3 Class Actions Challenge Apple’s Allegedly Monopolistic Smartphone ‘Empire’

A day after DOJ and the attorneys general of 15 states and the District of Columbia sued to challenge Apple’s alleged monopoly power in the smartphone market (see 2403210042), two class actions were filed Friday in New Jersey and California to address Apple’s allegedly anticompetitive and exclusionary conduct. A fourth action was filed Saturday in California.

Consumers love Apple products, “but Apple has exploited that love,” alleged plaintiff Shoshi Goldfus’ complaint (docket 2:24-cv-04108) in U.S. District Court for New Jersey in Newark, the same court where DOJ and the 16 AGs brought their complaint against Apple Thursday. After initially gaining a loyal following for the iPhone “by creating such an impactful product that it changed the world,” Apple realized it couldn’t “sustain that loyalty once the competition caught up with its once revolutionary technology,” it said.

But rather than competing on the merits, Apple used anticompetitive techniques “to lock consumers and developers into its ecosystem, thwart nascent competitive threats,” and build a moat around the iPhone “that would ensure monopoly profits for years to come,” said the complaint. DOJ and the 16 AGs “have rightly brought suit to vindicate their sovereign law-enforcement interests and stop Apple’s wrongful conduct,” it said.

Goldfus now seeks in her suit “to vindicate the interests of the millions of consumers who have overpaid for iPhones they purchased from Apple,” said the Philadelphia resident's complaint. Consumers “missed out on the innovation and improved user experiences that competition would have made possible,” it said. Consumers also face “ongoing harm” unless the court enjoins Apple’s “monopolistic conduct,” it said. Goldfus’ attorney is James Cecchi, director of Carella Byrne’s class-action practice, who was appointed a year ago as interim lead class counsel for the plaintiffs in the Samsung data breach multidistrict litigation that's pending in U.S. District Court for New Jersey in Trenton (see 2303280001).

As developers created more and better products, content, apps and services, more people bought iPhones, “which incentivized even more third parties to develop apps for the iPhone,” said the complaint. But as Apple’s power grew, “its leverage over third parties reinforced its tight control over how third parties innovate and monetize on and off the smartphone in ways that were anticompetitive and exclusionary,” it said.

In Friday’s other class action against Apple, filed in U.S. District for Northern California in San Francisco, three plaintiffs -- Deborah Collins of Dupage County, Illinois; Hunter Collins of Orange County, California; and Henry Morales -- allege that Apple has built a smartphone “empire” by erecting technological, psychological and expense barriers “that make it difficult for consumers to leave Apple’s platform and purchase a non-Apple device.” The anticompetitive effects of Apple’s strategy to “lock” consumers into its iPhone ecosystem “are difficult to overstate,” said the complaint (docket 3:24-cv-01796).

By “trapping” consumers in its ecosystem, Apple “has severely restricted competition from other smartphone manufacturers to unlawfully maintain a durable monopoly over the market,” said the complaint. As a monopolist, Apple “has overcharged hundreds of millions of consumers on smartphones while generating historic returns,” it said.

The “central pillar” of Apple’s “lock-in” strategy “is to suppress technologies and innovation that would make it easier for consumers to switch device ecosystems,” said the complaint. This is the “antithesis of competition on the merits,” it said. In functioning markets, firms “confront competitive threats by innovating their own products to make them better, cheaper, and more secure, all to win business,” it said.

Apple’s lock-in strategy “has the opposite objective and effect,” said the complaint. Rather than make its devices more attractive to users, Apple “traps its users by erecting artificial barriers to purchasing a competing device,” it said. By locking in its customer base, Apple “cripples competition” from actual and would-be smartphone manufacturers, “resulting in higher prices, lower quality, stunted innovation, reduced choice, and lower quality-adjusted output in the smartphone market,” it said.

In Saturday's class action brought in California, Jared Schermer of New York contended that U.S. Attorney General Merrick Garland's statement at his Thursday news conference that consumers shouldn't have to pay higher prices because companies break the law "would seem axiomatic and unnecessary to say in 2024." To protect its iPhone business model, Apple "reduces competition in the markets for performance smartphones and smartphones generally," said the Schermer's complaint (docket 3:24-cv-01815) in U.S. District Court for Northern California in San Francisco.

Apple does so "by delaying, degrading, or outright blocking technologies that would increase competition in the smartphone markets by decreasing barriers to switching to another smartphone," said the complaint. The suppressed technologies "would provide a high-quality user experience on any smartphone, which would, in turn, require smartphones to compete on their merits," it said.

The company suppresses such innovation "through a web of contractual restrictions that it selectively enforces through its control of app distribution," said the complaint. It also denies access to "key points of connection between apps and the iPhone’s operating system," it said: "Apple can enforce these restrictions due to its position as an intermediary between product creators such as developers on the one hand and users on the other."