Apple must answer antitrust suit over iCloud dominance on iPhones

(CN) — Apple Inc. failed to dismiss an amended antitrust class action by consumers who claim they are harmed because the company doesn't give third-party providers of cloud-storage services access to certain files on its iPhones and iPads, ensuring that only Apple's own iCloud platform can make comprehensive backups of the devices.

U.S. District Eumi Lee in San Jose, California ruled that the plaintiffs' second amended complaint had adequately addressed the shortcomings of their previous complaint, which she had dismissed in part in February.

Specifically, the Joe Biden appointee agreed that the consumers had sufficiently identified the relevant market that they claim Apple illegally monopolizes by not allowing competing cloud-storage services access to files that contain app data and settings, which are needed for "full service" cloud storage.

"In the second amended complaint, plaintiffs have added substantial new allegations regarding the importance to consumers of 'full-service' cloud storage that can store all types of files, including restricted files," Lee wrote. "These allegations draw from an expert report that Apple relied upon in unrelated litigation involving iCloud."

Apple’s own marketing expert in that lawsuit, the plaintiffs argue in their amended complaint, conducted a survey of iCloud customers in 2021 that found the ability to automatically backup all content and device and app settings was the feature most frequently ranked as one of the four most important iCloud service features.

The judge also found in her ruling issued Monday that the consumers had met their burden — based on direct evidence of iCloud's high market share, barriers to entry, and barriers to expansion — to state a plausible claim that Apple monopolizes the market for cloud storage on its mobile devices.

In the amended complaint, the plaintiffs support their claim that Apple has put up barriers to expansion of competing cloud-storage services by pointing out that Apple’s share of the relevant market has remained remarkably durable, with iCloud’s share of active cloud users on iPhones hovering between 82% and 84% in the last four years, while Apple’s rivals collective output has been essentially flat or even modestly declining.

"In a competitive market, if Apple offered an inferior product and imposed price increases relative to competitors’ offerings, Apple’s rivals should be able to expand their output and take share from Apple unless their capacity is constrained," Lee observed. "If competitors failed to expand their output despite these alleged market conditions, it suggests that competitors face barriers to expansion."

The plaintiffs argue that iCloud is inferior, at least in part, to other cloud-storage platform and that Apple charges "supracompetitive" prices for the service. In deciding a motion to dismiss, a judge is required to accept the plaintiffs' factual claims as true and only look at whether they are legally sufficient to proceed.

The proposed class action was brought by two California residents who respectively pay $2.99 and $9.99 a month for Apple's iCloud service to back up their iPhones and iPads.

"Apple does not dominate cloud storage on its devices due to any shortage of would-be competitors — that is, there are companies that could compete with Apple absent the restraints challenged in this case," they claim in their amended complaint.

Major technology companies such as Google and Microsoft and numerous cloud-storage specialists such as Dropbox, Sync.com and IDrive offer similar services, the plaintiffs say.

"Instead," the plaintiffs argue, "Apple has achieved market dominance by rigging the competitive playing field so that only iCloud can win."

Representatives of Apple didn't immediately respond to a request for comment on the ruling but the tech giant has maintained that the lawsuit is based on what it calls “a fundamentally flawed notion” that its 2011 product design decision to limit the remote backup of core app data to iCloud backup is somehow an antitrust violation.

The company argues that there are numerous alternative storage options, both on the cloud and local, available on Apple devices and that owners of Apple devices are not required to use iCloud to back up their data.

“From day one, Apple made a design decision with respect to iCloud Backup, limiting the read and write privileges of third-party cloud storage apps, preventing them from remotely backing up certain core app data and device settings,” the company said in its motion to dismiss the amended lawsuit. “That design decision was and always has been a feature grounded in security and privacy considerations, given the sensitivity of the data required to restore one’s Apple device.”

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