The Justice Department sued Apple on Thursday, saying its iPhone ecosystem is a monopoly that has driven its “astronomical valuation” to the detriment of consumers, developers and rival phone makers.
The lawsuit claims that Apple’s anticompetitive practices extend beyond its iPhone and Apple Watch businesses, citing Apple’s advertising, browser, FaceTime and news offerings.
“Every step in Apple’s course of action has built and strengthened the moat around the smartphone monopoly,” says the lawsuit, filed by the Justice Department and 16 attorneys general in federal court in New Jersey.
Apple shares fell more than 4% in trading Thursday.
The Justice Department said in a statement that to entice consumers to buy iPhones, Apple moved to block cross-platform messaging apps, limit compatibility with third-party wallets and smartwatches, and discontinue non-App Store programs and subscription services. cloud streaming.
The challenge poses a significant risk to Apple’s walled garden business model. The company says complying with the regulations costs the company money, could prevent it from introducing new products or services and could hurt customer demand.
The lawsuit could force Apple to make changes in some of its most valuable businesses: the iPhone, where Apple reported more than $200 billion in sales in 2023, the Apple Watch, part of its $40 billion wearables business dollars, and its profitable service line, which reported revenues of $85 billion.
U.S. Attorney General Merrick Garland said in a news conference that the Supreme Court defines monopoly power as “the power to control prices or exclude competition.”
“As indicated in our complaint, Apple has this power in the smartphone market,” Garland said. “If left unchallenged, Apple will only continue to strengthen its monopoly on smartphones.”
Apple said in a statement that it disagrees with the premise of the lawsuit and will defend itself against it.
“This lawsuit threatens who we are and the principles that distinguish Apple products in highly competitive markets. If successful, it would hinder our ability to create the kind of technology people expect from Apple, where hardware, software and services intersect,” an Apple spokesperson told CNBC. “It would also set a dangerous precedent, giving the government the power to exercise a heavy hand in designing people’s technology.”
The lawsuit follows years of investigations into Apple’s business practices and two previous Justice Department cases against Apple: one over e-book prices and another over allegations it colluded with other tech companies to drive down salaries.
“This anticompetitive behavior is designed to maintain Apple’s monopoly power while simultaneously extracting as much revenue as possible,” the complaint reads.
iMessage, Apple Watch and cloud gaming
The complaint highlights comments from CEO Tim Cook and other executives. Some users have asked Apple to improve messaging from Android to iPhone. 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 the second day of Vox Media’s 2022 Code Conference in Beverly Hills, California.
Jerod Harris | Getty Images Entertainment | Getty Images
Prosecutors highlighted an exchange between Cook and a consumer.
“Not to make it personal, but I can’t send my mom certain videos,” one user tells Cook in the complaint, referring to a 2022 interview at a Vox Media event.
“Buy your mom an iPhone,” Cook responded.
The Justice Department is also focusing on Apple’s smartwatch, the Apple Watch, saying the company designed it to work only with iPhones and not Android devices. The company’s decision means that “users who purchase the Apple Watch will face significant out-of-pocket expenses if they do not continue to purchase iPhones,” according to the complaint.
The Justice Department said Apple has been fighting cloud streaming services on its App Store platform, blocking consumers’ access to high-quality video games on iPhone, echoing complaints from Microsoft and Facebook’s parent company Meta.
Garland said in a news conference Thursday that the Justice Department is also considering changing policies related to Apple Wallet, the company’s app for credit cards and phone-based payments.
“When an iPhone user inserts a credit or debit card into Apple Wallet, Apple inserts itself into the process that would otherwise occur directly between the user and the card issuer,” Garland said.
Apple has faced several significant antitrust challenges recently, largely focused on its control of the iPhone App Store. It mostly won in a civil lawsuit against Epic Games in 2021, though 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 it cannot implement the same unlawful program in other vital markets,” Deputy Attorney General for Antitrust Jonathan Kanter said in the statement.
The company is currently in discussions with the European Commission about compliance with a new law on digital markets, which forces Apple to open the iPhone app store to rivals such as Microsoft or Epic Games. Apple plans to charge big companies that avoid its app store 50 cents per download.
Apple was fined $2 billion in the EU over a dispute with Spotify whether the music streaming service can connect to your website and account system within your app.
According to Counterpoint Research, Apple had 64% of the US iPhone market share as of the final quarter of 2023, versus Samsung’s 18%.
Apple isn’t the only big tech company to face government scrutiny. The Justice Department filed an antitrust lawsuit against Google in 2020 over its dominance in search and another year over its advertising business. The Justice Department also sued Microsoft in the 1990s, eventually forcing it to allow users to separate the Internet Explorer browser from the Windows operating system.
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