By MICHAEL LIEDTKE, LINDSAY WHITEHURST and MIKE BALSAMO (Associated Press)
WASHINGTON (AP) — The Justice Department filed a broad antitrust suit against Apple on Thursday, alleging that the tech company has created an unlawful monopoly in smartphones, excluding competitors and stifling innovation.
The lawsuit, submitted in federal court in New Jersey, asserts that Apple holds dominant power in the smartphone market and uses its influence over the iPhone to carry out a wide-ranging, illegal course of action.
It specifically aims to prevent Apple from undermining competing technologies in areas such as streaming, messaging, and digital payments, and to stop it from including language in its contracts that enables it to maintain a monopoly.
The lawsuit, which also involves 16 state attorneys general, demonstrates the Justice Department's commitment to enforcing antitrust law to ensure a fair and competitive market, despite some past losses in anticompetition cases.
The Assistant Attorney General Jonathan Kanter, head of the antitrust division, stated at a press conference that “The Department of Justice has a long history of challenging major monopolies in the past, and we are doing so again to promote competition and innovation in the future of technology.”
Apple responded by calling the lawsuit “incorrect on the facts and the law,” and stated that it will vigorously defend against it.
President Joe Biden has urged the Justice Department and the Federal Trade Commission to actively enforce antitrust laws. Some business leaders believe that the administration is going too far, while others support the increased oversight of corporate mergers and deals.
The lawsuit directly confronts the strong digital ecosystem that Apple has built around its products, creating what is known as a “walled garden” to ensure seamless interaction between its hardware and software while tightly controlling the user experience.
This approach has made Apple incredibly successful, with annual revenue of nearly $400 billion and a market value of over $3 trillion. However, Apple's shares have decreased by 7% this year, allowing Microsoft to become the world's most valuable company.
Apple stated that the lawsuit, if successful, would limit its ability to deliver the innovative technology people expect, and would establish a worrisome precedent of government intervention in technology design.
Apple said in a statement that they create technology people love, design products that work well together, protect people's privacy, and make a magical experience for users. They believe the lawsuit threatens their identity and the principles that make their products stand out in competitive markets.
Apple has defended the walled garden as a crucial feature valued by consumers who want the best protection for their personal information. They have described the barrier as a way for the iPhone to stand out from devices using Google's Android software, which is less restrictive and is licensed to many manufacturers.
Consumer Reports senior researcher Sumit Sharma said in a statement that Apple claims to champion protecting user data, but its app store fee structure and partnership with Google search undermine privacy.
The lawsuit complains that Apple charges up to $1,599 for an iPhone and earns double the margins of others in the industry. Google also gives Apple a significant cut of the advertising revenue from internet searches.
The company's app store charges developers up to 30 percent of the app's price for consumers.
Critics of Apple's anticompetitive practices have long argued that its claim to prioritize user privacy is hypocritical when profits are at stake. While its iMessage services are protected by end-to-end encryption, that protection disappears when someone texts a non-Apple device.
Prominent critic Cory Doctorow has complained that Apple blocks Facebook from spying on its users but runs its own surveillance advertising empire that collects the same personal data for its own use.
Worries about an antitrust crackdown on Apple's business model have contributed to the drop in the company's stock price, along with concerns that it is lagging behind Microsoft and Google in developing products powered by artificial intelligence technology.
But antitrust regulators made it clear in their complaint that they see Apple's walled garden mostly as a weapon to fend off competition, creating market conditions that allow it to charge higher prices, leading to high profit margins while stifling innovation.
Attorney General Merrick Garland said in a statement that consumers should not have to pay higher prices because companies violate antitrust laws. They allege that Apple has maintained monopoly power in the smartphone market not just by staying ahead of the competition, but by breaking federal antitrust law. If unchallenged, Apple will further strengthen its smartphone monopoly.
With the attempt to rein in Apple's dominance, the Biden administration is escalating an antitrust siege. This move has already resulted in 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 parent Meta Platforms.
Apple’s business interests are also caught up in the Justice Department’s case against Google, which went to trial last autumn and is headed toward final arguments set to begin May 1 in Washington, D.C. In that case, regulators claim Google has hindered competition by paying for the rights for its already dominant online search engine to be the automatic place to handle queries on the iPhone and a variety of web browsers in an arrangement that generates an estimated $15 billion to $20 billion annually.
Now that the Justice Department is launching a direct attack across its business, Apple stands to lose even more.
The Justice Department is following up on other recent efforts to compel Apple to change the way it operates the iPhone and other parts of its business.
Epic Games, the creator of the popular Fortnite video game, initiated an antitrust lawsuit against Apple in 2020 in an attempt to dismantle the barriers protecting 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 setup that Epic alleged was enabled by an illegal monopoly that drives up prices for consumers.
After a monthlong trial in 2021, a federal judge ruled mostly in favor of Apple with the exception of deciding that links to competing payment options should be allowed inside of iPhone apps. Apple unsuccessfully resisted that portion of the ruling until the U.S. Supreme Court refused to hear an appeal in January, forcing the company to relent. But the concessions that Apple made to comply with the ruling are still facing 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 to allow apps to be downloaded and installed from competing stores in Europe to comply with a new set of regulators called the Digital Markets Act, or DMA, earlier this month but its approach is being criticized by critics as little more than an end-around the rules that will enable it to continue to muscle out real competition. European Union regulators already have vowed to crack down on Apple if it finds the company’s tactics continue to thwart true consumer choice.
All of this comes on top of a $2 billion (1.8 billion euro) fine that European regulators imposed on Apple earlier this month after concluding that the company had undermined competition in the music streaming through the iPhone, despite Spotify being the leader in that market.
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Liedtke reported from San Francisco.
