Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Apple moves to dismiss Justice Department, states joint antitrust complaint with prejudice, (Aug 2, 2024)

By Justin Marcus Smith, J.D.

Apple appeared to take particular umbrage at any concept it should faulted for not porting proprietary products and services for use on competitor devices.

Apple has filed a vigorous brief in support of its motion to dismiss the Department of Justice and states’ joint antitrust complaint against it with prejudice. Apple said the government failed to allege exclusionary conduct, anticompetitive effects, monopoly power, and specific intent. Apple called the complaint a “kitchen sink” of allegations that do not comport with blackletter antitrust law. Among other arguments, Apple appeared to suggest the government contradicted itself in the pending United States v. Google matter wherein Apple said the government had painted Android as “poised for world domination” (U.S. v. Apple Inc., No. 2:24-cv-04055-JXN-LDW (D.N.J. August 1, 2024)).

In March 2024, the Department of Justice, joined by 16 state and district AGs, sued Apple in the federal district court in New Jersey for monopolization or attempted monopolization of smartphone markets in violation of Section 2 of the Sherman Act. The complaint alleged Apple illegally maintains a monopoly by restricting developers and suppressing competing apps and services. Indiana, Massachusetts, Nevada, and Washington joined the suit soon thereafter.

On August 1, Apple filed a 49-page brief in support of its motion to dismiss the complaint, with prejudice. The brief contends the complaint does not allege exclusionary conduct; substantial anticompetitive effects in the smartphone market; monopoly power in any relevant market; nor, specific intent. The brief characterized the complaint as a “kitchen sink” of allegations that fail as a matter of law. Apple also said the government is relying on an “outlandish” premise that the iPhone’s success “has come not through building a superior product that consumers trust and love,” but through “intentional degradation of iPhone to block purported competitive threats.” Apple said the government’s approach that Apple has violated the antitrust laws, by not giving third parties broader access to iPhone internal operation, “runs headlong into blackletter antitrust law protecting a firm’s right to design and control its own product.”

Exclusionary conduct. Apple said the foundational principles of antitrust law and binding precedent make clear the challenged conduct is not exclusionary as a matter of law. Specifically, refusal to deal with a third party on the third party’s preferred terms is generally lawful, not exclusionary. This is especially so in the intellectual property context, and Apple said the complaint only alleged lawful refusals to deal. Apple cited various cases, including United States v. Microsoft Corp., 147 F.3d 935, 948 (D.C. Cir. 1998), for the “long recognized” proposition that courts should avoid overseeing product design.

Apple said it has made countless design decisions and opened its platform, including by providing developer access to its App Store and programming interfaces, as well as allowing pairing of iPhones with third-party devices “in many ways.” Apple said “the entire premise of the complaint is that it should face antitrust liability for the balance that it struck.” Apple said the same was true with respect to its smartwatches, digital wallets, and the design of its Messages app. With respect to Apple’s decision not to port the iMessages app for use on Android phones, Apple appeared to take particular umbrage at what it perceives to be a government position that companies like Apple should face antitrust liability for deciding not to develop proprietary products and services for use on competitor’s devices. Apple contended the D.C. Circuit rejected this same theory in New York v. Meta Platforms, Inc., 66 F.4th 288 (D.C. Cir. 2023). Apple said that court rejected the government’s effort to limit the refusal-to-deal doctrine. Apple said it is simply setting the rules of the road on its own platform, not inhibiting third parties from dealing with others.

Apple continued that the exception under Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) does not apply. It said the government did not allege that Apple terminated a voluntary course of dealing, and Apple countered it had opened its platform over time. Nor did the government allege irrationality but-for anticompetitive effect.

Apple continued that it is “nothing like Microsoft.” Microsoft had 95% market share at the time, and its conduct was “fundamentally different” because it impeded third-party developers’ ability to deal with Microsoft actual or potential competitors. Apple said the government made no such allegations here despite “dress[ing] up its novel theory by likening its allegations to Microsoft, 253 F.3d 34.”

Beyond that, Apple contended the government could not aggregate its lawful conduct into an unlawful “course of conduct” for Sherman Act Section 2 liability. It cited that where each act is lawful, any supposed course of conduct is also lawful.

Anticompetitive effects. Apple also urged dismissal on the basis that the government did not allege that Apple’s challenged conduct has a substantial anticompetitive effect in the alleged smartphone or “performance smartphone” market. That would require more than speculation, but Apple said the government did not allege facts. Moreover, Apple said the government did not plausibly show that outside conduct produced anticompetitive effects inside the relevant markets, not even with respect to so-called “super apps.” Apple argued the same was true with respect to smartwatches and digital wallets, and ongoing innovation and vigorous competition in the smartphone market only underscored the absence of anticompetitive effects.

Monopoly power. The Apple brief continued that the complaint does not plausibly allege that Apple has monopoly power in either of the relevant smartphones or “performance smartphones” markets. Apple took specific issue that the government had emphasized a single marketing executive’s concern about adding especially expensive features. Apple said this only showed that Apple is focused on affordability. Apple continued that the government did not say that Apple’s higher-end iPhones cost more than “comparable” Androids, and it did not even attempt to argue output restriction to show supracompetitive pricing. Apple suggested that if it charges carriers more than its rivals, that is because consumers benefit from promotions and financing the carriers can then charge based on iPhones being a “superior marketing tool.

Apple said the complaint also failed to state an “indirect case” of monopoly power given that Androids dominate outside the U.S. market. Citing to Google, No. 20-cv-03010-APM (D.D.C. Jan. 15, 2021), ECF No. 94, Apple pointed out that the government painted Android, not Apple, as “poised for world domination.”

Specific intent. Apple contended the complaint was wholly conclusory with respect to intent. Apple said the government only made assertions that showed it had an “intent to compete vigorously,” as in Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 459 (1993).

The case is No. 2:24-cv-04055-JXN-LDW.

Judge: Neals, J.

Attorneys: Jonathan Lasken, U.S. Department of Justice, for U.S. and State of California. Isabella Regina Pitt, New Jersey Attorney General, for State of New Jersey. Liza M. Walsh (Walsh Pizzi O'Reilly Falanga LLP) for Apple Inc.

Companies: Apple Inc.

News: Antitrust AntitrustDivisionNews GCNNews