An Apple Slicer; There’s an App for That

In Europe, just being a huge company can trigger antitrust law violations, regardless of whether that bigness arose through mergers and acquisitions or simple organic growth. In the United States, just being huge is not violative of our parallel universe of antitrust laws; as long as that bigness was not created by acquiring most of your competitors, it’s how you use that bigness to unfair advantage or how you collude (love that word) with others in your business space to control pricing and business practices. We have mega-corporate structures that got that way primarily by organic internal growth. Google. Facebook. Microsoft. Apple.

Europe is applying and amping up its statutory and regulatory power, from its consumer online consent and privacy legislation (the General Data Protection Regulation - GDPR) or its modification of the “safe harbor,” for Web service providers under their new copyright amendment, to applying its antitrust laws with those America biggies in their crosshairs. 

Until recently, big companies in the United States have viewed antitrust laws as a minor potential annoyance. After all, the Trump administration and most of its regulatory agencies have pretty much implemented business wishes almost on demand and has appointed senior administration officials to run agencies they had previously spent a lifetime trying to destroy. The Environmental Protection Agency, all consumer protection agencies, the FCC, the Department of Education, the Department of the Interior, the Department of Commerce, the Department of Labor, the Federal Election Commission, many federal investigatory and intelligence agencies, the Department of Housing and Urban Development, the Department of Health and Human Services, the Department of Homeland Security, etc…  a seemingly endless list.

But something very strange just happened. At the U.S. Supreme Court, which was asked if an antitrust action could proceed to trial or whether as a matter of law, companies that have grown organically can still operate with relative freedom from antitrust risks relating to their own products and services. It happened in a ruling by conservative and recent court appointee, Brett Kavanaugh, and the four liberal justices on the court. A very strange alignment.

You see, Apple believed that they had an absolute right – as quality control gatekeepers and masters of their own technology – to require developers of apps for their ubiquitous iPhones only to access Apple iPhone users through Apple. They’re our phones, after all, declared Apple. Did I mention the 30% commission that Apple required for such apps to be made available (through their online App Store)? It just what most American companies assumed was their right.

Apple swaggered into the court, believing that every trend they were watching in American politics and economic policy were on their side. And then the court used the “M” word – monopoly – and Apple lost. The case will now be tried in the lower courts. Why did Apple risk setting a terrible precedent for themselves? Because arrogance suggested they could not lose?

“Dan Ives, equity analyst at Wedbush Securities, said Apple’s store services had been key to the company’s growth. Apple has seen net sales of its services, including the App Store, grow from roughly $24 billion in 2016 to $37 billion in 2018… ‘This opens up Pandora’s box,’ he said. ‘It’s never a good thing for a tech titan like Apple to be walking into the Supreme Court with a ruling that could have implications for the App Store for years to come. Especially with the dreaded M-word being used — ‘monopoly.’ ’” Los Angeles Times, May 14^th. Apple still believes that it will prevail through a detailed economic analysis at the trial court level, but wanna bet they now know that have to settle or take another big risk on appeal?

What I see, between the lines, is the twinkling of a recognition that antitrust laws, like the 1890 Sherman Act, need to reflect the modern world, one where a corporation could rise to top ten global size status in a matter of a decade or two… even without the benefit of mergers and acquisitions. Despite cries from presidential candidates to break up these tech biggies, our legal system not only tolerates bigness but also encourages it… as long as the growth is primarily organic. With the acceleration of change, the application of artificial intelligence and the explosive power of a new technology, rapid mega-growth that used to be generated only by mergers and acquisitions is now an inherent potential with the advent of any new, multipurpose technology. And fast… really, really fast.

Look at the federal regulatory scrutiny given to the recent Fox/Disney or the AT&T/WarnerMedia mergers. None of that U.S. governmental scrutiny has ever been applied to a company that got big through internal growth. Google. Facebook. Microsoft. Apple. “That ruling potentially opens the way for similar lawsuits against other giant tech platforms that have a business model similar to Apple’s, legal experts said.

“‘Today’s decision unquestionably opens the door to consumer claims against a wide range of digital platforms that use their market power to their advantage,’ said Deepak Gupta, a Washington lawyer who represented the Open Markets Institute in the case. ‘Going forward, this is going to be a significant ruling for the big platforms — from Apple to Amazon.’

“Much of corporate America had joined in support of Apple and argued that such broad antitrust claims should be blocked at the starting gate. So did the Trump administration… The plaintiffs in the case, Apple vs. Pepper, alleged that ‘Apple locks iPhone users into buying only from Apple’ and takes a 30% commission on all app sales, Kavanaugh noted. They argued that, as a result, apps cost more than they would if Apple did not control the sales.

“‘Ever since Congress overwhelmingly passed the Sherman Act of 1890, protecting consumers from monopoly prices has been the central concern of antitrust. That is why we have antitrust law,’ Kavanaugh wrote. The consumers who sued ‘purchased apps directly from Apple,’ the jurist added. And the antitrust laws protect ‘any person’ who pays too much because of an anti-competitive conspiracy. That is enough for the suit to proceed, he said, even though it did not mean the plaintiffs would finally prevail.

“If the plaintiffs do prevail, the suit could lead to a huge verdict or settlement. The case potentially involves an extraordinary number of plaintiffs, and Apple’s sales of services, including the App Store, run to tens of billions of dollars a year.” LA Times. For the first time, an American company is being labeled as a monopoly in connection with controlling its own unique, propriety product line. Can this be viewed as assessing liability for just plain being big? This is uuuuge!

As Congress is mired in hopeless gridlock, we are increasingly forced into bending and squeezing modern realties with dramatic changes to reflect obvious social and economic changes – the new normal – into old statutes built in another era. Presidential executive orders, obviously intended to substitute for legislation, have not only been mostly been judicially rejected but have pushed that congressional gridlock to new levels of dysfunction. Will new and very conservative court, suggesting a new period of activism from the right, step into this void accordingly? 

              I’m Peter Dekom, and in cases far from our daily headlines, new and very interesting directions grow!