The US Department of Justice, along with 16 states including California and New York, filed a lawsuit against Apple on Thursday, accusing the company of monopolizing the smartphone market through illegal practices. The allegations include impeding US consumers from switching phones, suppressing app, product, and service innovation to maintain the exclusivity of iOS and iPhone, and forcing consumers and businesses to pay higher fees.
The lawsuit was filed by the US Department of Justice in a New Jersey federal court, with the participation of states such as California, New York, Arizona, and the District of Columbia, alleging that Apple engaged in monopolistic or attempted monopolistic behavior in the smartphone market, in violation of US antitrust laws. This marks the US Department of Justice’s second antitrust accusation against a tech giant since the 1998 case against Microsoft for monopolizing the Windows operating system and bundling Internet Explorer.
The Department of Justice and the 16 states believe that Apple selectively imposes contract restrictions on certain developers and limits access channels to maintain its smartphone monopoly. Apple has excluded apps, products, and services that could have reduced consumer reliance on iPhones, provided compatibility, and lowered costs. By exercising its monopoly power, Apple has been able to generate more revenue from consumers, developers, content creators, publishers, retailers, and small businesses.
US Attorney General Merrick Garland stated that consumers should not be forced to pay higher fees due to unlawful practices by companies. He argued that Apple’s success in the market is not solely based on legitimate rights, but also violates antitrust laws. Ignoring this would allow Apple to further strengthen its monopoly position in the smartphone industry.
The US government accuses Apple of engaging in five major offenses related to iPhone dominance. These offenses include blocking innovative super apps, impeding the growth of apps such as Spotify that allow consumers to easily switch between competing mobile platforms, suppressing mobile cloud streaming services that provide high-quality gaming and other cloud-based applications without expensive hardware, excluding cross-platform messaging apps to lower quality, hinder innovation (specifically referring to the inability of non-iPhone messages to communicate with iMessage), limiting the functionality of third-party smartwatches to force Apple Watch consumers to continue upgrading iPhones, and restricting third-party e-wallets from using Tap-to-Pay functionality, hindering the development of cross-platform third-party e-wallets.
Other charges include Apple’s impact on browsers, video, news subscriptions, entertainment, in-car information services, advertising, and location services, which are deemed anti-competitive practices.
Apple has responded to the allegations on Thursday, stating that the company designs seamlessly integrated products, ensures user privacy and security, and develops exceptional user experiences. The lawsuit threatens the company’s mission and its leading position in a fiercely competitive market. If successful, it will hinder Apple’s ability to develop the anticipated technology and set a dangerous precedent by giving the government the power to influence technology design. Apple’s stock price fell by 2% on Thursday.
The lawsuit filed by the US Department of Justice and the 16 states follows the national administrative-led antitrust actions, similar to the European Union’s Digital Markets Act (DMA) implemented in March this year. However, the focus of the US government is different, as the EU did not require Apple to allow third-party app stores for iPhones or grant access to Tap to Pay by third-party vendors.
Apple’s suppression of competitors is a similarity between this case and the 1998 Department of Justice vs. Microsoft case. However, some argue that the so-called “monopoly” by Apple, as claimed by the Department of Justice, is different from Microsoft’s case back then. For instance, according to analysis by TechCrunch, in 1998, Windows had a market share of up to 90%, while iOS’s market share is far from that. According to Statcounter data, iOS market share stands at 27.84%. Some legal experts also point out that all companies are allowed to engage in business practices that favor their own products, and the Department of Justice needs to explain why Apple’s actions are singled out.
However, if the judgment leans towards the plaintiffs, it could have a significant impact on the industry. After being sued in 1998, Microsoft reached a settlement with the Department of Justice in 2001, but it also resulted in the loss of the market for Microsoft’s Internet Explorer browser. Microsoft co-founder Bill Gates later recalled that the lawsuit prevented Microsoft from focusing on developing a mobile operating system, causing them to miss the opportunity in the mobile platform.
On the other hand, in response to the implementation of the DMA, Apple has announced several openness measures this month, including allowing users to transfer iCloud and iPhone data to the Android platform, agreeing to redirect users to external app stores or payment websites by developers, and allowing iOS apps to be available on third-party app stores.