Facebook considering antitrust suit against apple

Why Facebook is considering an antitrust lawsuit against Apple

Jon Swartz

‘What this feud demonstrates more than anything is that Facebook and Apple have tremendous gatekeeping powers over the market,’ says Notre Dame’s Elizabeth Renieris

Facebook Inc. is considering suing Apple Inc. over what it considers anticompetitive business practices.

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Facebook Inc. and Apple Inc. are edging perilously close to all-out legal war, with the social-media giant strongly considering a lawsuit that could ultimately sway antitrust investigators.

The conflagration centers on Apple’s AAPL, +2.04% new iOS 14 policy, due this spring. It includes new privacy features that will for the first time require apps to ask for users’ permission to track them around the web. Such a feature, Facebook FB, +2.98% claims, would severely limit online advertising and kill small businesses in the process.

Tension between the companies has escalated for years to the point where Facebook is considering suing Apple for giving preferential treatment to its own apps while imposing restrictive rules on third-party apps from Facebook and others, according to reports.

“As we have said repeatedly, we believe Apple is behaving anti-competitively by using their control of the App Store to benefit their bottom line at the expense of app developers and small businesses,” a Facebook spokeswoman said in a statement to MarketWatch.

Apple had no comment.

Facebook, which launched a series of print and digital ads in December to make its point, drilled home its animus during an earnings call with analysts on Wednesday.

“We are also seeing Apple’s business depend more and more on gaining share in apps and services against us and other developers,” Facebook Chief Executive Mark Zuckerberg said during the call. “So Apple has every incentive to use their dominant platform position to interfere with how our apps and other apps work, which they regularly do to preference their own.”

Apple CEO Tim Cook ratcheted the hostility Thursday without mentioning Facebook by name.

“If a business is built on misleading users, on data exploitation, on choices that are not choices at all, then it does not deserve our praise. It deserves reform,” Cook said at the online-only Computers, Privacy and Data Protection conference on Thursday. “Too many are still asking the question, ‘How much can we get away with?’ when they need to be asking, ‘What are the consequences?’

“What are the consequences of prioritizing conspiracy theories and violent incitement simply because of their high rates of engagement? What are the consequences of not just tolerating but rewarding content that undermines public trust in lifesaving vaccinations? What are the consequences of seeing thousands of users join extremist groups, and then perpetuating an algorithm that recommends even more?”

The simmering conflict underscores contrasting business approaches: Apple slavishly harps on the philosophy of consumer privacy in which the customer pays for their internet experience. Facebook, by contrast, relies on data about its members to fuel its digital advertising business.

Ironically, a legal showdown between the tech titans could hurt them on the antitrust front, since both are under investigation for the very things they are accusing one another of, says Elizabeth Renieris, founding director of the Notre Dame-IBM Technology Ethics Lab at the University of Notre Dame.

“What this feud demonstrates more than anything is that Facebook and Apple have tremendous gatekeeping powers over the market,” she told MarketWatch.

“It demonstrates just how much Facebook controls access to customers or audiences through its ads ecosystem,” Renieris said. “At the same time, the dispute reveals how much power Apple has to mediate access to our personal data through its engineering choices and policy decisions.”

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Facebook is preparing an antitrust lawsuit against Apple over iOS 14’s privacy features

A new report claims that Facebook, with the aid of outside legal counsel, is set to bring an antitrust lawsuit against Apple, arguing developers are being required to abide by App Store rules that Apple’s own apps don’t have to follow.

One of the main sticking points of Facebook’s lawsuit is apparently over Apple’s “App Tracking Transparency” feature that’s set to be introduced in an update to iOS 14. The feature essentially requires developers to ask for permission to track iOS users for ad targeting. It was originally supposed to launch with iOS 14 last year, but was delayed to give developers more time to comply.

The Information claims Facebook may not file a suit at all due to “internal resistance from some employees over its public campaign against Apple.” However, Facebook may move ahead and primarily focus on Apple’s rules for developers that require them to use Apple’s in-app payment service. Facebook argues that Apple’s rules make it harder to compete against Apple in areas such as gaming, messaging, and shopping.

