the attractiveness of its products and services, as well as the decision not to cooperate with other companies, may not necessarily violate antitrust laws.

Media reports have indicated that in the case between Apple and Epic, the court found that Apple's dominant position does not stem from "locking in" or "forcing", but from "user satisfaction with existing devices".

Therefore, in terms of industry barriers, Apple may argue that product differentiation and integration are not equivalent to exclusivity. Apple's iOS system is a fully integrated platform with built-in applications for specific functions. Customers choose it because they like it, not because they are being prevented from switching to Android.

How is this antitrust case different from Microsoft's monopoly case?

Some analysts have pointed out that Apple's antitrust lawsuit this time has many similarities to the antitrust lawsuit brought by the U.S. Department of Justice against Microsoft in the 1990s.

On May 18, 1998, the Department of Justice, along with 19 states, sued Microsoft for multiple antitrust behaviors, including engaging in illegal exclusive sales arrangements, bundling the IE browser with the Windows system, and using unlawful means to monopolize the browser market.

In the view of the Department of Justice, although Microsoft's free strategy benefited consumers in the short term, in the long run, this behavior would squeeze many small and medium-sized companies out of the market, hinder the development of competitors, and stifle innovation, ultimately reducing consumer choice and harming consumer interests.

On Microsoft's side, they argued: first, bundling the IE browser with the Windows system is about functional integration, expanding the scope of service provision. Second, antitrust laws are enacted to protect consumer interests, and Microsoft provided free services, forcing similar products, including Netscape, to cancel fees, bringing tangible benefits to consumers.

In June 2000, the court made a formal ruling, requiring Microsoft to stop bundling sales practices. More significantly, it planned to split Microsoft into two parts: one operating the operating system business and the other operating other software businesses. Although Microsoft ultimately avoided being split in two, it still paid a high settlement fee and opened up some source code as a cost Looking back at the Microsoft case, it is not difficult to see that both cases involve: 1. accusations of monopolistic behavior in their respective markets, with Microsoft being accused of monopolizing the PC operating system and Apple being accused of monopolizing the smartphone market; 2. a series of exclusionary actions to maintain monopoly positions using their market dominance: in both cases, it is alleged that the companies abused their market power to stifle competition and maintain their dominant positions.

Some opinions suggest that there is a key difference between these two cases: Microsoft had an absolute advantage in the PC operating system market at that time, while Apple's monopoly position in the smartphone market was not as clear-cut.

Therefore, to prove Apple's monopolistic behavior, the Department of Justice must first demonstrate that Apple has sufficient market power to exclude competitors.

When Microsoft faced antitrust litigation, the Windows operating system had over 90% market share in the PC operating system market, holding an absolute dominant position. According to Goldman Sachs estimates, in 2000, Microsoft's operating system had a market share of 97% on all computing devices.

In terms of market share numbers alone, Apple's market share is not as high as Microsoft's at that time. The Department of Justice stated in the lawsuit that if measured by revenue, Apple's market share in the U.S. smartphone market exceeds 70%. This is different from the results based on shipment volume. According to Counterpoint Research statistics, as of the last quarter of 2023, Apple's market share was close to 64%.

Media summaries indicate that antitrust investigations against Apple began in 2019. Apple generally defends its business model from two aspects. Firstly, Apple claims its model is about "growing the pie" and creating opportunities with developers, creators, and businesses. Apple CEO Cook mentioned to the antitrust committee in 2020 that Apple competes with other phone manufacturers like Samsung and Google without dominating market share.

Antitrust Litigation is a "Marathon"

Regardless of how Apple's lawsuit ends, it is destined to be a "time-consuming and laborious" marathon.

Yale University researcher Dina Srinavasan bluntly stated that antitrust cases will last a long time. Apple's antitrust lawsuit not only determines the company's business model but also relates to the reform and update of antitrust laws, which may have a profound impact on the tech industry and antitrust enforcement.

Some commentators believe that with the arrival of the AI era, "antitrust" is facing new technological issues that require further analysis and understanding of innovative models in the digital market.

Analysis suggests that fundamentally, the U.S. Department of Justice hopes Apple can open-source its system like Google to increase interoperability. Professor Daniel Francis from New York University Law School believes that the core idea behind the U.S. government's lawsuit against Apple is that Apple has a responsibility and obligation to work with competitors' software and hardware suppliers to make these products seamlessly compatible with Apple On January 26th this year, it is worth mentioning that Apple officially announced its support for "sideloading" in Europe, allowing users to download apps outside the App Store. Users can also use other payment systems and choose default browsers other than Safari.

This is a "historic reform" by Apple for iOS, Safari, and the App Store, and it is the first time since the birth of the App Store in 2008 that Apple has made concessions regarding third-party downloads. The Apple ecosystem is gradually moving away from being "completely closed," which seems to be a major trend.

However, some opinions believe that the current antitrust laws are not suitable for the enterprise competition environment in the digital market.

A report titled "The Impact of Antitrust Intervention on Platform Innovation and Profitability" points out that antitrust intervention can promote competition and stimulate innovation, but this intervention may have a negative impact on the profitability of competitors. In order to develop a healthy ecosystem in the long term, efforts should not be made to keep competitors in a weak position, but to support their development and help them establish independent operational capabilities.

At the same time, assessing whether a company has a dominant market position largely depends on the definition of the relevant market. It is generally believed that monopolies are possible in a unified market, but the services provided by digital platform companies often exhibit characteristics of fragmentation and multiple entry points. The relationship between platforms and users is not limited to direct buying and selling, which increases the difficulty of "defining the market."

For example, game company Epic Games has filed antitrust lawsuits against Apple and Google for app store distribution and "taxation" issues, with completely different outcomes. Apple won against Epic, while Google lost to Epic, with the key factor affecting the outcome being the "market definition" process.

Undoubtedly, the antitrust cases against tech giants in the United States will reach a "tipping point" in 2024, and the long-awaited ruling results from the outside world may come collectively