Wake Forest Law Review
17Apr

Will the DOJ Lower the Walls of Apple’s Walled Garden?

Categories: Current Issues Blog
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By Maeve Hickey

On March 21, 2024, the United States Department of Justice (“DOJ”) and sixteen states sued Apple, claiming the company has monopolized or attempted to monopolize smartphone markets.[1] The suit is the latest in a series of antitrust actions against the “Big Tech giants.”[2] The Federal Trade Commission has spearheaded enforcement efforts against Meta and Amazon, while the DOJ has taken on Google and Apple.[3] In addition to two state-law claims, the Complaint against Apple brings four claims under Section 2 of the Sherman Act, which prohibits “monopoliz[ing], or attempt[ing] to monopolize” a particular market.[4] The Complaint defines two relevant markets: the smartphone market as a whole and the narrower “performance smartphone” market of upscale, more expensive devices.[5]

The Walls Around the iPhone

Many of the allegedly monopolizing practices at issue involve Apple’s cultivation of a walled garden with one market for applications (the App Store),[6] one digital wallet (Apple Pay),[7] smartwatches (Apple Watches) that only pair with one type of phone (iPhones),[8] and a messaging platform (iMessage) only available on Apple devices.[9] A walled garden is a closed system of products or services over which a single entity—here, Apple—maintains significant control.[10] Within the walled garden, “[e]verything plays well together,” but users can encounter obstacles when they purchase non-Apple devices, or even when they communicate with someone outside of Apple’s system.[11] The DOJ argues that these difficulties are a feature, not a bug, pointing to an Apple executive’s statement that the company’s long-held control over iMessage stops “iPhone families giving their kids Android phones.”[12]

Walled gardens are referred to as gardens and not prisons for a reason: many of their qualities are attractive to users.[13] According to Apple, the suit punishes it for making “products that work seamlessly together, protect people’s privacy and security, and create a magical experience for [its] users.”[14] Even in a model as successful as Apple’s, “the ‘walled garden’ approach, without more, is not illegal.” [15] The real question is whether Apple’s restrictions on interoperability amount to monopolizing practices.[16]

Privacy and Competition

Apple has increasingly marketed itself as a leader in consumer privacy.[17] It is easy to grasp Apple’s theory that opening up the iPhone to third-party digital wallets might create an opportunity for fraudulent transactions, or that funneling all apps through the App Store helps prevent malware.[18] Counsel for Apple made this argument in a separate antitrust case brought by Epic Games, maintaining that the App Store stops “fraudsters” and “hackers” from reaching users.[19] Counsel for Epic argued that “the only thing that is kept out by Apple’s walled garden is competitors.”[20]

If the DOJ establishes its prima facie case that Apple’s tactics amount to monopolization, the theory that these same tactics protect consumer privacy is not enough on its own. The Supreme Court has held that courts “cannot indirectly protect the public . . . by conferring monopoly privileges on [a company].”[21] The Sherman Act “precludes inquiry into . . . whether competition is good or bad.”[22] Its underlying policy is singular: promotion of competition.[23] Therefore, litigants cannot obtain “special dispensation from the Sherman Act” by arguing that a monopolistic practice provides some other societal benefit.[24]

Instead of pitting privacy against competition, Apple will have to confront the allegations of monopolization head-on.[25] Where tactics leading to a monopoly are not unreasonable per se, courts employ the rule of reason, a “three-part burden-shifting test” where a plaintiff must first prove that the defendant’s conduct has had a “‘substantial anticompetitive effect that harms consumers in the relevant market.’”[26] The defendant then has the burden of producing a “procompetitive justification for its conduct,” which can include reasons like “enhanced consumer appeal.”[27] Finally, the plaintiff must either rebut the justification or “demonstrate that the anticompetitive harm . . . outweighs the procompetitive benefit.”[28]

Antitrust scholars largely agree that the government has an uphill battle in establishing that Apple’s tactics were anticompetitive rather than merely successful.[29] By making privacy a part of its brand,[30] Apple has positioned itself favorably to argue that its tactics help it appeal to consumers in a competitive marketplace. As a result, the case may hinge on the final step of the rule-of-reason analysis: whether the DOJ can establish that Apple’s grip on smartphone markets is more anticompetitive than procompetitive. While the case will likely take several years, it still may put pressure on Apple to reduce barriers to interoperability so that the company can position itself more favorably for settlement or trial.