Facebook and Apple have been engaged in a public feud over iOS 14’s new privacy rules, which Apple says are designed to stand up for users.

“Users should know when their data is being collected and shared across other apps and websites—and they should have the choice to allow that or not,” Apple said last year.

Facebook, meanwhile, sees it differently, and claims Apple’s new feature will “limit businesses’ ability to run personalized ads and reach their customers effectively.”

“Without personalized ads, Facebook data shows that the average small business advertiser stands to see a cut of over 60% in their sales for every dollar they spend,” Facebook said.

Apple this week confirmed that iOS 14’s new privacy features will be available in the next beta, with a planned rollout this spring. If a developer doesn’t comply with Apple’s new privacy rules, they risk their app being suspended or removed from the App Store. These same rules will also apply to Apple’s own apps.

In an earnings call on Wednesday, Facebook CEO Mark Zuckerberg claimed Apple has an incentive to interfere with how Facebook and other apps work.

“Apple may say they’re doing this to help people but the moves clearly track their competitor interests” Zuckerberg said.

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Facebook Reportedly Mulling Antitrust Lawsuit Against Apple

Citing «two people with direct knowledge of Facebook’s efforts,» San-Francisco, California, digital media company The Information reported Thursday that, for some months, Facebook has been prepping an antitrust lawsuit against Apple that claims the tech company abused its market power via the iOS App Store.

The report details that the alleged suit accuses Apple of «forcing app developers to abide by App Store rules that Apple’s own apps don’t have to follow.»

The New York Times reported a similar story Friday, claiming «two people familiar with the deliberations» said Facebook is mulling a lawsuit based on accusations of Apple’s «anticompetitive actions in its App Store.»

Facebook’s reported legal preparations come alongside Apple’s IDFA announcement and accompanying «A Day in the Life of Your Data» handout.

«App Tracking Transparency will require apps to get the user’s permission before tracking their data across apps or websites owned by other companies,» the Apple handout reads.

The company emphasizes that the change in policy will allow users to «see which apps have requested permission to track so they can make changes as they see fit.»

Furthermore, under the new App Store policy, «app developers cannot require you to permit tracking in order to use the app’s full capabilities.»

Last month, Facebook took out ads in The Wall Street Journal, The New York Times and The Washington Post that proclaimed the company would be «standing up to Apple for our small business customers and our communities» amid the changes in iOS 14.

«Apple’s change will limit their ability to run personalized ads. To make ends meet, many will have to start charging you subscription fees or adding more in-app purchases, making the internet much more expensive and reducing high-quality free content,» the ad read, referring to losses endured by apps that rely on advertising revenue. «Beyond hurting apps and websites, many in the small business community say this change will be devastating for them too, at a time when they face enormous challenges. They need to be able to effectively reach the people most interested in their products and services to grow.»

Facebook CEO Mark Zuckerberg has also argued that Apple’s policy changes are part of larger plot to position its iMessage messenger service over Facebook’s Messenger app, which «comes pre-installed on every iPhone and they preference it with private APIs and permissions.»

Application programming interface, or API, refers to the set of functions and procedures that allow the creation of applications that interact with features or data of an application, operating system or other service.

“Apple has every incentive to use their dominant platform position to interfere with how our apps and other apps work, which they regularly do to preference their own,” Zuckerberg said during opening remarks of his fourth quarter earnings call, as reported by CNBC. “This impacts the growth of millions of businesses around the world, including with the upcoming iOS 14 changes.” “Apple may say they’re doing this to help people but the moves clearly track their competitor interests,” the Facebook CEO added. “We and others are going to be up against this for the foreseeable future.”

Despite Zuckerberg’s comments, sources that spoke with The Information claimed some higher-ups at Facebook «are concerned that Facebook is not a compelling victim» in the context of a hypothetical anti-trust lawsuit.

Google, who could also lose revenue via the new iOS 14 policy change in the App Store, issued an update to developers and the community on January 27, noting the company «will no longer use information (such as IDFA) that falls under ATT for the handful of our iOS apps that currently use it for advertising purposes.»

