Last week's announcement that the Department of Justice (DOJ) filed a civil complaint against Apple for anti-trust violations was a huge step in curtailing Apple's dreadful business practices. I have reviewed the complaint and here are my top 10 takeaways from the filing.
10. The DOJ complaint reads like it was written by Big Tech competitors for their own benefit instead of the wider business community.
9. Comparing the 1990s DOJ case vs. Microsoft is an odd way to begin. The DOJ is basically saying, "We killed one monopoly so that another one could come in right behind it."
8. There are a lot of missing stories of the actual competitors that were harmed in the making of Apple's monopoly. If I were Canadian, I would not be pleased with what Apple did to Nortel Networks and Blackberry.
7. In the history of Smartphones, the DOJ report ignores the Patent Wars of the late 2000s and early 2010s. Curious. Upsetting. Alarming.
6. Focusing on sub-platforms ignores that they were based on replicating or stealing other companies' intellectual property (IP). Don't believe me? Check out the record-setting 1,000+ times Apple has been credibly accused of patent theft in court in the last 10 years.
5. Competition: There used to be numerous cellphone players: Blackberry, Nortel Networks, Nokia, Motorola, LG, Microsoft, HTC (now G's Pixal), and a few other smaller companies. Why was there no effort to prevent these companies from dying? When these competitors died, what did they have left to salvage? Patents.
4. Monopoly rents are demonstrated by looking at the Gross Margin of the iPhone over time. Nothing screams monopoly like a hardware device that has Gross Margins that only go up over time. It doesn't happen in other electronic devices.
3. Supplier relationships. Apple's primary suppliers have historically been Chinese or Taiwanese companies. What threats are posed by Apple's continued work in China and Taiwan?
2. Copycat Big Tech Products has been normalized within the major social media firms. TikTok, Instagram, Youtube, Facebook, and X (formerly Twitter) have all used a form of "doom scrolling" to lock in viewers on a specific platform.
1. The Complaint places almost no emphasis on IP, particularly patent theft. Apple is a serial infringer of patented IP, and the DOJ complaint ignores this.
For a more material discussion on the thoughts:
10. It reads like it was written by Big Tech competitors for their own benefit instead of the wider business community.
Did Google and Microsoft send their own representatives to the DOJ to write this Complaint? The Complaint focuses on issues concerning other Big Tech companies and comes screaming off the pages. The topics related to "Super Apps" being stifled by Apple reeks of Apple's contemporaries complaining about unfair competition. Every major Big Tech company is trying to build a platform with sub-platforms, including an App Store. What is Apple doing with its App Store that is different from Google Play or any other app store on electronic devices? The Complaint fails to reconcile the differences between app store platforms.
9. Opening with a comparison to the 1990s DOJ case vs. Microsoft is an odd way to begin. The DOJ is basically saying "We killed one monopoly, so that another one could come in right behind it."
Whack-a-mole anti-trust efforts by the DOJ based on who is in office at the time is a fairly common enforcement practice. Highlighting how the anti-trust case against Microsoft gave rise to a new monopolist in Apple reeks of misaligned intent. Remember when the FTC litigated against Qualcomm for anti-competitive business practices? That entire litigation reeked of lousy intent on behalf of smartphone manufacturers wanting to underpay its Standard Essential Patent (SEP) licensing fees. When will the US government determine how to prevent monopolies while respecting patents and IP?
8. There are a lot of missing stories of the actual competitors that were harmed in the making of Apple's monopoly. If I were Canadian, I would not be pleased with what Apple did to Nortel Networks and Blackberry.
There is a lot of talk about the harms to developers, third-parties, and consumers, but there are almost no concrete examples of companies harmed by Apple's actions. I know of countless companies that have been steamrolled by Apple's bad actions in a myriad of ways. Including true stories of the aggrieved would be helpful in making the case of their anti-competitive efforts. If they need examples, I'm here for it. Feel free to give me a call, DOJ.
7. In the history of Smartphones, the DOJ report ignores the patent wars of the late 2000s and early 2010s. Curious. Upsetting. Alarming.
Apple's development of the iPod came at the same time that the DOJ was enforcing its anti-trust case against Microsoft, allowing Apple to grow massively. The Complaint explains extensively how the iPod was the precursor to the iPhone, enabling the development of iTunes, the App Store, and a host of other program applications to help launch the iPhone in 2007.
Then, from paragraphs 37 to 38, Apple launches the iPhone, and not a single word of the Patent Wars is mentioned to follow. Building a cellular phone is a monumental task that was developed over decades by numerous inventors. Cellular communications are materially different from other forms of wireless communications, and incorporating that technology into an electronic device REQUIRES using other people's IP and patented technology. When Apple launched its iPhone, Apple had contributed next to nothing to developing cellular communication services. In fact, Apple launched the iPhone with a massive portion of the iPhone's cellular technology taken without asking for a license from a vast majority of relevant patent holders. Sure, they set up distribution and IP licensing agreements with Cingular or AT&T, but that only covered a small portion of the IP necessary for a cellular phone.
The DOJ's neglect of those overwhelming facts boggles the mind. Stolen patented technology should be a much more significant part of the Justice Department's enforcement efforts, but it is not.
6. Focusing on sub-platforms ignores that they were based on replicating or stealing other companies' IP. Don't believe me? Check out the record-setting 1,000+ times Apple has been credibly accused of patent theft in court in the last 10 years.
