The Round 1 bell of the antitrust fight just rang, and despite taking a beating, Big Tech is still standing. But the brawl is far from over, and by the looks of the way they’re judging the matchup, a win for Tech in the long term seems unlikely.
Last Friday, a federal judge handed down decisions on Epic Games' lawsuit against Apple (go here for a blow-by-blow). The judge ruled in Apple’s favor on nine out of ten counts. That might seem like a win for Big Tech (9/10 can’t be bad, right?), but the tenth count makes all the difference. Under California law, the judge forced Apple not to enforce their "anti-steering" clauses — contractual agreements that prohibit apps from sidestepping Apple’s fees by directing users to outside payment methods. That may not sound like a big deal — making Apple rewrite one clause in the App Store’s terms of service seems minor — but the judge’s reasoning for making this call spells bad news for the US Tech sector, and undermines the competitive process that makes the U.S. the tech innovator of the world.
As the first major case against a Big Tech company in the U.S., this case provides a glimpse into the future of antitrust against companies like Apple, Google, and Facebook. While most narratives about the lawsuit will focus on who "won" (both sides are likely unhappy), the ruling signals a bleak future for antitrust in the United States.
Generally siding with Apple, U.S. District Judge Yvonne Gonzalez Rogers is correct that "success is not illegal." That language makes it seem like the ruling is firmly in favor of allowing companies to be successful. Yet, as with any ruling, the reasoning matters for future cases. Throughout her opinion, despite ruling that Apple is not an illegal monopolist, the judge called for justification for the company’s success.
The ruling raises a fundamental tension for the future of U.S. antitrust: Does the suing party, whether government or private, have to demonstrate anti-competitive behavior before courts meddle in decisions? Or does the defendant have to justify its behavior? The idea that companies need to justify their contracts to a judge, who may or may not have any expertise in their market, should be rejected altogether.
For example, Apple charges 30% on all transactions through the app store. Yet Judge Gonzalez Rogers claimed, "it is impossible to say that Apple's 30% commission reflects the fair market value of its services" because "Apple has provided no evidence that the rate it charges bears any quantifiable relation to the services provided."
The judge's comment hints at a ridiculously high burden of proof that no company can be expected to justify. Customers want low prices. Sellers want high prices. What's reasonable?
Evaluating prices is intractable — it’s why courts have abandoned the practice in favor of looking for restraints of trade. We rely on the competitive process to reveal when the value provided is greater than the price charged, not some government official. The exception is if a monopolist keeps out the competition and sets a price higher than their value would be under competition. According to the judge's own ruling, that's not the case.
Beyond the "high" price, the judge expressed concerns for Apple's slow innovation in its App Store, citing survey complaints of developers. While consumer satisfaction surveys matter for incumbents like Apple and potential competitors, they are irrelevant for antitrust.
Users complain about products; that's nothing new. I get annoyed when Walmart only has two checkout lanes open, and I have to wait. Yet Walmart doesn't need to justify why some checkout lanes are closed. If I think the line is too long, I go to a different store next time. They certainly shouldn't need to justify to a court why they haven't innovated enough to use the new system without checkout lanes where cameras monitor what you put in your cart — though that may very well be in their best interest. The relevant question for antitrust is whether Walmart or Apple put in barriers that make switching hard.
Unfortunately, the idea that companies need to justify their behavior is gaining traction. Last year, under counsel from current FTC chair Lina Khan, a House subcommittee recommended shifting the burden of proof onto merging parties. That means merging companies would have to prove to some third party that the merger would not reduce competition. This “guilty until proven innocent” approach to antitrust was the norm in the U.S. before the 1970s, and people across the political divide agreed it was an utter mess. That approach is still in place today in Europe, which has generated almost zero tech innovations compared to the dynamic economy here. We don’t dare join them.
With plenty of Big Tech bouts ahead of us — the DOJ is suing Google, and the FTC is appealing its lawsuit against Facebook — it’s time we reorient our judges toward the true function of antitrust. Courts should decide these cases based on whether or not there was anti-competitive behavior to restrain trade. We all want a clean fight, so let’s never argue about justified prices again.