Finally, other tech companies are on notice that Apple’s business model has drawn scrutiny. Some of them have already been advocating for courts to rein in Apple’s dominance.[31] Whatever its outcome, United States v. Apple will likely influence how other tech companies decide to structure their own walled gardens—and how much boxing in of customers is too much.

[1] Press Release, Dep’t Just. Off. Pub. Affs., Justice Department Sues Apple for Monopolizing Smartphone Markets (Mar. 1, 2024), https://www.justice.gov/opa/pr/justice-department-sues-apple-monopolizing-smartphone-markets.

[2] Bryan Koenig & Stewart Bishop, DOJ Sues Apple, Rounds Out US Claims Against Tech Big 4, Law360 (Mar. 21, 2024, 10:52 AM EDT), https://www.law360.com/competition/articles/1805422/doj-sues-apple-rounds-out-us-claims-against-tech-big-4.

[3] Id.

[4] Compl. at 71–76, United States v. Apple, No. 2:24-CV-04055 (D.N.J. Mar. 21, 2024), ECF No. 1 (hereinafter “Complaint”); 15 U.S.C. § 2.

[5] Complaint ¶¶ 165, 172.

[6] Id. ¶ 41.

[7] Id. ¶ 11.

[8] Id. ¶ 96. 

[9] Id. ¶¶ 80, 91. 

[10] See Michael H. Wolk, The iPhone Jailbreaking Exemption and the Issue of Openness, 19 Cornell J.L. & Pub. Pol’y 795, 797 (2010).

[11] Joanna Stern, iPhone? AirPods? MacBook? You Live in Apple’s World. Here’s What You Are Missing., Wall St. J. (June 4, 2021, 10:40 AM ET), https://www.wsj.com/articles/iphone-airpods-macbook-you-live-in-apples-world-heres-what-you-are-missing-11622817653.

[12] Complaint ¶¶ 80, 91.

[13] See Stern, supra note 11.

[14] Michael Liedtke et al., Justice Department sues Apple, alleging it illegally monopolized the smartphone market, Assoc. Press (Mar. 21, 2024, 4:12 PM EDT), https://apnews.com/article/apple-antitrust-monopoly-app-store-justice-department-822d7e8f5cf53a2636795fcc33ee1fc3.

[15] Apple iPod iTunes Antitrust Litig., No. 05-CV-0037, 2014 WL 12719194, at *3 (N.D. Cal. Nov. 25, 2014).

[16] See Mark A. Lemley, The Splinternet, 70 Duke L.J. 1397, 1424 (2021).

[17] See, e.g., Apple, Privacy on iPhone | Data Auction | Apple, YouTube (May 18, 2022), https://youtu.be/NOXK4EVFmJY?feature=shared; Press Release, Apple, Apple builds on privacy commitment by unveiling new education and awareness efforts on Data Privacy Day (Jan. 24, 2023), https://www.apple.com/newsroom/2023/01/apple-builds-on-privacy-commitment-by-unveiling-new-efforts-on-data-privacy-day/.

[18] Liedtke et al., Justice Department sues Apple, supra note 14.

[19] See Michael Liedtke, Battle over the iPhone app store spills into appeals court, Assoc. Press (Nov. 14, 2022, 7:56 PM EDT), https://apnews.com/article/technology-business-apple-inc-games-c5fcfcc748398aa2f56586256711b0b9. Unlike the DOJ’s case, which focuses on smartphone markets, Epic’s case targets the App Store. Id.

[20] Id.

[21] Nat’l Soc’y Pro. Eng’rs v. United States, 435 U.S. 679, 695–96 (1978).

[22] Id. at 695.

[23] See Erika M. Douglas, Data Privacy as a Procompetitive Justification: Antitrust Law and Economic Analysis, 97 Notre Dame L. Rev. Reflection 430 (2022).

[24] Nat’l Collegiate Athletic Ass’n v. Alston, 594 U.S. 69, 94–95 (2021).

[25] Douglas, supra note 23, at 465 (explaining that the “social value of data privacy does not render its protection an antitrust concern under existing law.”).

[26] FTC v. Qualcomm Inc., 969 F.3d 974, 989, 991 (9th Cir. 2020) (quoting Ohio v. Am. Express Co., 585 U.S. 529, 541 (2018)).