Consequently, the permission prompt will not appear for users after Apple’s policy change takes effect.

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Facebook preparing to take Apple to court over iOS 14 privacy features

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Facebook is reportedly preparing an antitrust lawsuit against Apple over App Store policies and an upcoming iOS 14 privacy feature, though plans to file it aren’t set in stone.

The social media giant has been working with outside legal counsel on the complaint, which would allege that Apple «abused its power in the smartphone market by forcing app developers to abide by App Store rules that Apple’s own apps don’t have to follow,» according to a new report from The Information.

Although the lawsuit would be a significant escalation of the deteriorating relationship between Apple and Facebook, people familiar with the matter said that Facebook may ultimately decide not to file it. Sources say that Facebook faces «internal resistance» from employees about the high-profile battle with the Cupertino tech giant.

According to the report, the lawsuit is focused on an upcoming change that would make a certain type of user tracking tag explicitly opt-in. In 2020, Facebook launched a campaign against the privacy feature claiming that it could reduce advertising revenue and hurt small businesses.

The social media giant could seek monetary damages in the suit, but a more significant goal of the complaint would be to change Apple’s App Store and developer guidelines.

Facebook has considered bringing other companies into the suit as well. This also isn’t the first time Facebook has shown willingness to go up against Apple in court. In December, it said it would produce internal documents to aid Epic Games in its own legal battle with Apple.

For the most part, Apple and Facebook have stayed out of each other’s way for years. But tensions over each company’s handling of user data and privacy have flared up in the past. Tim Cook has been critical of Facebook’s mishandling of consumer data, while Facebook took aim at Apple’s supposedly premium prices.

Those tensions have escalated with the planned change to the Identifier for Advertisers (IDFA) tag, which Apple announced in 2020 but delayed until 2021 to give developers more time to prepare.

Facebook ramped up its opposition to the feature in late 2020, running full-page newspaper ads and in-app prompts advising business users that their revenues could take a hit. Despite that, earlier in January, Facebook said that it would have «no choice» but to comply with the change.

There are some signs that even Facebook employees are concerned about the high-profile dustup. In December, a report indicated that some staffers at the social media giant expressed concerns that Facebook’s attacks could be seen as self-serving, rather than in the interests of small businesses.

While Facebook and other advertising-reliant organizations have voiced concerns over the feature, digital rights and privacy groups have praised Apple for it.

Despite the criticisms, Apple says it remains committed to the privacy feature. On Wednesday, the company announced that the anti-tracking feature would arrive in the next iOS beta before ahead of a launch in the spring.

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Implications of Epic’s antitrust suit against Apple

If Epic wins, the entire mobile gaming market could change.

Epic Games filed a civil antitrust suit against Apple today in the U.S. District Court for the Northern District of California after Apple removed the mobile version of Fortnite from its App Store.

Apple removed Fortnite after Epic decided to bypass the Apple store for its in-app currency purchases, a move that Apple argued violated its terms of service. Regardless of how the suit started, losing this case could have the potential to break up Apple’s monopoly on iOS app distribution or at the very least force the company to change its developer monetization rules.

Epic Games has filed legal papers in response to Apple, read more here: https://t.co/c4sgvxQUvb

The scrutiny over the iOS App Store

Apple’s App Store oversaw an estimated $519 billion in sales and billings in 2019 alone, according to a study published in June 2020 by the Analysis Group. This number was great news for Apple’s investors, but the scale and exclusivity of the App Store has raised eyebrows among regulators. In late July, Apple CEO Tim Cook appeared before Congress to testify at an antitrust hearing along with the CEOs of Facebook, Google, and Amazon. Among other topics, congressional committee members focused on Apple taking 30 percent of some application’s revenue.

Apple takes 30 percent of in-app purchases for any application that operates as a “service.” These services include things like Spotify, YouTube, Fortnite, and most other major applications. With no other options for getting onto iPhones, Epic and other developers have argued that the App Store is run like a monopoly. If you want to operate on iPhones, you have to fork over a third of your app revenue.

