DOJ And EU Authorities Call Apple’s Security Defense Bogus

The Department of Justice’s antitrust suit against Apple for allegedly maintaining its monopoly over smartphones took direct aim at Apple’s anticipated defense. According to the DOJ, Apple’s restrictions on apps and non-Apple devices are not justified by security based concerns. At one point, the DOJ alleges in its complaint that “Apple deploys privacy and security justifications as an elastic shield that can stretch or contract to serve Apple’s financial and business interests.”

At an antitrust conference in Washington DC last week, European antitrust enforcers made similar claims. EU’s competition chief, Margrethe Vestager, asserted that Apple’s security concerns are a red herring and that Apple can provide the safety and security it wants while at the same time providing choice to consumers.

Vestager’s comments come within the context of EU’s Digital Markets Act or DMA, a flagship law that imposes rules and obligations on digital gatekeepers, including Apple. Among the DMA’s obligations is a requirement that Apple permit app developers to direct users to alternative sources, outside of Apple’s App Store, to download apps and make transactions. Vestager asserts that Apple’s security based claims are a diversion and improperly support Apple’s purported desire to keep a 30% commission for doing business in the App Store.

The EU antitrust lead claims that the DMA seeks to give consumers a choice to either stay within the Apple ecosystem, or should users choose to leave it, they should not face unfair and discriminatory treatment. This parallels claims made in the DOJ’s case, highlighting that users of non-Apple smart phones will face decreased messaging functionality through “green bubbles” that raise a stigma around non-Apple products.

Another claim made by the DOJ is that Apple’s restrictions on mobile payment apps have prevented app developers, including those at banks, from developing payment apps that could be used across all smartphones. In the absence of these restrictions, asserts the DOJ, more and better apps (including “super apps” that utilize cloud-based functionality) would be created that would make it easier for users to switch smartphones.

The underlying premise behind both the US and EU’s critiques of Apple’s security-based claims is that they are being used opportunistically to shield itself from competition. The EU has passed legislation in an attempt to rein in Apple’s control over its ecosystem, and the DOJ has filed its monopolization lawsuit.

Both efforts question the trust that consumers and competitors should give to Apple. The DMA provides that a digital gatekeeper has to abide by the its rules to earn that trust, and to avoid fines. The DOJ’s suit claims that Apple has used security as an opportunistic shield, because Apple collects extensive data about its users when it benefits the company, and texts from non-Apple phones are less secure.

Another way that DOJ claims that consumers should not trust Apple is by pointing to the price of iPhones, including that the iPhone 11 cost relatively less in China, where Apple faces less competition from other manufacturers. The DOJ also points out that Apple has historically spent twice as much on stock buybacks and dividends as it has on research and development.

Leadership Strategy Implications

Should the DOJ’s case go to trial, the Judge will need to decide whether Apple’s security based concerns are a pretext to foreclose competition, or Apple’s restrictions are otherwise overbroad to address the purported security claims it raises. The Judge’s decision will be based upon extensive testimony and documentation that will be secured in the litigation over the coming years.

While business leaders may instinctively dismiss these issues as specific to Apple, the reality is that antitrust proponents on both sides of the aisle are looking for any corporate practice that allegedly harms consumers for which the company’s rationale should not be trusted. A company would be best served if it can illustrate, ideally through documents and data created outside of litigation, that each of its tactics inure to the benefit and not the detriment of consumers.

This type of trust can be earned by companies in multiple respects, including how it treats its employees (discussed here), and the joint ventures it may consider (discussed here). Again while antitrust allegations are market-specific (in the Apple case about smart phones), building general goodwill with the public can both protect companies from antitrust scrutiny and enhance the bottom line.

The DOJ believes that Apple cannot be trusted and that the evidence will prove that consumers have been harmed. All businesses, even startups, should take appropriate warning to build its success based on well-earned trust so that it is not later the subject of scrutiny.