[27] United States v. Microsoft Corp., 253 F.3d 34, 59 (D.C. Cir. 2001) (internal quotation marks omitted).

[28] Id.

[29] See Daniel A. Crane, Ranking the Big Tech Monopolization Cases, Yale J. on Regul: Notice & Comment (Mar. 26, 2024), https://www.yalejreg.com/nc/ranking-the-big-tech-monopolization-cases-by-daniel-a-crane/; Alex Keenan, ‘Apple will prevail’: US faces uphill slog in new antitrust battle, Yahoo! Finance (Mar. 27, 2024), https://finance.yahoo.com/news/apple-will-prevail-us-faces-uphill-slog-in-new-antitrust-battle-080027800.html.

[30] See supra note 17.

[31] See Dorothy Atkins, Microsoft, Others Can Weigh In On Epic, Apple App Store Row, Law360 (Apr. 5, 2024, 6:39 PM EDT), https://www.law360.com/articles/1822267/microsoft-others-can-weigh-in-on-epic-apple-app-store-row (discussing motions by Microsoft Corp., X Corp., Spotify USA, Inc., and others to file amicus briefs in Epic’s suit against Apple).

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16Nov

Mild, Medium, or Hot? “Texas Pete” Under Fire in False Advertising Claim

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Free Bottle with ketchup near red chili pepper on table Stock Photo

Luke Shapiro

Wake Forest University students who take a short drive North of campus might notice a familiar logo on the side of an otherwise nondescript brick building.  The red, lassoing cowboy of “Texas Pete” hot sauce greets visitors to the T.W.  Garner Foods (“Garner Foods”) facility in Winston-Salem, North Carolina.  Locals are proud to share the fun fact that Garner Foods has produced a variety of hot sauces under the Texas Pete label from their North Carolina facility since the early 20th Century.[1]  Unfortunately, not everyone finds this fact so “fun,” and, recently, some were perturbed enough to bring the issue to federal court.

         Phillip White, a California man, is the named plaintiff in a federal class action lawsuit brought against Garner Foods in the Central District of California.[2]   Sometime around September of 2021, Mr. White entered a Ralph’s store in Los Angeles, California and found exactly the hot and spicy ingredient he was looking for: a bottle of Texas Pete Original Hot Sauce.[3]  To Mr. White’s dismay, he wouldn’t find out until far too late that there was “nothing Texas about” the hot sauce he chose.[4]  Mr. White claims that if he had known the sauce’s true origins “he would not have purchased the Product or, would have paid significantly less for it.”[5]

In response, this lawsuit seeks to bring to light that Texas Pete is a Carolinian, righting the wrong done when class members like Mr. White bought sauce thinking otherwise and saving future spicy food lovers from the same fate.[6]  On behalf of two classes, the lawsuit alleges five different counts against Garner Foods, ranging from violations of California state competition and advertising laws to common law breach of warranty claims.[7]

The complaint emphasizes the gravity of Garner Foods’s transgression with a four-page geographical and historical analysis of hot sauce varietals and the significance of Texas hot sauce.[8]  Mr. White informs the court that today’s distinct Texas hot sauce is the result of centuries of crafting, pre-dating Spanish colonization of the territory.[9]  Thus, “it is no surprise that Texas takes great pride in its hot sauce” and out-of-state consumers will pay a premium to taste the tradition in every bottle of genuine Texas hot sauce.[10]

Mr. White alleges that Garner Foods recognized the value of Texas’s stature in the world of hot sauce and sought to capitalize on the demand for Texas hot sauce.[11]  To accomplish this, the complaint suggests that Garner Foods set out to intentionally deceive purchasers by naming and labeling the sauce in a way that suggests it is authentic, made-in-Texas hot sauce.[12]  Among the deceptive components of the label are a single white star, which the complaint claims evokes the Texas “lone star” state flag, and a cowboy with a lasso.[13]  The products’ back labels do indicate that Garner Foods is located in North Carolina, but Mr. White argues that this label is not clear enough, and, if it is, consumers shouldn’t be expected to look at the back label of products they purchase.[14]

