By MICHAEL LIEDTKE, LINDSAY WHITEHURST and MIKE BALSAMO (Associated Press)
WASHINGTON (AP) — On Thursday, the Justice Department announced a major antitrust lawsuit against Apple, alleging that the tech giant has created an illegal monopoly in smartphones, preventing competitors and hindering innovation.
The lawsuit, filed in federal court in New Jersey, states that Apple holds monopoly power in the smartphone market and uses its control over the iPhone to engage in a broad, sustained, and illegal course of conduct.
The lawsuit, also filed with 16 state attorneys general, is part of the Justice Department’s aggressive enforcement of federal antitrust law aimed at ensuring a fair and competitive market, despite some significant anticompetition case losses.
Apple has stated that the lawsuit is factually and legally incorrect and that they will vigorously defend against it.
President Joe Biden has called for the Justice Department and the Federal Trade Commission to enforce antitrust statutes vigorously. Some business leaders resist this, claiming the Democratic administration is overreaching, while others see it as long overdue.
The case targets the digital fortress built around the iPhone by Apple Inc. in Cupertino, California, to create a “walled garden,” where its meticulously designed hardware and software can seamlessly work together while requiring little effort from consumers.
This approach has made Apple the world’s most prosperous company, with an annual revenue of nearly $400 billion and a market value of more than $3 trillion until recently. However, Apple’s shares have fallen by 7% this year, while long-time rival Microsoft has become the world’s most valuable company.
Apple has claimed that the lawsuit, if successful, would impact its ability to create the kind of technology people expect, where hardware, software, and services intersect. It would also empower the government to heavily influence technology design.
“At Apple, we innovate every day to make technology people love — designing products that work seamlessly together, 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 set Apple products apart in fiercely competitive markets.
Apple has defended the walled garden as a crucial feature valued by consumers seeking the best protection for their personal information. It has explained the barrier as a way for the iPhone to differentiate itself from devices running on Google’s less restrictive Android software, which is licensed to a wide range of manufacturers.
Concerns about the government taking action against Apple's business model have caused the company's stock price to drop. There are also worries that Apple is falling behind Microsoft and Google in developing products with artificial intelligence technology.
But antitrust regulators clearly stated in their complaint that they view Apple's closed ecosystem mainly as a tool to keep competition away, creating conditions that allow it to charge higher prices, leading to big profits while preventing innovation.
Attorney General Merrick Garland said in a statement that consumers shouldn't have to pay more because companies break antitrust laws. He claimed that Apple has kept a monopoly in the smartphone market not just by staying ahead of the competition, but by breaking federal antitrust laws. If Apple isn't challenged, it will only get stronger as a smartphone monopoly.
The Biden administration is intensifying efforts to curb Apple's dominance, which has already led to lawsuits against Google and Amazon for using illegal tactics to block competition. There were also unsuccessful attempts to stop Microsoft and Facebook parent Meta Platforms from making acquisitions.
Apple's business interests are also involved in the Justice Department's case against Google, which went to trial last fall and is moving toward final arguments scheduled to start May 1 in Washington, D.C. Regulators claim Google has hindered competition by paying to make its dominant online search engine the automatic choice for handling searches on the iPhone and various web browsers, in a deal that brings in $15 billion to $20 billion each year.
Now that the Justice Department is directly attacking its business, Apple could lose even more.
The Justice Department is following up on previous attempts to push Apple to change how it operates the iPhone and other parts of its business.
In 2020, Epic Games, the creator of the popular Fortnite video game, sued Apple for antitrust violations, aiming to remove the barriers around the iPhone App Store and its profitable payment system. Apple has been taking a commission of 15% to 30% on digital transactions within apps, which Epic claims is made possible by an illegal monopoly that raises prices for consumers.
After a monthlong trial in 2021, a federal judge mostly ruled in favor of Apple but agreed that links to other payment options should be allowed inside iPhone apps. Apple tried to fight this ruling until the U.S. Supreme Court refused to hear the appeal in January, forcing the company to comply. Epic is challenging the changes made by Apple in a hearing scheduled for April 30, claiming they were made in bad faith.
To comply with a new set of regulations in Europe called the Digital Markets Act, or DMA, Apple had to allow apps to be downloaded from competing stores earlier this month. However, critics argue that this approach is just a way to bypass the rules and continue to dominate real competition. European Union regulators have promised to take action against Apple if it continues to block true consumer choice.
On top of a $2 billion (1.8 billion euro) fine imposed by European regulators earlier this month, Apple faces additional challenges. The fine was issued after the regulators concluded that Apple had unfairly impacted competition in the music streaming market through the iPhone, despite Spotify being the market leader.
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Liedtke reported from San Francisco.
