Apple's Monopolistic Behavior Has Stifled iPhone Price Competition: Calif. Class Action

Every iPhone sale “guarantees revenue streams well beyond the initial purchase price,” said a class action Thursday (docket 24-cv-434085) in Santa Clara County Superior Court alleging violations of California’s Business and Professions Code. Plaintiff Kyle Whiteside of San Diego bought a new iPhone 13 in July 2021 from an Apple Store in Escondido, California.

Revenue tied to iPhone sales accounted for nearly a third of Apple’s fiscal year 2023 revenue, the complaint said, citing an ecosystem including phone upgrades; apps and in-app payments; digital subscriptions for music, video, games, fitness and cloud storage; and accessories, such as headphones, chargers, tracking devices and phone cases. Because smartphone users generally use one device to access related products and services, “locking up key user groups allows Apple to capture greater spending on iPhone-related products and services” and realize higher margins per user vs. smartphone rivals, it said.

As services have accounted for a larger share of Apple’s revenue, the iPhone remains “the primary gateway” through which U.S. consumers access them, the complaint said. Apple’s share of all smartphones in the U.S. is 65%, and 70% for higher end phones, a share that’s remained “remarkably durable” over the past decade, it said.

The complaint alleges Apple’s behavior has suppressed price competition in iPhone sales; that prices for iPhones have been fixed, raised and stabilized at “artificially high, noncompetitive levels in California; and that users who bought iPhones in California “have been deprived of the benefit of free and open competition.”

Apple “can and does exercise its discretion” to block apps from its App Store, and it “has a history of shutting down rival apps,” the complaint said. It noted an instance where Apple removed 11 of the 17 most downloaded apps that allowed parents to limit the time kids could spend on Apple devices, apps that competed with Apple’s own parental control app. Apple reversed the policy a month later, but developers of the competing apps “lost millions of dollars following Apple’s purge, some of which completely shut down as a result,” the complaint said. Apple’s screen-time control tools, meantime, require the whole family to own iPhones, “cementing Apple’s dominance over more-beneficial tools from third-party apps to control children’s access to iPhones,” it said.

Apple restricts competing apps in ways it doesn’t restrict its own, said the complaint. The company has prohibited third-party music apps from being used with its Siri voice control assistant, prevented third-party messaging apps from becoming Siri defaults and released its own version of products or features that were developed by others, a practice dubbed “Sherlocking,” it said. Apple “pilfers ideas developed by others, claims them as its own and then boots the inventors from its App Store in order to avoid competition,” it said.

Whiteside and the class members allege they were forced to pay more for iPhones than they would have if Apple hadn’t engaged in unlawful activity. Because of its market power, contractual restrictions, fees and application programming interface restrictions, they are likely to incur future "overcharges" for iPhones, the complaint said.

Whiteside seeks a judgment that Apple has violated antitrust sections 16720 and 16727 of the California Business and Professions Code and that it engaged in unfair competition, the complaint said. He seeks damages, pre-judgment interest, and attorneys’ fees and costs.

Also filed Thursday in U.S. District Court for New Jersey is the fifth antitrust class action (docket 2:24-cv-04355) vs. Apple in Newark federal court since DOJ and 16 attorneys general filed their case March 21. IPhone owner Stacey Kurtz of New London County, Connecticut, brings claims of monopolization and attempted monopolization of the smartphone market under the Sherman Act. Apple didn't comment Friday.