Is Apple Head for a Forced Break Up?
Tuesday, June 21, 2021 2:05 PM



Is the U.S. Justice Department (USJD) considering Apple Inc's breakup into multiple companies? The answer to this question is known only to the justice department. However, if the answer is to be inferred from the stock market reaction, then I should say an emphatic 'no'. Yesterday, Apple’s shares slid by $4.94 or 1.54 percent. That price decline ranks as the 27th largest decline in the last year. If the case for Apple’s breakup into multiple companies was strong then yesterday’s price decline should have come at least in the top five declines. Does this mean that justice department isn’t considering Apple Inc’s breakup? Maybe 'no,' or maybe 'yes.'

A search for 'Apple' on the department's website yielded a count of 1,010 hits. And, a search for 'Apple + antitrust' yielded a count of 623 hits, whereas a search for 'Apple + monopoly' yielded a count of 289 hits. This in no way means that the probability of the justice department considering Apple’s breakup into multiple companies is around one in three.

A search for 'Microsoft’ on the same website yielded a count of 9,230 hits.  And, a search for 'Microsoft + antitrust' yielded a count of 1,480 hits, whereas a search for ‘Microsoft + monopoly’ yielded a count of 1,220 hits. This in no way means that the likelihood of the department considering Microsoft’s breakup into multiple companies is less than that of Apple's case.

Ever since Apple announced its Appstore new subscription plans in February 2011, speculation concerning Apple’s breakup into multiple companies has been gaining strength. However, I would still say that this development is still in rumor stage only. This is neither the first time that Apple is rumored to face the regulatory threat of being ordered to be broken up into two or more companies, nor the first time that abuse of alleged monopoly power is being probed by the justice department.

Since 2005, Apple has been facing allegations of monopoly abuse. In the case of Charoensak v. Apple Computer Inc., and Tucker v. Apple Computer Inc., Apple was alleged of unlawful tying music and video content purchased on the iTunes Store with the purchase of iPods.

Last July, a compliant titled 'Apple & ATTM Antitrust Litigation' was granted a class action status.  The consolidated complaint alleged that Apple and AT&T Mobility violated the federal antitrust laws by monopolizing and/or attempting to monopolize the aftermarket for voice and data services for the iPhone and that Apple monopolized and/or attempted to monopolize the aftermarket for software applications for iPhones. "The complaint also alleged that Apple violated numerous laws by intentionally 'bricking' (rendering inoperable) iPhones through the release of iPhone software update 1.1.1. On July 8, 2010, the court granted Apple's motion for summary judgment on all of plaintiffs' claims related to the alleged bricking of iPhones.

So, what makes the current round of rumors strong or weak?

Technically speaking Apple may plead that it is not a monopoly after all. iPad, the company’s recent gadget, trails behind Amazon’s Kindle. In the app mobile market, RIM (approx 34 percent market share) and Google (26 percent) are ahead. So in these cases Apple is not a monopoly. However, if we consider Appstore (iStore - iPod, iTunes, iPhone, and iPad) then Apple is a true monopoly with all the competitors not accounting for more than 17 percent market share, based on 2010 sales?

Does monopoly status automatically require the justice department to force Apple to break into multiple companies?

Going by the spirit of the regulations, it is the abuse of monopoly status that might force the department to break Apple into multiple companies. If Apple pleads successfully that its tactics have a strong business case then it might get away. Apple’s chances of surviving as a single entity, I think, is most likely to depend on how strongly its competitors present their case.

Amazon and Rhapsody have a score to settle with Apple as far as iTunes is concerned. As mentioned earlier, Apple has to survive the class action suits regarding its iPod, and iPhone. I think Apple is most likely to convince the justice department about its business tactics. However, I think, Apple could soon be running out of good will if it pursues its bid for Nortel’s patents (some 6,000 patents in the areas of wireless video, WiFi, internet search, and social networking) that are up for grabs. If, Apple manages to win those patents then, I think, its competitors have a water-proof case that Apple is monopoly worth being broken up into pieces.  Even if Apple survives those antitrust cases, it might have to change its business tactics to stay as a single entity.


 

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