“Apple has a monopoly in the iOS App Distribution Market,” according to Epic’s lawsuit. This is because the App Store is the sole means by which apps may be distributed to consumers in that market. Apple’s anti-competitive conduct forecloses all potential competitors for entering the iOS App Distribution Market.”

Epic’s specific complaint about Apple’s practices is that all payments on iOS apps must run through Apple’s payment system. “Apple is able to unlawfully condition access to the App Store on the developer’s use of a second product—In-App Purchase—for in-app sales of in-app content,” the suit reads.

The lawsuit goes on to systematically lay out the case for why Apple’s various practices violate the Sherman Act of 1890, which “prohibits activities that restrict interstate commerce and competition in the marketplace,” according to the Cornell School of Law.

Epic claims that Apple violated the Sherman Act on nine separate counts, including denial of essential facility, unlawful monopoly maintenance, and unreasonable restraints of trade.

“Epic agreed to the App Store terms and guidelines freely and we’re glad they’ve built such a successful business on the App Store.” Apple said in a statement. “The fact that their business interests now lead them to push for a special arrangement does not change the fact that these guidelines create a level playing field for all developers and make the store safe for all users. We will make every effort to work with Epic to resolve these violations so they can return Fortnite to the App Store.”

This isn’t the first time Apple has been sued by iOS app developers over its competitive practices. But Epic is by far the most powerful developer thus far to pursue antitrust litigation against them. If Epic is able to prove any of their nine counts, there are a number of major implications for Apple, Epic, and developers.

The implications of the lawsuit

For Apple

The majority of antitrust suits are settled out of court, but with Epic holding so much power and money, it’s possible it’ll force a trial in an attempt to create fundamental change in the mobile market. A full trial with a court-rendered decision could be bad news for Apple because the court could pass a precedent that harms its entire mobile business model.

If the court finds that Apple did indeed violate the Sherman Act, the App Store could be blocked from taking 30 percent of in-app purchases, or at the very least forced to restructure how it go es about that ongoing monetization. This would apply to Fortnite and any other application or game currently on the App Store, which would represent a massive blow to Apple’s bottom line. They might even have to compete with other marketplaces on iOS.

Obviously the reason Apple functions so exclusively is because it’s profitable to do so. This suit threatens to change that paradigm, which would in turn force Apple to pivot or adjust to the new norm.

For Epic Games

A win for Epic would mean that it effectively increases its profit margin on mobile Fortnite purchases from Apple phones. Millions of players use iPhones and other mobile devices to access Fortnite and its mobile store. Fortnite reached over 100 million iOS downloads within the first five months of the mobile release, so there’s a significant player base on the line.

For its part, Epic seems determined to win this in court, not just settle for a sum of cash. The company released a short film titled Nineteen Eighty-Fortnite to hype up its lawsuit against Apple, using the hashtag #FreeFortnite.

Epic Games has defied the App Store Monopoly. In retaliation, Apple is blocking Fortnite from a billion devices.

Visit https://t.co/K3S07w5uEk and join the fight to stop 2020 from becoming «1984» https://t.co/tpsiCW4gqK

If Epic loses the lawsuit, it’ll face a crossroads to either capitulate and pay Apple the disputed sum of money or abandon its massive iOS player base. In a world where the court rules against Epic and there’s no settlement, Epic is likely to partner with Apple to figure out a solution to this disagreement.

For game developers

It’s tricky to say what the end result of a suit like this could be for developers. Obviously, if Epic loses, the status quo will likely continue with no change for developers.

If the court finds Apple liable on all fronts, Apple would be forced to change its current App Store policies, which would fundamentally alter the mobile gaming landscape for developers. Depending on the specifics of the decision, Apple may even be forced to work with other app marketplaces on iOS.

More competition between app marketplaces would be a win for developers since they’d have more choices about where and how they publish their work. Further, the developers who do want to publish on the App Store will reap the same benefits as Epic, possibly not having to share ongoing revenue with Apple.

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