The U.S. Justice Department and more than a dozen states filed a blockbuster antitrust lawsuit against Apple on Thursday, accusing the giant company of illegally monopolizing the smartphone market.
It鈥檚 the largest in a recent string of Big Tech companies to face antitrust complaints from the U.S. government, which is cracking down on the massive industry, whose power has gone largely unchecked over the past several decades.
The complaint, said Attorney General Merrick Garland at a news conference, alleges that 鈥滱pple has maintained monopoly power in the smartphone market not simply by staying ahead of the competition on the merits but by violating federal antitrust law.鈥�
鈥淐onsumers should not have to pay higher prices because companies break the law,鈥� he added.
The long-anticipated lawsuit, which was filed in the US District Court for the District of New Jersey, comes after years of allegations by critics that Apple has harmed competition with restrictive app store terms, high fees and its 鈥渨alled-garden鈥� approach to its hardware and software: Apple famously makes its tech easy to use, but it achieves that by tightly controlling 鈥� and in some cases, restricting 鈥� how third-party companies can interact with the tech behemoth鈥檚 products and services. In some cases, Apple may give its own products better access and features than its competitors.
The company said it denied the lawsuit鈥檚 allegations and would fight them and added that the lawsuit could empower government 鈥渢o take a heavy hand in designing people鈥檚 technology.鈥�
But Garland on Thursday said Apple鈥檚 actions have wide-ranging effects.
鈥淢onopolies like Apple鈥檚 threaten the free and fair markets upon which our economy is based. They stifle innovation. They hurt producers and workers and increase cost for consumers,鈥� Garland said Thursday.
鈥淚f left unchallenged, Apple will only continue to strengthen its smartphone monopoly. But there鈥檚 a law for that,鈥� he added.
For example, Apple allows iPhone customers to send high-quality photos and videos seamlessly to one another, but multimedia texts to Android phones are slower and grainy. The company late last year relented and agreed to improve the quality standard it uses to interact with Android phones via text message 鈥� but it still maintains those messages in green bubbles, creating a kind of class divide, critics argue.
The company also gives its own products the ability to access certain parts of its hardware that it restricts other companies from using. That unleashes an almost magical experience for how iPhones interact with AirTags, when competitors鈥� products are far more limited in their capabilities.
鈥淎pple creates barriers that make it extremely difficult and expensive for both users and developers to venture outside the Apple ecosystem,鈥� Garland said on Thursday.
鈥榃e will vigorously defend against it鈥�
This year, European regulations forced Apple to give other companies access to the iPhone鈥檚 tap-to-pay hardware chip, enabling the creation of competing digital wallets. But those rules are limited to the European Union.
And Apple maintains a 30 per cent commission on most sales through its app store 鈥� a frequent complaint from companies that try to sell subscriptions, saying Apple鈥檚 enormous share of the smartphone market forces them to pay what they argue is an unnecessarily high commission.
鈥淲e believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it,鈥� Apple said in a statement.
Thursday鈥檚 suit claims Apple has illegally monopolized smartphone markets by using a complex web of contractual terms that harm everything from text messaging to mobile payments. Among other things, the DOJ says, Apple has used its control over iOS, the iPhone operating system, to block innovative new apps and cloud streaming services from the public; degrade how Android messages appear on iPhones; restricted how competing smartwatches can work with iPhones; and hindered rival payment solutions.
Apple, in a statement, said the lawsuit would set a 鈥渄angerous precedent鈥� and hinder its ability to make the compelling and consumer-friendly technology that have made the company one of the most valuable in the world.
鈥淎t Apple, we innovate every day to make technology people love 鈥� designing products that work seamlessly together, protect people鈥檚 privacy and security, and create a magical experience for our users,鈥� the company said in its statement. 鈥淭his lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets.鈥�
Years of scrutiny
Apple has shrugged off legal challenges and criticism for years that its practices are anticompetitive. Its sterling consumer reputation and a disciplined public relations and legal strategy mirror the precision with which Apple manufactures and oversees its products.
But the Justice Department鈥檚 landmark suit challenges a broad range of Apple鈥檚 practices.
The case represents the Biden administration鈥檚 latest effort to hold a Big Tech giant accountable under U.S. antitrust law.
