U.S. sues Apple, alleging monopoly of smartphone market
WASHINGTON — The Justice Department on Thursday announced a sweeping antitrust lawsuit against Apple, accusing the tech giant of engineering an illegal monopoly in smartphones that boxes out competitors, stifles innovation and keeps prices artificially high.
The lawsuit, filed in federal court in New Jersey, alleges that Apple has monopoly power in the smartphone market and leverages control over the iPhone to “engage in a broad, sustained, and illegal course of conduct.”
“Apple has locked its consumers into the iPhone while locking its competitors out of the market,” said Deputy Attorney General Lisa Monaco. Stalling the advancement of the very market it revolutionized, she said, it has “smothered an entire industry.”
Apple called the lawsuit “wrong on the facts and the law” and said it “will vigorously defend against it.”
The suit takes aim at how Apple allegedly molds its technology and business relationships to “extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others.”
That includes diminishing the functionality of non-Apple smartwatches, limiting access to contactless payment for thirdparty digital wallets and refusing to allow its iMessage app to exchange encrypted messaging with competing platforms.
It specifically seeks to stop Apple from undermining technologies that compete with its own apps — in areas including streaming, messaging and digital payments — and prevent it from continuing to craft contracts with developers, accessory makers and consumers that let it “obtain, maintain, extend or entrench a monopoly.”
The lawsuit — filed with 16 state attorneys general — is just the latest example of aggressive antitrust enforcement by an administration that has also taken on Google, Amazon and other tech giants with the stated aim of making the digital universe more fair, innovative and competitive. “The Department of Justice has an enduring legacy taking on the biggest and toughest monopolies in history,” said Assistant Attorney General Jonathan Kanter, head of the antitrust division, at a press conference announcing the lawsuit. “Today we stand here once again to promote competition and innovation for next generation of technology.”
Antitrust researcher Dina Srinavasan, a Yale University fellow, compared the lawsuit’s significance to the government’s action against Microsoft a quarter century ago — picking a “tremendous fight” with what has been the world’s most prosperous company.
“It’s a really big deal to go up and punch someone who is acting like a bully and pretending not to be a bully,” she said.
President Joe Biden has called for the Justice Department and the Federal Trade Commission to vigorously enforce antitrust statutes. While its stepped-up policing of corporate mergers and questionable business practices has met resistance from some business leaders — accusing the Democratic administration of overreach — it’s been lauded by others as long overdue.
The case seeks to pierce the digital fortress that Apple Inc., based in Cupertino, California, has assiduously built around the iPhone and other popular products such as the iPad, Mac and Apple Watch to create what is often referred to as a “walled garden” so its hardware and software can seamlessly offer user-friendly harmony.
The strategy has helped Apple attain an annual revenue of nearly $400 billion and, until recently, a market value of more than $3 trillion US. But Apple’s shares have fallen by 7% this year even as most of the stock market has climbed to new highs, resulting in long-time rival Microsoft seizing the mantle as the world’s most valuable company.
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 would “set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.”
“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 an indispensable feature prized by consumers who want the best protection available for their personal information. It has described the barrier as a way for the iPhone to distinguish itself from devices running on Google’s Android software, which isn’t as restrictive and is licensed to a wide range of manufacturers.
The lawsuit complains that Apple charges as much as $1,599 US for an iPhone and that the high margins it earns on each is more than double what others in the industry get. And when users run an internet search, Google gives Apple a “significant cut” of the advertising revenue those searches generate.
The company’s app store also charges developers up to 30 per cent of the app’s price for consumers.