Yesterday we learned in the New York Post that the Federal Trade Commission and The Department of Justice may be considering investigating Apple regarding its 3.3.1 decision which essentially says that developers can only use Apple tools to build apps sold in the App Store. The question is on what basis might the government move forward. What would be valid grounds for a serious government investigation?
Yesterday, John Paczkowski at All Things Digital, wrote that he didn’t think there was much of an opportunity for a government suit because Apple is not big enough in the cell phone business to be considered a monopoly, a requirement for invoking antitrust law. I agree that Apple is not big enough for the issue to be viewed in the context of antitrust. But I do think that there is a case here, outside the antitrust context.
Let me explain.
The problem is not that Apple refuses to sell apps made with non Apple tools, but that to jailbreak your phone to run non App Store apps is grounds for voiding your warranty. This is problematic because if there were no fear of voiding warranty, undoubtedly many customers would jailbreak their iPhone, There would be alternate markets for iPhone software, and there would be a truly competitive marketplace.
Ok, but why is this a problem legally?
Voiding a customer’s warranty must be made on some reasonable basis. Every consumer has a common law right to a warranty on a non-discriminatory basis. For example, if Apple said your warranty would be breached if you bought software from a woman, or a black person, or from someone who we don't think is attractive, that would clearly be a problem.
So the question is where is the line? Clearly racial or gender discrimination would be problematic. But it is also problematic if the basis for voiding the warranty is purely to prevent competition.
In other words, a warranty voiding offense needs to be, on some level, reasonable. It must be tied to some reason why Apple couldn't service your phone. But clearly, in a few seconds, an iPhone can be wiped clean, no matter what software was put on it, so what software vendor you buy from, or whether that software is sold through the App Store cannot be a valid basis for warranty voiding.
Effectively, Apple is using the iPhone warranty, a right you have as a purchaser regardless of their stated policy, as a competitive, or should I say, anti-competitive weapon. I don’t think there is any case law on this, because I don’t think using competitive, or “aesthetically unpleasing” software has ever been used as a basis for voiding a warranty, but I strongly believe that Apple would be on the losing side of this as a test case, because it is clearly what is known as restraint of trade.
Restraint of trade is, essentially, preventing someone from engaging in reasonable commerce in order to prevent competition. You do not need to be a monopoly to be considered to be engaging in restraint of trade. Restraint of trade is perfectly legal when the entity being restrained has been compensated. For example if you sell your business the contract can state that you can't open another competing business within 50 miles for five years.
But in the Apple case, consumers and third party vendors are being restrained from buying and selling apps other than through Apple, at risk of voiding their warranty, and neither group is getting any compensation. It is not reasonable for warranty decisions to be made on the basis of from whom you have purchased software, unless there is some good reason that purchasing that software actually makes the hardware unserviceable.
Additionally, I think that Apple's continuing efforts to "break" jailbroken phones with each new software update is legally problematic. Its one thing if, in the process of upgrading a phone's software, they happen to break something. Its another thing if Apple engineers are being instructed to analyze jailbroken phones in order to purposely break them. Effectively, they are purposely breaking their competitors applications.
As I see it, Apple’s actions here certainly constitute reasonable grounds for government investigation. Some may argue that Apple has the best intentions here and only wants to protect its customers from bad applications. But good intentions do not always mean lawful intentions, so even Apple’s defenses, silly as I think they are, don’t really address legality in the context of restraint of trade.