FILE – The Apple logo is shown on a screen during an announcement at Apple’s campus on September 12, 2023 in Cupertino, California. The Justice Department announced a sweeping antitrust lawsuit Thursday, March 21, 2024, against Apple, accusing the tech giant of having an illegal monopoly over smartphones in the U.S. (AP Photo/Jeff Chiu, File)
WASHINGTON (AP) – The Justice Department on Thursday announced a sweeping antitrust lawsuit against Apple, accusing the tech giant of creating an illegal monopoly in smartphones that isolates competitors and stifles innovation.
The suit, filed in federal court in New Jersey, alleges that Apple has a monopoly in the smartphone market and is using its control over the iPhone to “engage in broad, sustained and unlawful conduct.”
In particular, it seeks to prevent Apple from undermining technologies that compete with its own apps — in areas including streaming, messaging and digital payments — and prevent it from including language in its contracts with developers, accessory makers and consumers that allows it to “obtain, maintain , to expand or strengthen the monopoly.”
The suit — also brought by 16 state attorneys general — is the latest example of the Justice Department’s approach to aggressive enforcement of federal antitrust law that officials say is aimed at ensuring a fair and competitive marketplace, even as it has lost significant antitrust cases.
“The Department of Justice has a lasting legacy of fighting the biggest and strongest monopolies in history,” Assistant Attorney General Jonathan Kanter, head of the antitrust division, said at a press conference announcing the lawsuit. “We stand here again today to promote competition and innovation for the next generation of technology.”
Apple called the lawsuit “erroneous in fact and law” and said it would “vigorously defend against it.”
President Joe Biden has called on the Justice Department and the Federal Trade Commission to vigorously enforce antitrust statutes. Increased scrutiny of corporate mergers and business deals has been resisted by some business leaders who say the Democratic administration is overreaching, but others hailed it as long overdue.
The case takes direct aim at the digital fortress that Cupertino, California-based Apple Inc. has painstakingly built around the iPhone and other popular products such as the iPad, Mac and Apple Watch to create what is often called a “walled garden” so that its carefully designed hardware and software can seamlessly thrive together while requiring consumers to do little more than turn on the device.
The strategy helped make Apple the most prosperous company in the world, with annual revenue of nearly $400 billion and, until recently, a market value of more than $3 trillion. But Apple’s shares have fallen 7% this year even as most of the stock market has climbed to new highs, leading longtime rival Microsoft — the target of a major Justice Department antitrust case a quarter-century ago — to assume the mantle as the world’s most valuable company.
Apple said the lawsuit, if successful, would “impede our ability to create the kind of technology people expect from Apple — where hardware, software and services intersect” and would “set a dangerous precedent, empowering the government to take a heavy hand in designing human technology.”
“At Apple, we innovate every day to make people love technology — designing products that work seamlessly together, protect people’s privacy and security, and create magical experiences for our users,” the company said in a statement. “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets.
Apple has defended the walled garden as a must-have feature valued by consumers who want the best available protection for their personal data. He described the hurdle as the way the iPhone differs from devices running Google’s Android software, which is not as restrictive and is licensed to a wide range of manufacturers.
“Apple claims to be a champion in protecting user data, but its app store fee structure and partnership with Google Search erode privacy,” Consumer Reports senior researcher Sumit Sharma said in a statement.
The lawsuit alleges that Apple charges as much as $1,599 for an iPhone and that the high margins it earns on each are more than double those earned by others in the industry. And when users run Internet searches, Google gives Apple a “significant cut” of the advertising revenue those searches generate.
The company’s app store also charges developers up to 30 percent of the cost of a consumer app.
Critics of Apple’s anti-competitive practices have long complained that its claim to prioritize user privacy is hypocritical when profits are at stake. While its iMessage services are protected from prying eyes with end-to-end encryption, that protection disappears the moment someone sends a message to a non-Apple device.
Prominent critic Cory Doctorow complained that while Apple has blocked Facebook from spying on its users, it runs its own “surveillance advertising empire” that collects the same kinds of personal data, but for its own use.
Fears of an antitrust crackdown on Apple’s business model have contributed to the company’s share price decline, along with concerns that it is lagging behind Microsoft and Google in developing products powered by artificial intelligence technology.
But antitrust regulators made clear in their complaint that they see Apple’s walled garden mostly as a weapon to defend against competition, creating market conditions that allow it to charge higher prices that have fueled its high profit margins while stifling innovation.
“Consumers should not have to pay higher prices because companies are violating antitrust laws,” Attorney General Merrick Garland said in a statement. “We argue that Apple has maintained monopoly power in the smartphone market, not only by staying ahead of the competition on merit, but also by violating federal antitrust law. If it goes unchallenged, Apple will only continue to strengthen its smartphone monopoly.”
In trying to curb Apple’s dominance, the Biden administration is escalating an antitrust siege that has already brought lawsuits against Google and Amazon accusing them of engaging in illegal tactics to thwart competition, as well as unsuccessful attempts to block acquisitions by Microsoft and Facebook. Meta platform.
Apple’s business interests are also embroiled in the Justice Department’s case against Google, which went to trial last fall and is moving toward closing arguments scheduled for May 1 in Washington, DC. In that case, regulators argue that Google prevented competition by paying for the rights to make its already dominant online search engine an automatic place to process queries on the iPhone and various web browsers in an arrangement that generates an estimated $15 billion to $20 billion a year.
Now that the Justice Department is attacking its business directly, Apple stands to lose even more.
The Justice Department is following other recent attempts to force Apple to change how it manages the iPhone and other parts of its business.
Epic Games, maker of the popular video game Fortnite, filed an antitrust lawsuit against Apple in 2020 in an effort to tear down the barriers protecting the iPhone App Store and the lucrative payment system that operates within it. Apple has long collected commissions ranging from 15% to 30% on digital transactions completed within apps, which Epic allegedly enabled through an illegal monopoly that drives up prices for consumers.
After a month-long trial in 2021, a federal judge ruled mostly in Apple’s favor, with the exception of ruling that links to competing payment options should be allowed within iPhone apps. Apple unsuccessfully fought that part of the ruling until the US Supreme Court refused to hear an appeal in January, forcing the company to relent. But the concessions Apple made to comply with the ruling still face a “bad faith” challenge from Epic, which is seeking an April 30 hearing to ask US District Judge Yvonne Gonzalez Rogers to order more changes.
Apple also had to open up the iPhone to allow apps to be downloaded and installed from rival stores in Europe to comply with a new set of regulators called the Digital Markets Act, or DMA, earlier this month, but its approach has been criticized as little more than an end around rules that will allow him to continue to knock out the real competition. European Union regulators have already vowed to crack down on Apple if they find the company’s tactics continue to prevent true consumer choice.
All this comes on top of a $2 billion (1.8 billion euro) fine that European regulators slapped on Apple earlier this month after they found the company undermined competition in iPhone music streaming, despite Spotify being the market leader.
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Liedtke reported from San Francisco.