Apple's Dominance of the Cloud Storage Market Is Anticompetitive, Says Class Action

Apple dominates the cloud storage market “by rigging the competitive playing field so that only iCloud can win,” alleged a fraud complaint (docket 5:24-cv-01270) Friday in U.S. District Court for Northern California in San Jose.

The iPhone maker “unlawfully ties iCloud to its mobile devices by arbitrarily restricting access to alternative cloud storage platforms,” the complaint said. Apple’s dominance with iCloud isn’t due “to any shortage of would-be competitors,” said the complaint, noting that major tech companies Google and Microsoft have their own cloud platforms, as do cloud-storage specialists such as Dropbox and Sync.com. Apple doesn’t dominate because its product is superior, nor is it better than others from a security and functionality standpoint, it said.

Julianna Felix Gamboa, a Los Angeles resident, bought a 200GB iCloud storage plan in September 2022 for $2.99 per month and maintained the account at the same price at the time of filing, the complaint said. As a result of Apple’s “anticompetitive practices,” she has paid a “supracompetitive price for her iCloud storage plan,” the complaint said.

Apple has achieved its success with iCloud, a profit center that brings in “billions” annually for the company, “with surgical technological restraints,” the complaint alleged. Competing cloud providers can access and host certain iPhone and iPad data, such as photos and videos, but Apple “arbitrarily sequesters” a set of files such as app data and device settings and “denies all but iCloud permissions to host them,” it said. The restricted files include data needed to restore a device when it is replaced, it said.

Apple’s “arbitrary prohibition” on hosting restricted files “distorts the competitive landscape to privilege iCloud over all rivals," the complaint said. As a result, cloud competitors can’t offer Apple’s device holders a “full-service cloud-storage solution, or even a pale comparison,” it said. Rivals can host photos, videos and some other data files, but they can’t host all the data users want to back up, “including for device restoration,” giving iCloud “an enormous structural advantage” against would-be competitors, it said.

Consumers who want to use a competing cloud platform to store photos still need iCloud for restricted file storage, “an unattractive option,” the complaint said. That requires “juggling multiple cloud accounts with multiple interfaces and splitting files between them,” the complaint said, calling that option “far less convenient than using a single cloud storage service capable of storing all file types in one location.”

By comparison, Samsung offers the Samsung Drive cloud storage platform while also giving users the option of backing up their devices on Google Drive, the complaint said. Apple even uses infrastructure provided by Google, Microsoft and Amazon to host iCloud data, “undermining any notion” that Apple retains restricted files for security reasons, it said. Apple privacy documents say cloud storage is “agnostic about what is being stored and handles all file content the same way, as a collection of bytes,” it said.

The company’s restraints are “an attempt to stifle competition,” the complaint said. It has marked up its iCloud prices “to the point where the service is generating almost pure profit,” said the complaint, citing 80% gross margins for the service vs. company-wide gross margins in the 40% range. “Apple’s ability to sustain these prices is a testament to its monopoly power,” it said.

Gamboa seeks to represent a nationwide class, and a California subclass, of consumers who bought iCloud storage plans “and were overcharged,” said the complaint. Gamboa was harmed because Apple’s restraints suppress competitors’ incentives to develop cloud storage solutions “that better serve the needs of Apple device holders,” the complaint said. Without Apple’s “restraints,” cloud storage for Apple mobile devices “would be better, safer, cheaper, and more prevalent, all to the benefit of consumers,” it said.

Apple has violated the Sherman Act by unlawfully tying two products together -- mobile devices and iCloud -- by compelling device holders to use iCloud to back up and store restricted files, the complaint said. Apple has market power in the “tying device markets and the tie involves separate products and a significant volume of commerce,” it said.

Also, alleged the complaint, because Apple inhibits competition from rival cloud-storage providers, it “unlawfully monopolizes” the cloud storage market on its devices. This is a “relevant market, technically an ‘aftermarket’ to the device foremarkets in which Apple’s iPhones and iPads compete.” The Cupertino company exercises “monopoly power in this market,” evidenced by market share that’s estimated to top 70% and its “demonstrated ability to restrict output and charge supracompetitive prices to iCloud subscribers,” the complaint said.

Causes of action are violations of the Sherman Act and the California Unfair Competition Law. Gamboa seeks an injunction ordering Apple to cease the “abusive, unlawful, and anticompetitive practices described”; restitution or damages, including treble damages or punitive damages; attorneys’ fees and costs; and pre-and post-judgment interest. Apple didn't comment Monday.