Mr. White contests that these facts are enough to show five different legal causes of action.  For a subclass of those who purchased the products in California, the complaint alleges three violations of California law: (1) Unfair Competition Law (Cal. Bus. & Prof. Code §§ 17200, et seq.); (2) False Advertising Law (Cal. Bus. & Prof. Code §§ 17500, et seq.); and (3) Consumers Legal Remedies Act (Cal. Civ. Code §§ 1750, et seq.).[15]  For a nationwide class of purchasers, the complaint alleges breach of warranty under two theories and unjust enrichment/restitution.[16]  To remedy these claims, Mr. White asks the court for, among others, the following: (1) damages corresponding with how much Mr. White or other class members would have paid for the product if he had known its true origins; (2) punitive damages for the alleged maliciousness of the Garner Foods’ actions; and (3) injunctive relief forcing Garner Foods to immediately cease and desist selling, marketing, distributing the unlawful products and to engage in affirmative ad campaign to “dispel the public misperception.”[17]

In early November 2022, Garner Foods filed a motion to dismiss the entire action.[18]  Procedurally, Garner Foods moves to dismiss based on Federal Rules of Civil Procedure 12(b)(6), 9(b), and 12(b)(1), arguing failure to state a claim, a lack of particularity around the fraud claim, and lack of standing, respectively.[19]  The Rule 12(b)(6) motion rests primarily on the contention that, to a reasonable consumer, the label imagery does not signal  any explicit claim to be from Texas, the back label’s manufacturing location disclosure is more than sufficient to inform geographically-motivated consumers.[20]  Both the complaint and the motion to dismiss reference Garner Foods’ website, which describes the process of coming up with a name as more innocently searching for an ”American” name that connotes spiciness.[21]  Next, the Rule 9(b) motion argues that Mr. White failed to allege sufficient facts about how or why he was misled, leaving any fraud claim wanting.[22]  Finally, the Rule 12(b)(1) motion alleges a lack of standing for injunctive relief.[23]  Citing case law that suggests a named class representative must be likely to be wronged again in a similar way, Garner Foods argues that Mr. White cannot be similarly wronged again because the complaint admits that he is now aware of Texas Pete’s true manufacturing location.[24]

Garner Foods’ motion seems to poke significant holes in each of the complaint’s claims, and it will be interesting to see if this lawsuit makes it out of the motion to dismiss phase, in part or at all.  If the lawsuit is able to survive the motion to dismiss, it appears that it will still be an uphill battle to prevail at trial.  The product labeling,[25] especially in light of the explanation on Texas Pete’s website,[26] is not likely to deceive a reasonable consumer as is required by the California statutes,[27] and can hardly be said to constitute any warranty, express or implied. In sum, Mr. White’s complaint was definitely spicy, but it seems unlikely that consumers will see a rebranded “Carolina Pete” on grocery store shelves any time soon.

[1] Texas Pete, The History of Texas Pete, https://texaspete.com/about/.

[2] Complaint at 1, 4, White v. T.W. Garner Food Co. (C.D. Cal. 2022) (No. 2:22-cv-06503).

[3] Id. at 5.

[4] Id. at 1.

[5] Id. at 5.

[6] Id. at 3.

[7] Id. at 29–45.

[8] Id. at 9–12.

[9] Id. at 11.

[10] Id. at 11–12.

[11] Id. at 2.

[12] Id. at 12.

[13] Id.

[14] Id. at 14, 17.

[15] Id. at 29, 37, 39.

[16] Id. at 42–44.

[17] Id. at 46.

[18] Defendant’s Motion of Notice and Motion to Dismiss at 1, White v. T.W. Garner Food Co. (C.D. Cal. 2022) (No. 2:22-cv-06503).

[19] Id. at 4–5.

[20] Id. at 2, 7–14.

[21] Complaint at 14; Defendant’s Motion of Notice and Motion to Defense at 12; Texas Pete, The History of Texas Pete, https://texaspete.com/about/.

[22] Defendant’s Motion of Notice and Motion to Defense at 15–16.

[23] Id. at 21–22.

[24] Id. at 22.

[25] Complaint at2, 14.

[26] Texas Pete, supra note 1.

[27] Defendant’s Motion of Notice and Motion to Defense at 6  (citing Steinberg v. Icelandic Provisions, Inc., 2022 WL 220641, at *3 (N.D. Cal. Jan. 25, 2022)).

Photo by Alena Shekhovtcova via Pexels

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