USA vs. Apple – Legal Eagle.

There is a case to answer but it will be hard to prove.

• There is little doubt in my mind that over the years Apple has engaged in some questionable competitive practices, but conclusively proving that Apple has harmed consumers through its practices will be difficult to prove.
• The US Department of Justice has filed an antitrust lawsuit in federal court that accuses Apple of imposing contractual limitations on developers and making it more difficult for users to switch devices.
• A great example of the US complaint was the issue over parental control apps that occurred in 2019.
• Parental control apps typically used a technology called mobile device management (MDM).
• This was administrator-level software installed on the device that allowed a 3rd party to see what was happening on the device, where it was, read the data, control installs and updates and so on.
• Apple had tolerated this software on its devices for years but co-incidentally decided that MDM violated the policies of the App Store once it had launched its own version the same thing called Screen Time.
• At the time, Screen Time was not nearly as comprehensive as some of the 3rd party products and offered far fewer options than they did but this threat was dealt with by banishing most of them from the store (see here).
• Apple will put up a perfectly rational argument as to how it had to do this for security and privacy reasons, and it will be up to the court to decide whether these are genuine or just a smoke screen.
• Over the last 17 years, there have been several examples of this sort and now I suspect that a large number of companies will emerge from the woodwork to support the government’s case.
• Despite this and other examples, I find it difficult to conclude that consumers have been harmed or that Apple’s current market position has been obtained by anything other than competition on its merits.
• The facts of the matter are that Apple’s user experience, its consistency and the seamless integration of different device categories are better than anything else on the market.
• This is why it has obtained the position that it has, and the government’s lawyers had better all switch to Android before the case begins or face being wrongfooted in the courtroom.
• Despite the merits (or lack thereof) of the government’s case, this is yet another uncertainty that Apple does not need right now.
• Apple is losing market share in its 2^nd biggest market, China, and its failure to launch a generative AI product of some description is causing the market to remember just how bad it is at AI.
• This is not a new phenomenon as Siri has been 3^rd rate for years, but the market is beginning to remember just what a hole in its armour this is now that the AI hype cycle is back in full swing.
• This case is going to drag on for years and there will be appeals, counter-appeals and a lot more back and forth before it is finally decided which creates long-term uncertainty that the company does not need.
• This is especially the case with the shares trading at 26.0x 2024 PER and 23.9x 2025 meaning that there remain much better places to look for a better long-term return.
• I am more than happy to watch this latest legal fracas from the sidelines.