“Every step of Apple's conduct created and strengthened a moat around its smartphone monopoly,” says the lawsuit filed by the DOJ and 16 attorneys general in New Jersey federal court.
Apple shares fell 4% during Thursday trading.
To deter consumers from buying iPhones, Apple limited cross-platform messaging apps, limited third-party wallet and smartwatch compatibility, and disrupted non-App Store programs and cloud streaming services, the Justice Department said in a release.
This challenge represents a significant risk to Apple's walled-garden business model. Complying with the regulations could cost the company money, prevent the introduction of new products or services, and affect customer demand, the company says.
The case could force Apple to make changes in some of its most valuable businesses: the iPhone, which will top Apple's $200 billion market by 2023, the Apple Watch, part of the company's $40 billion wearables business, and its lucrative Services line, which generated $85 billion in revenue.
U.S. Attorney General Merrick Garland told a press conference that the Supreme Court defined monopoly power as “the power to control prices or exclude competition.”
“As noted in our complaint, Apple has that power in the smartphone market,” Garland said. “If not challenged, Apple will only continue to strengthen its smartphone monopoly.”
On March 21, 2024, US Attorney General Merrick Garland announced an antitrust lawsuit against Apple at the Department of Justice in Washington, DC.
Mandel Naga | AFP | Good pictures
Apple said in a statement that it disagrees with the premise of the lawsuit and will defend against it.
“This lawsuit threatens who we are and the principles that differentiate Apple products in fiercely competitive markets. If successful, it would hinder our ability to create the technology people expect from Apple at the intersection of hardware, software and services,” an Apple spokesperson told CNBC. “This would set a dangerous precedent, empowering the government to shape people's technology.”
The lawsuit follows investigations into Apple's business practices and two previous DOJ cases against Apple: one for alleged e-book prices and another for colluding with other tech companies to lower salaries.
“This anti-competitive conduct is designed to maintain Apple's monopoly power while extracting as much revenue as possible,” the complaint states.
The complaint highlights comments from CEO Tim Cook and other executives. Some users have asked Apple to improve Android-to-iPhone messaging. Developers have gone so far as to create apps that bypass platform limitations, only to be shut down by Apple.
Apple CEO Tim Cook speaks on stage during Day 2 of Vox Media's 2022 Code conference in Beverly Hills, California.
Jerrod Harris | Getty Images Entertainment | Good pictures
Prosecutors highlighted an exchange between Cook and a consumer.
“Not to make it personal, but I can't send some videos to my mom,” one user told Cook, referring to an interview at a 2022 Vox Media event.
“Buy your mom an iPhone,” Cook replied.
The DOJ is also targeting Apple's smartwatch, the Apple Watch, which the company designed to work only with iPhones, not Android devices. According to the complaint, the company concluded that “users who buy an Apple Watch face significant out-of-pocket costs if they don't buy iPhones.”
Apple has fought cloud streaming services on its App Store platform, blocking consumer access to high-quality video games on iPhones, echoing complaints from Microsoft and Facebook parent Meta, the DOJ said.
Garland said the DOJ is also looking at changing policies related to Apple Wallet, the company's app for phone-based credit cards and payments.
“When an iPhone user puts a credit or debit card into Apple Wallet, Apple inserts itself into the process that happens directly between the user and the card issuer,” Garland said.
Apple has faced several significant antitrust challenges recently, mostly focused on its control over the iPhone App Store. It mostly won a civil case against Epic Games in 2021, although it made concessions during the trial and had to make some changes to its policies under California law.
“Today's lawsuit seeks to hold Apple accountable and ensure that the same, illegal playbook cannot be used in other major markets,” the release said.
Assistant Antitrust Attorney General Jonathan Kanter argued during Thursday's press conference that Apple benefited from previous DOJ antitrust actions against Microsoft.
“Apple was a significant beneficiary in that case,” Kanter said. “This settlement paved the way for Apple to introduce iTunes, the iPad, and eventually the iPhone, free from anticompetitive restrictions, overcharging and retaliation.”
The company is currently jockeying with the European Commission over whether it complies with the new Digital Markets Act, which forces Apple to open up the iPhone App Store to competitors like Microsoft or Epic Games. Apple plans to charge 50 cents per download to large companies that bypass its App Store.
Apple has been fined $2 billion in the EU in a dispute with Spotify over whether the music streaming service can link to the account system inside its website and its app.
Apple had 64% of the US iPhone market share in the last quarter of 2023, compared to Samsung's 18%. According to Counterpoint Research.
Apple isn't the only major tech company facing government scrutiny. The DOJ filed another antitrust case against Google in 2020 over its dominant search position and its advertising business. The DOJ famously sued Microsoft in the 1990s, eventually forcing it to allow users to unbundle the Internet Explorer browser from the Windows operating system.
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