Apple was named in a sprawling House report in 2020 finding that the iPhone maker, along with Meta, Google and Amazon, hold 鈥渕onopoly power.鈥� Until Thursday, Apple was the only one of those tech companies the federal government had not yet sued for alleged antitrust violations.
The legal action could weigh on Apple鈥檚 stock price, which currently values the company at just under $3 trillion, and could force changes to policies, business strategies, products and applications by the tech giant. Even divestment of some assets is not out of the question for Apple, the tech company founded by Steve Jobs in the 1970s.
Apple鈥檚 (AAPL) stock fell 3 per cent Thursday. The lawsuit was widely anticipated.
Along with a pair of ongoing antitrust cases against Google, the DOJ lawsuit against Apple is likely to become a symbol of the Biden administration鈥檚 commitment to competition and lowering prices. It will also be a test of how far courts are willing to go to apply decades-old antitrust law to the modern digital economy.
The Apple case may be one of the most closely watched lawsuits brought by Jonathan Kanter, Biden鈥檚 top DOJ antitrust official. Kanter, who in private practice once represented rivals to Google including Microsoft and Yelp, is viewed as part of a fresh generation of regulators.
Along with his counterpart at the Federal Trade Commission, Lina Khan, Kanter has argued that the United States has for decades allowed a wave of corporate consolidation and anticompetitive practices that ultimately harmed the public through higher prices, fewer choices or reduced innovation.
Apps vs Apple
To solve Android phone customers鈥� 鈥済reen bubble鈥� issue, Eric Migicovsky, a tech entrepreneur, says an app he created, dubbed Beeper Mini, to help Android users message iPhone users without those limitations was quickly shut down by Apple.
鈥淚t lasted for a total of three days before Apple started to take swings at us,鈥� Migicovsky said. 鈥淭echnologically, they worked very hard to take actions to penalize Beeper Mini users by knocking the connection offline or by making it progressively more unreliable.鈥�
Those kind of interactions have made Apple鈥檚 app store a focus of antitrust complaints.
Beginning in 2020, Apple fought a highly public court battle against Epic Games, maker of the video game 鈥淔ortnite.鈥�
Apple isn鈥檛 an illegal monopolist in distributing iOS apps, federal courts have decided in that case, highlighting the difficulty of pinning Apple down on federal antitrust charges. Apple did, however, get penalized for violating a California competition law and altered some of its app store practices in response to a court order.
Those rulings highlight the challenges ahead for the Justice Department, which will need to bring a strong legal theory about how Apple has allegedly harmed competition, legal experts say. The DOJ would also need to prove that the benefits Apple has delivered to consumers don鈥檛 outweigh its alleged antitrust violations.
Europe鈥檚 bite at Apple
The U.S. government isn鈥檛 the only one to pressure Apple to change its business practices. In March, a new European Union law took effect that forces Apple to make significant adjustments.
In a seismic move to comply with the EU鈥檚 Digital Markets Act (DMA), Apple said for the first time it would allow users in the trading bloc to download apps from third-party app stores.
But critics including Epic are already accusing Apple of violating the EU law. Just before the DMA took effect, Epic complained to competition authorities that Apple blocked it from launching its own app store on iOS. The European Commission is investigating.
Upstart turned behemoth
Since its early days, Apple has pursued a reputation as an elite, high-design brand. It鈥檚 often focused on a premium user experience and design aesthetic, setting its products apart from rivals such as Microsoft and Google. That limited approach worked for years, until a wave of complaints by app developers and consumers drew more attention to the potential downsides of Apple鈥檚 restrictiveness.
In the era led by founder Steve Jobs, 鈥淎pple was a cultural phenomenon that pitted wingtips against sandals; suits against t-shirts,鈥� said James Bailey, a professor of leadership development at the George Washington University School of Business. 鈥淎pple relentlessly innovated. They were always steps ahead of the competition.鈥�
Now, however, Apple鈥檚 advances are more 鈥渋ncremental鈥� than earth-shattering, Bailey added. 鈥淸CEO Tim] Cook has been focused on financial management and expanding market share.鈥�
鈥淎pple鈥檚 financially healthy,鈥� Bailey said, but their reputation for innovation is 鈥渄imming.鈥�
