(CNN) — The US Department of Justice and more than a dozen states filed a major antitrust lawsuit against Apple on Thursday. It is the latest – but largest – in a series of big tech companies facing monopoly accusations from the US government, which is cracking down on the huge industry whose power has been largely unchecked for the past few decades.
“Apple charges nearly $1,600 for an iPhone, but as our lawsuit alleges, Apple maintains monopoly power in the smartphone market not simply by getting ahead of the competition on the merits, but also by violating federal antitrust law,” Attorney Secretary Merrick Garland said at a news conference announcing the lawsuit, which was filed in the District Court of New Jersey.
“Consumers should not have to pay higher prices because companies break the law,” he added.
The long-awaited lawsuit comes after years of accusations by critics that Apple harmed competition with restrictive terms in app stores, high fees and its “walled-garden” approach to its hardware and software, in which Apple strictly controls how other technology companies can interact with the tech giant’s products and services. In some cases, Apple offers its own products better access and features than its competitors. The company said it denied the lawsuit’s allegations and would dispute them.
“Apple undermines applications, products and services that would otherwise make users less dependent on the iPhone,” the Department of Justice (DOJ) said in a press release. “Apple exercises its monopoly power to extract more money from consumers, developers, content creators, artists, publishers, small businesses and merchants, among others.”
For example, Apple allows iPhone customers to send high-quality photos and videos to each other seamlessly, but multimedia texts to Android phones are slower and grainier. Late last year, the company relented and agreed to improve the quality standard it uses to interact with Android phones via text messages.
The company also offers its own products the ability to access certain parts of its hardware that it restricts other companies from using. This unleashes an almost magical experience in how iPhones interact with AirTags, while competing products have much more limited capabilities.
This year, European regulations forced Apple to give other companies access to the iPhone’s payment hardware chip, allowing the creation of competing digital wallets. But those rules are subject only to the European Union.
Additionally, Apple maintains a large 30% commission on most sales through its App Store, a frequent complaint from companies trying to sell subscriptions, claiming that Apple’s huge share of the smartphone market forces them to pay what they claim is an unnecessarily high commission.
“We believe this lawsuit is factually and legally flawed, and we will vigorously defend against it,” Apple said in a statement.
Thursday’s lawsuit claims that Apple illegally monopolized smartphone markets by using a complex web of contract terms that undermine everything from text messaging to mobile payments. Among other things, the DOJ says, Apple used its control over iOS, the iPhone operating system, to block innovative new apps and cloud streaming services from the public; downgrade the way Android messages appear on iPhones; restrict how competing smartwatches can work with iPhones; and hampered rival payment solutions.
“By stifling these technologies, and many others,” Thursday’s complaint states, “Apple reinforces the moat around its smartphone monopoly not by making its products more attractive to users, but by discouraging innovation that threatens the monopoly of Apple smartphones.”
Apple, in a statement, said the lawsuit would hamper its ability to develop the attractive, consumer-friendly technology that has made the company one of the most valuable in the world.
“At Apple, we innovate every day to make people love technology: we design products that work seamlessly together, protect people’s privacy and security, and create a magical experience for our users,” the company said in its statement. “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets.”
Years of scrutiny
Apple has ignored legal challenges and criticism for years that its practices are anti-competitive. Its excellent consumer reputation and disciplined legal and public relations strategy reflect the precision with which Apple manufactures and monitors its products.
However, the Justice Department’s landmark lawsuit challenges a wide range of Apple’s practices.
The case represents the latest effort by the Joe Biden administration to hold a tech giant accountable under US antitrust law. Apple is the only major technology company that has not yet been sued by the federal government for alleged antitrust violations.
Apple was mentioned in a lengthy House report in 2020 that found that the iPhone maker, along with Meta, Google and Amazon, have “monopoly power.”
The legal action could affect Apple’s stock price, which currently values the company at just under $3 trillion, and could force changes to the tech giant’s policies, business strategies, products and apps. Even the divestment of some assets is not ruled out for Apple, the technology company founded by Steve Jobs in the 1970s.
Apple shares fell less than 3% on Thursday. The demand was widely expected.
Along with a pair of ongoing antitrust cases against Google, the Justice Department’s lawsuit against Apple is likely to become a symbol of the Joe Biden administration’s commitment to competition and price reductions. It will also be a test of how far courts are willing to go to apply decades-old antitrust laws to the modern digital economy.
The Apple case may be one of the most closely watched lawsuits brought by Jonathan Kanter, the top antitrust official in Biden’s Justice Department. Kanter, who in his private sector practice once represented Google rivals including Microsoft and Yelp, is seen as part of a new generation of regulators.
Along with his counterpart at the Federal Trade Commission, Lina Khan, Kanter argued that the United States allowed for decades a wave of corporate consolidation and anti-competitive practices that ultimately harmed the public through higher prices, fewer options or less innovation.
“Apps” vs. Apple
To solve the problem of the “green bubble” of Android phone customers, Eric Migicovsky, a technology entrepreneur, says Apple quickly shut down an app he created, called Beeper Mini, to help Android users send messages to iPhone users without those limitations.
“It lasted a total of three days before Apple started attacking us,” Migicovsky said. “Technologically, they worked very hard to take steps to penalize Beeper Mini users by disconnecting the connection or making it progressively less reliable.”
Those types of interactions have made Apple’s App Store the focus of antitrust complaints.
Starting in 2020, Apple waged a very public court battle against Epic Games, creator of the video game “Fortnite.”
Apple is not an illegal monopoly in the distribution of iOS apps, the federal courts decided in that case, highlighting the difficulty of charging Apple with federal antitrust charges. Apple, however, was fined for violating a California competition law and changed some of its app store practices in response to a court order.
Those court rulings highlight the challenges facing the Justice Department, which will need to present a solid legal theory about how Apple allegedly harmed competition, legal experts say. The Justice Department would also need to show that the benefits Apple provides to consumers do not outweigh its alleged antitrust violations.
Apple’s troubles in Europe
The United States Government is not the only one pressuring Apple to change its business practices. A new European Union law came into effect in March, forcing Apple to make major adjustments.
In a huge move to comply with the EU’s 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 EU law. Just before the DMA went into effect, Epic complained to competition authorities that Apple prevented it from launching its own app store on iOS. The European Commission is investigating the matter.
Upstart turned into giant
Since its inception, Apple has earned a reputation as an elite, high-design brand. It often focuses on a premium user experience and design aesthetic, which distinguishes its products from rivals such as Microsoft and Google. That narrow approach worked for years, until a wave of complaints from app developers and consumers drew more attention to the potential downsides of Apple’s restrictions.
In the era led by founder Steve Jobs, “Apple was a cultural phenomenon that pitted formal shoes against sandals; suits versus T-shirts,” said James Bailey, professor of leadership development at George Washington University Business School. “Apple innovated tirelessly. “They were always one step ahead of the competition.”
Now, however, Apple’s advances are more “incremental” than momentous, Bailey added. “[El director ejecutivo Tim] Cook has focused on financial management and expanding market share.”
“Apple is financially healthy,” Bailey said, but its reputation for innovation is “dimming.”
With the ongoing legal challenges and increasing scrutiny, it remains to be seen how Apple will navigate through these accusations of anti-competitive behavior and monopoly practices.