The Department of Justice filed a lawsuit against Apple on Thursday, alleging that its iPhone ecosystem is a monopoly that has resulted in a “astronomical valuation” at the cost of customers, developers, and competitor phone makers.
The government has not excluded out breaking up one of the world’s largest corporations, with a Justice Department official stating on a briefing call that structural relief was an option if the US won.
The lawsuit alleges that Apple’s anticompetitive tactics extend beyond the iPhone and Apple Watch industries, citing Apple’s advertising, browser, FaceTime, and news services.
“Each step in Apple’s course of conduct built and reinforced the moat around its smartphone monopoly,” according to the lawsuit filed in federal court in New Jersey by the DOJ and 16 attorneys general.
Apple shares tumbled more than 4% on Thursday. Apple’s separation, if successful, would be one of only a few under the Sherman Act. The Department of Justice has explored employing it in additional antitrust cases, but has not done so since the Bell System was broken up in 1982.
According to the Justice Department, in order to keep customers buying iPhones, Apple blocked cross-platform chat apps, hampered third-party wallet and smartwatch compatibility, and interrupted non-App Store programs and cloud streaming services.
The competition poses a substantial threat to Apple’s walled garden economic model. The corporation claims that complying with rules costs money, prevents it from developing new products or services, and reduces client demand.
The lawsuit could force Apple to make changes in some of its most valuable businesses, including the iPhone, which is expected to generate more than $200 billion in sales by 2023, the Apple Watch, which is part of the company’s $40 billion wearables business, and its profitable services line, which generated $85 billion.
U.S. Attorney General Merrick Garland stated at a news conference that the Supreme Court defines monopolistic power as “the power to control prices or exclude competition.”
“As set out in our complaint, Apple has that power in the smartphone market,” Garland said in a statement. If left unchallenged. “Apple will only strengthen its smartphone monopoly.”
Apple stated in a statement that it disagreed with the lawsuit’s premise and will fight it.
“This action undermines who we are and the ideals that distinguish Apple goods in intensely competitive marketplaces. If successful, it will impede our ability to produce the type of technology that people expect from Apple—where hardware, software, and services come together,” an Apple official told CNBC. “It would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.”
The complaint comes after years of probes into Apple’s business practices, as well as two previous DOJ actions against the company: one over e-book prices and another over charges that it coordinated with other technology businesses to reduce salaries.
“This anticompetitive behavior is designed to maintain Apple’s monopoly power while extracting as much revenue as possible,” according to the complaint.
iMessage, Apple Watch, and Cloud Gaming
The complaint includes statements made by CEO Tim Cook and senior executives. Some customers have urged Apple to improve Android-to-iPhone communications. Developers have gone so far as to create apps that overcome platform limits, only to have them taken down by Apple.
Prosecutors emphasized one interaction between Cook and a customer.
“Not to make it personal, but I can’t send my mom certain videos,” according to the complaint, alluding to a 2022 interview at a Vox Media event.
“Buy your mom an iPhone,” Cook said.
The DOJ is also focused on Apple’s wristwatch, the Apple Watch, claiming that the firm intended it to only work with iPhones and not Android devices. The company’s choice means that “users who purchase the Apple Watch face substantial out-of-pocket costs if they do not continue buying iPhones,” according to the complaint.
The Justice Department stated that Apple has opposed cloud streaming services on its App Store platform, preventing consumers from accessing high-quality video games on iPhones, echoing accusations from Microsoft and Facebook parent Meta.
Garland said the DOJ is also considering revising laws regarding Apple Wallet, the company’s service for phone-based credit cards and payments.
“When an iPhone user puts a credit or debit card in Apple Wallet, Apple inserts itself into the process that would otherwise occur directly between the user and the card issuer,” Garland said in a statement.
Recently, Apple has faced a number of substantial antitrust claims, the majority of which have focused on its dominance over the iPhone App Store. It generally won a civil suit against Epic Games in 2021, albeit it had to make concessions throughout the trial and adjust some of its practices to comply with California law.
“Today’s lawsuit seeks to hold Apple accountable and ensure that it cannot deploy the same, unlawful playbook in other vital markets,” the US government stated in the release.
During a news conference on Thursday, Jonathan Kanter, assistant attorney general for antitrust, contended that Apple benefited from earlier DOJ antitrust lawsuits against Microsoft.
“Apple itself was a significant beneficiary of that case,” Kanter told the court. “And the remedy paved the way for Apple to launch iTunes, iPod, eventually the iPhone, free from anti-competitive restrictions, excessive fees and retaliation.”
The business is presently negotiating with the European Commission about whether it is in compliance with the new EU Digital Markets Act, which requires Apple to open up the iPhone app store to competitors such as Microsoft and Epic Games. Apple intends to punish big corporations who avoid its app store 50 cents per download.
The EU penalized Apple $2 billion over a disagreement with Spotify on the music streaming service’s ability to link to its website and account system through its app.
According to Counterpoint Research, Apple accounted for 64% of the U.S. smartphone market in the fourth quarter of 2023, compared to 18% for Samsung.
Apple is hardly the only major technology business under government examination. The DOJ initiated an antitrust complaint against Google in 2020 for its dominating search position and again the following year for its advertising business. The DOJ also notably sued Microsoft in the 1990s, finally forcing the company to allow users to separate the Internet Explorer browser from the Windows operating system.
Correction: According to Counterpoint Research, Apple held 64% of the U.S. smartphone market share in the fourth quarter of 2023.
DOJ sues Apple over iPhone monopoly in landmark antitrust case
