Why Isn’t the App Store Illegal?

Microsoft wasn’t allowed to bundle Internet Explorer with its operating system. Should Apple get to decide what software goes on the iPad?


Some are heralding the iPad revolution this week while others have assailed the new device for restricting users to Apple-approved software. In the 1990s, the U.S. Department of Justice and the European Union sued Microsoft for bundling software like Internet Explorer with its Windows operating system, even though buyers were free to download competing browsers. So why is Apple allowed to tell consumers what software they can and can’t run on their mobile devices?

Because consumers can easily switch to a netbook or BlackBerry. Companies are free to sell machines that work only with their proprietary software, peripherals, or accessories. It happens all the time in other markets. Your vacuum cleaner might accept only the manufacturer’s bags, and you can’t play PlayStation games on your Xbox. The government doesn’t care, because consumers have ample choice in these markets. The iPhone accounts for just 16.6 percent of smartphone sales, and Apple seems to be losing ground to Android-based phones. As an unofficial rule of thumb, government regulators won’t raise their eyebrows until one company owns more than 70 percent of a given market. Apple may have sold 300,000 iPads on release day, but consumers are likely to purchase more than 40 million netbook and slate PCs in total this year.

Even if Apple does come to dominate the smartphone or tablet-computer categories, its software restrictions might still be allowed. Antitrust laws don’t prohibit monopolies; they prohibit monopolies coupled with monopolistic behavior—the kind of practices that prevent new competitors from getting a foothold in the market. If bundling Internet Explorer with Windows were Microsoft’s only anti-competitive act, it might never have faced litigation. The company also refused to license Windows to PC manufacturers that included Netscape or other browsers with their machines and threatened to cancel development of a Mac-compatible version of Microsoft Office if Apple didn’t make IE the default Mac browser. The courts ruled that the hardware makers were completely at Microsoft’s mercy because consumers were both unable and unwilling to switch to a non-Windows device.

Whether Apple’s software restrictions are in any way comparable to Microsoft’s practices is an open question. Some argue that Apple’s limitations actually impair its potential for market domination, driving software designers and customers to more open devices like Android. Moreover, Apple’s core business is selling hardware, not the apps themselves. To the extent that its rules impact the software-design market, Apple is affecting a different industry than the one it really cares about. Efforts to prevent consumers from running nonapproved applications on an iPad do not prevent Hewlett-Packard from entering the tablet-computing market.

On the other hand, a hypothetical iPad-dominated market might be somewhat similar to the Windows-based world that the U.S. government objected to in 1998. With more than 90 percent of PCs running Windows in the 1990s, Microsoft had the power to strong-arm software developers into writing code only for Windows. Apple could, one day, turn its chokehold on iPad apps into a de facto prohibition on non-iPad software design by opening its devices only to Apple-exclusive developers. But there is no indication, at this point, that Apple intends to use that strategy.

Apple isn’t immune to antitrust claims. A class action lawsuit in federal court alleges that Apple has prevented other music vendors from selling iPod-compatible music by constantly changing its code, and that the company should not be allowed to prevent iTunes music from being transferred to non-iPod MP3 players. The European Union is also investigating the company for blocking cross-border music purchases. The iPod represents nearly three-quarters of the MP3-player market.

Got a question about today’s news? Ask the Explainer.

Explainer thanks Andrew Chin of the University of North Carolina School of Law, Edward W. Felten of the Center for Information Technology Policy at Princeton University, Harry First of NYU School of Law, and Andrew I. Gavil of the Howard University School of Law. Thanks also to reader Marty McMahon for asking the question.

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