According to RPX Insights, Apple has been a patent defendant in over 1,000 cases, and they have actively petitioned to have third-party patents invalidated 981 times. Apple is currently embroiled in 71 active patent litigations, and I know of no other entity that is more hated by patent owners than Apple. The Company has willingly abused the patent system for its benefit for two decades.
If the DOJ wanted to determine where Apple is killing the most competitors and being the most anti-competitive, look no further than its efforts to kill other people's patents who accuse them of infringing. Patents are the invention that is supposed to prevent monoply, but the degradation and undermining of the US patent system has made it too weak and ineffectual to matter.
5. Competition: There used to be numerous cellphone players: Blackberry, Nortel Networks, Nokia, Motorola, LG, Microsoft, HTC (now Pixal), and smaller companies. Why was there no effort to prevent these companies from dying? When these competitors died, what did they have left to salvage? Patents.
There are only three smartphones available for purchase in the US, but that's not how it used to be. When the iPhone launched, the number of emerging smartphones was staggering. But then Apple came in, and the iPhone blew the competition away. The trail of broken companies because of the iPhone was long and vast, covering hundreds of billions in lost value to shareholders.
Two of the most notable failures were the great Canadian companies Nortel Networks and Research In Motion, now known as Blackberry. During the time of those companies' demises, it was thought that Apple had simply out-innovated the competition, but in reality, they just incorporated cellular technology that wasn't theirs and then paid or fought their way out of every situation. The DOJ's Complaint ignores the direct bad actions against the cellular technology industry and ignores the ongoing battles related to Standard Essential Patents, of which Apple has contributed next to nothing (other than what was acquired from Nortel Networks).
4. Monopoly rents are demonstrated by looking at the Gross Margin of the iPhone over time. Nothing screams monopoly like a hardware device that goes up in Gross Margin value over time. It doesn't happen in other electronic devices.
In almost every situation where a new technology device is launched, the price is initially high to cover the cost of R&D. Over time, the device's price goes down as volume and quality increase. Think about this relative to televisions. In the mid-2000s, large flat-screen TVs that were 40 inches or larger came onto the scene and were priced in the thousands of US dollars. Fast forward 5 to 10 years, and the TV screens are now twice as large, have 5x better graphics, are internet-enabled, and contain an app store. How much does an 80-inch TV cost now compared to the smaller, dumber TV of the mid-2000s? It is one-third the cost now compared to before. Pricing declines for high-cost electronic devices, which is an accepted norm within the tech industry, except for one device: Apple's iPhone.
With every release of a new iPhone, engineering companies complete a "tear down" of the iPhone to assess every hardware part incorporated into the phone. From that, a bill of material (BOM) is created, and we can figure out Apple's gross margin on every phone. Amazingly, it defies the odds by generally increasing quarter-over-quarter and year-over-year. The chart below is an amazing exception that indicates increasing gross margins over time.
Apple's gross margin as a percentage of revenue from 1st quarter 2005 to 1st quarter 2024
3. Supplier relationships. Apple's primary suppliers have historically been Chinese or Taiwanese companies. What threats are posed by Apple's continued work in China and Taiwan?
American politicians would have us believe that China is an existential threat to the United States. So much so that they are trying to ban TikTok, a Chinese company, from operating in the US. Meanwhile, Apple is deeply entwined in China. Vast portions of iPhone parts are made in China, and Apple made over $20B in revenue in China in the 4th quarter of 2023 alone. While the issues related to Apple's anti-competitive practices do not tie directly to China, Apple's willingness to bend the rules to conform to China's requests speaks volumes about its fungible ethical business practices.
2. Copycat Big Tech Products has been normalized within the major social media firms. TikTok, Instagram, Youtube, Facebook, and X (formerly Twitter) have all used a form of "doom scrolling" to lock in viewers on a specific platform.
Big Tech companies are copycats. Snapchat invented disappearing messages, so Instagram followed suit. TikTok invented video scrolling, so YouTube, Instagram, Twitter, Facebook, and Snapchat followed suit. Apple created an app store, and Microsoft, Google, LG, and Samsung followed suit.
Steve Jobs is famous for quoting Pablo Picasso, saying, "Good artists borrow, but great artists steal." In this video, Jobs extolls how Apple is shameless (emphasis his) in their effort to steal good ideas.
The DOJ's ignoring of Apple's shameless theft of IP is the most gigantic glaring hole in the entire Complaint.
1. The Complaint places almost no emphasis on IP, particularly patent theft. Apple is a serial infringer of patented IP, and the DOJ complaint ignores this.
America is great at following its leaders, and Apple is one of the most prominent leaders in the world. What they do and how they operate is emulated and or envied by almost every other technology company in the US, except those who Apple has wronged. Unfortunately, this creates a chasm of ethical expectations, and anti-trust enforcement falls flat. Most of the DOJ complaints are at too high of a level to feel the impact of Apple's destructive actions. It fails to register who the victims are of Apple's anti-trust actions, and most consumers of Apple products do not feel the strain of Apple's wrong actions.
When the news of the DOJ's Complaint against Apple broke, I was elated that someone will finally stand up to Apple's nefariousness. After reading through the Complaint, I can't help but feel like it is a weak case, purposefully made so by ignoring so many concrete examples of harmed competition. Moreover, the Complaint fails to recognize Apple's horrendous actions in the IP space. Apple is a serial infringer of IP, and instead of acknowledging and correcting its actions, it invalidates other people's patents in one of the most anti-competitive actions a company can possibly take. A situation that the DOJ complaint does not even address.
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