WASHINGTON — The Justice Department on Thursday announced a sweeping antitrust lawsuit against Apple, accusing the tech giant of creating an illegal smartphone monopoly that shuts out competitors and stifles innovation.
The lawsuit, filed in federal court in New Jersey, alleges that Apple has monopoly power in the smartphone market and uses its control of the iPhone to “pursue a broad, persistent and illegal course of conduct.”
Specifically, it seeks to prevent Apple from undermining technologies that compete with its own apps – in areas such as streaming, messaging and digital payments – and to prevent Apple from building language into its contracts with developers, accessory makers and consumers that would allow it to “maintain a monopoly, expand or anchor.”
The lawsuit – also filed with 16 attorneys general – is the latest example of the Justice Department’s approach to aggressively enforcing federal antitrust law, which officials say is aimed at ensuring a fair and competitive marketplace, including although it has lost some important anti-competitive measures. fallen.
“The Justice Department has a lasting legacy of taking on the largest and toughest monopolies in history,” Assistant Attorney General Jonathan Kanter, head of the antitrust division, said at a news conference announcing the lawsuit. “Today we stand here again to promote competition and innovation for the next generation of technology.”
Apple called the lawsuit “false on the facts and the law” and said it will “vigorously defend against it.”
President Joe Biden has called on the Justice Department and Federal Trade Commission to vigorously enforce antitrust statutes. The increased scrutiny of corporate mergers and business deals has drawn resistance from some business leaders who say the Democratic administration is going too far, but others have praised it as long overdue.
The case takes direct aim at the digital fortress that Cupertino, California-based Apple Inc. has diligently built around the iPhone and other popular products like the iPad, Mac and Apple Watch to create what is often referred to as a “walled garden.” ” so that the carefully designed hardware and software can flourish together seamlessly, while the consumer has to do little more than turn on the devices.
The strategy has helped make Apple the most prosperous company in the world, with annual revenues of nearly $400 billion and, until recently, a market value of more than $3 trillion. But Apple’s shares are down 7% this year even as most of the stock market has soared to new highs, prompting longtime rival Microsoft — the target of a major Justice Department antitrust case a quarter-century ago – takes over the mantle as the most valuable company in the world.
Apple said the lawsuit, if successful, would “hinder our ability to create the kind of technology people expect from Apple – where hardware, software and services intersect” and “set a dangerous precedent, giving the government the power to take a heavy hand in designing people’s technology.”
“At Apple, we innovate every day to help people love technology: We design products that work seamlessly, protect people’s privacy and security, and create a magical experience for our users,” the company said in a statement. “This lawsuit threatens who we are and the principles that distinguish Apple products in fiercely competitive markets.
Apple has defended the Walled Garden as a must-have feature valued by consumers who want the best possible protection for their personal data. It has described the barrier as a way for the iPhone to differentiate itself 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 of protecting user data, but its app store cost structure and partnership with Google Search undermine privacy,” Consumer Reports senior researcher Sumit Sharma said in a statement.
The lawsuit complains that Apple charges as much as $1,599 for an iPhone and that the high margins it earns on each iPhone are more than double what others in the industry get. And when users search the web, Google gives Apple a “significant share” of the ad revenue those searches generate.
The company’s app store also charges developers up to 30 percent of the app’s price to consumers.
Critics of Apple’s anti-competitive practices have long complained that the claim that Apple prioritizes user privacy is hypocritical when profits are at stake. Although the iMessage services are protected from prying eyes by end-to-end encryption, that protection disappears as soon as someone sends a text message to a non-Apple device.
Prominent critic Cory Doctorow has complained that while Apple has blocked Facebook from spying on its users, the company is running 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 decline in the company’s stock price, along with concerns that it is falling behind Microsoft and Google in the drive to develop products powered by artificial intelligence technology.
But antitrust regulators made clear in their complaint that they see Apple’s walled garden primarily as a weapon to fend off competition, creating market conditions that allow the company to charge higher prices, fueling high profit margins and at the same time innovation is suppressed.
“Consumers should not have to pay higher prices because companies violate antitrust laws,” Attorney General Merrick Garland said in a statement. “We allege that Apple has maintained a monopoly in the smartphone market not simply by staying ahead of the competition on merits, but by violating federal antitrust laws. If nothing is done, Apple will only continue to strengthen its smartphone monopoly.”
As it attempts to rein in Apple’s dominance, the Biden administration is escalating an antitrust siege that has already led to lawsuits against Google and Amazon accusing them of illegal tactics to thwart competition, as well as failed attempts at acquisitions by Block Microsoft and Facebook parent company. Metaplatforms.
Apple’s business interests are also embroiled in the Justice Department’s case against Google, which went to trial last fall and is headed to closing arguments set to begin May 1 in Washington, DC. In that case, regulators allege that Google impeded competition by paying for the rights to make its already dominant online search engine the automatic place to handle searches on the iPhone and a variety of Web browsers, in a way that annually to generates an estimated $15 billion to $20 billion.
With the Justice Department launching a direct attack on his company, Apple stands to lose even more.
The Justice Department is following another recent attempt to force Apple to change the way it manages the iPhone and other parts of its business.
Epic Games, the maker of the popular Fortnite video game, filed an antitrust lawsuit against Apple in 2020 in an effort to break down barriers to the iPhone App Store and a lucrative payment system operating within it. Apple has long collected commissions ranging from 15% to 30% on digital transactions completed within apps, a scheme Epic says was made possible by an illegal monopoly that drives up prices for consumers.
After a month-long trial in 2021, a federal judge ruled largely in Apple’s favor, with the exception of deciding that links to competing payment options within iPhone apps should be allowed. Apple unsuccessfully opposed that part of the ruling until the U.S. Supreme Court declined to hear an appeal in January, forcing the company to concede. 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 U.S. District Judge Yvonne Gonzalez Rogers to order more changes.
Apple also had to open up the iPhone earlier this month to downloading and installing apps from rival stores in Europe to comply with a new set of regulators called the Digital Markets Act (DMA), but the approach has been pilloried by critics. little more than an end to the rules that will allow the country to continue to strengthen real competition. European Union regulators have already vowed to take tough action against Apple if Apple finds that the company’s tactics continue to hinder real consumer choice.
All this is in addition to a $2 billion (€1.8 billion) fine that European regulators imposed on Apple earlier this month after concluding that the company had undermined competition in iPhone music streaming, despite Spotify’s is the leader in that market.
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Liedtke reported from San Francisco.