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Apple's rules around iCloud storage at center of lawsuit alleging antitrust law violations

PIX Now Afternoon Edition 3-4-2024
PIX Now Afternoon Edition 3-4-2024 08:03

Apple was hit Friday with a class action lawsuit in federal court in San Francisco contending it unlawfully "tied" together two of its products. That wouldn't be a problem for others but may be for Apple because of its dominant position in the relevant markets.  

"Tying" is the legal term for a company's rules or practices requiring one of its products be used in order to use another.

In the United States it is not illegal for a company to become a monopoly by selling superior products or services, but when it has achieved that position, it becomes subject to rules that don't apply to its competitors.  

The suit says Apple's tie of its iCloud storage to its iPhones and iPads violates the Sherman Antitrust Act. It also contends Apple's practice violates the act because it discriminates against other cloud storage companies, an anticompetitive practice made illegal by Apple's market power.

While antitrust lawsuits can be forbiddingly complex, the argument in the new suit is fairly straight forward.

It begins with an unremarkable proposition that cloud storage is frequently purchased by owners of iPhones and iPads to back up their data, including photos, music, documents, email, videos etc.

While Apple generally allows its iPhone and iPad customers to use the cloud storage services of Apple's competitors like Google, Drop Box, and Amazon, there is a catch.

Plaintiffs allege Apple mandates that certain types of files (device settings, apps and app data) - so called "restricted files" - may only be backed up to iCloud.

According to the complaint, there's no technical or security reason for the distinction between restricted and unrestricted files. "As Apple itself admits," the complaint states, "cloud storage is "agnostic about what is being stored and handles all file content the same way, as a collection of bytes."

Plaintiffs allege that Samsung, for example, allows its customers to use cloud services to back up all their files.

In plaintiffs' view, "Apple's restraints can be coherently explained only as an attempt to stifle competition." The effect of Apple's rule, it's alleged, is to give iCloud "an enormous structural advantage against all would-be competitors."

The complaint explains "a consumer that uses a competing cloud platform to store photos will still need iCloud for Restricted File storage."

The complaint goes on to say "As Apple knows, this is an unattractive option. It requires juggling multiple cloud accounts with multiple interfaces and splitting files between them. This is far less convenient than using a single cloud storage service capable of storing all file types in one location."

Among the things that allegedly result from this practice is iCloud has become the dominant cloud storage choice for iPhone and iPad customers:  "By any metric, iCloud dominates all other cloud platforms accessible on Apple's mobile devices, with a market share estimated to exceed 70 percent."

It also allows Apple to charge what the complaint calls "supracompetitive" prices, in other words, prices far beyond what could be obtained in a competitive market. The complaint says Apple's profit margin in these markets is as high as 80%.

The complaint does not estimate how much money Apple earns as a result of this rule, but it provides statistics that make clear that the class action is going after an extremely lucrative line of business. The plaintiffs estimate that the iCloud service earns Apple $16 billion annually.

An essential part of plaintiffs' legal theory is that Apple holds "market power" - that is, the ability to dominate and control the market - in both the smart phone and tablet markets, with 2024 market shares of 61.3% and 57%, respectively.

The complaint concludes that "Apple has achieved market dominance by rigging the competitive playing field so that only iCloud can win."

The law firm that initiated the case - Hagens Berman Sobol Shapiro LLP - is a plaintiffs' contingency fee litigation law that frequently brings class action suits to enforce the antitrust laws.

The firm's website boasts it "has achieved more than $320 billion in settlements," including antitrust settlements with Apple "valued at $616 million on behalf of e-book purchasers" and another "valued at $100 million on behalf of iOS app developers."

Apple did not immediately respond to a request for comment on the suit.

The company is no stranger to antitrust challenges to its business. On Monday, the company was hit with a nearly $2 billion antitrust fine in the EU over allegedly abusing its dominate position in the market for distribution of apps for streaming music.

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