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 alleges that Apple’s anticompetitive practices extend beyond the iPhone and Apple Watch businesses, citing Apple’s ads, browser, FaceTime and news.
“Each step in Apple’s course of conduct created and strengthened the moat around its smartphone monopoly,” says the lawsuit, filed by the DOJ and 16 attorneys general in New Jersey federal court.
Apple shares fell more than 4% during trading on Thursday.
The Justice Department said in a statement that to keep consumers buying iPhones, Apple moved to block cross-platform messaging apps, limited third-party wallet and smartwatch compatibility, and discontinued non-App Store programs and cloud streaming services. .
The challenge represents 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, which Apple said will generate more than $200 billion in sales in 2023, the Apple Watch, part of its $40 billion wearables business of the company and its profitable service line. which reported $85 billion in revenue.
US Attorney General Merrick Garland said at a press conference that the Supreme Court defines monopoly power as “the power to control prices or exclude competition.”
“As stated in our complaint, Apple has this power in the smartphone market,” Garland said. “If left unchallenged. Apple will only continue to strengthen its smartphone monopoly.”
Apple said in a statement that it disagrees with the lawsuit’s premise and will defend against it.
“This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets. If successful, it will 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 by allowing the government to take a heavy hand in designing people’s technology.”
The lawsuit follows years of investigations into Apple’s business practices and two previous DOJ cases against Apple: One over e-book prices and another over allegations that it colluded with other tech companies to lower wages.
“This anti-competitive behavior is designed to maintain Apple’s monopoly power while extracting as much revenue as possible,” the complaint said.
iMessage, Apple Watch and cloud gaming
The complaint underscores comments made by CEO Tim Cook and other executives. Some users have asked Apple to improve Android messaging on iPhone. Developers have gone so far as to create apps that can bypass platform restrictions, 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.
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,” the complaint says of Cook, referring to a 2022 interview at a Vox Media event.
“Buy your mom an iPhone,” Cook replied.
The DOJ is also targeting Apple’s smartwatch, the Apple Watch, saying the company designed it to work only with iPhones, not Android devices. The company’s decision means that “users who purchase the Apple Watch face significant costs if they do not continue to purchase iPhones,” according to the complaint.
The DOJ said Apple has cracked down on cloud streaming services on its App Store platform, blocking consumer access to high-quality video games on iPhones, repeating complaints from Microsoft and Facebook parent Meta.
Garland said at a news conference Thursday that the DOJ is also looking into changing policies around Apple Wallet, the company’s app for credit cards and phone-based payments.
“When an iPhone user places a credit or debit card in Apple Wallet, Apple is brought into the process that would otherwise happen directly between the user and the card issuer,” Garland said.
Apple has faced several major antitrust challenges of late, which have largely focused on its control of the iPhone App Store. It mostly won 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 action seeks to hold Apple accountable and ensure that it cannot deploy the same, illegal playbook in other vital markets,” Assistant Attorney General for Antitrust Jonathan Kanter said in the statement.
The company is currently sparring with the European Commission over whether to comply with a new digital marketplace law that forces Apple to open up the iPhone app store to competitors like Microsoft or Epic Games. Apple plans to charge major companies that avoid its app store 50 cents per download.
Apple fined $2 billion in EU over dispute with Spotify about whether the music streaming service can link to its website and in-app account system.
Apple had 64% of the US iPhone market share in the final quarter of 2023, compared to 18% for Samsung, according to Counterpoint Research.
Apple isn’t the only big tech company facing government scrutiny. The Justice Department filed an antitrust case against Google in 2020 over its search dominance and for another year over its advertising business. The DOJ also 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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