US Sues Apple In Antitrust Lawsuit Over Alleged Smartphone Market 'Monopoly': Explained

The US Justice Department, along with over a dozen states, has filed a significant antitrust lawsuit against Apple, alleging that the tech giant has unlawfully monopolized the smartphone market. This lawsuit is part of a broader trend of increased scrutiny and legal action against major tech companies by the US government, aiming to address concerns about the unchecked power of the industry.

The lawsuit, which has been anticipated for some time, follows years of criticism directed at Apple for its app store policies, high fees, and tightly controlled ecosystem. Critics argue that Apple's approach, while making its products user-friendly, restricts competition by limiting how third-party companies can interact with its hardware and software. Furthermore, there are allegations that Apple gives preferential treatment to its own products over those of its competitors.

Why is the US suing Apple?

The Justice Department said in a press release, “Apple undermines apps, products, and services that would otherwise make users less reliant on the iPhone. Apple exercises its monopoly power to extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others.”

For instance, Apple enables iPhone users to effortlessly send high-quality photos and videos to each other, while multimedia messages to Android devices tend to be slower and of lower quality. Although the company agreed to enhance the quality standard for interacting with Android phones via text messages last year, it still maintains distinct green bubbles for such messages, leading critics to argue that this perpetuates a class divide.

Moreover, Apple grants its own products access to certain hardware features that it restricts other companies from utilizing. This results in a significantly enhanced user experience for iPhone interactions with AirTags, while competitors' products remain more limited in functionality.

In response to European regulations, Apple was compelled to provide access to the iPhone's tap-to-pay hardware chip to other companies, allowing the development of competing digital wallets. However, these regulations only apply within the European Union.

Additionally, Apple maintains a substantial 30% commission on most sales through its app store, a point of contention for companies selling subscriptions who argue that Apple's dominant share of the smartphone market compels them to pay an unreasonably high commission.

The lawsuit filed on Thursday alleges that Apple has unlawfully monopolized smartphone markets through a complex network of contractual terms that negatively impact various aspects, from text messaging to mobile payments. According to the DOJ, Apple has utilized its control over iOS, the operating system for iPhones, to impede the introduction of innovative new apps and cloud streaming services to the public, degrade the appearance of Android messages on iPhones, restrict the functionality of competing smartwatches with iPhones, and impede rival payment solutions.

The complaint filed on Thursday asserts that “By stifling these technologies, and many others, Apple reinforces the moat around its smartphone monopoly not by making its products more attractive to users, but by discouraging innovation that threatens Apple’s smartphone monopoly.”

Apple's Response To The Antitrust Lawsuit

Apple has refuted these allegations and stated its intention to contest the lawsuit.

“We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it,” Apple said in a statement.

Apple expressed concern that the lawsuit would impede its ability to continue developing compelling and user-friendly technology, which has contributed to its status as one of the world's most valuable companies.

“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 stated. “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets.”

Extensive Scrutiny Precedes Apple Antitrust Lawsuit

For years, Apple has faced scrutiny and criticism regarding allegations of anticompetitive practices, but it has largely brushed off these challenges. The company's strong consumer reputation, coupled with a strategic approach to public relations and legal matters, reflects the meticulousness with which Apple manages its products.

However, the recent landmark lawsuit from the Justice Department targets a wide array of Apple's practices, marking a significant shift. This case signifies the Biden administration's ongoing endeavor to enforce US antitrust laws against major players in the tech industry. Notably, Apple is the only major tech company that the federal government has not yet sued for alleged antitrust violations.

In 2020, Apple was among the companies named in a comprehensive House report, alongside Meta, Google, and Amazon, which concluded that they held "monopoly power."

The legal proceedings could have an impact on Apple's stock price, which currently values the company at just under $3 trillion, and could potentially necessitate changes to its policies, business strategies, products, and applications. There's even speculation that Apple may consider divesting some assets.

On Thursday, Apple's (AAPL) stock experienced a modest decline of less than 1%, as the lawsuit had been widely anticipated.

Alongside ongoing antitrust cases against Google, the lawsuit against Apple by the DOJ is likely to symbolize the Biden administration's dedication to promoting competition and reducing prices. It will also serve as a test to determine the extent to which courts are willing to apply long-standing antitrust laws to the modern digital economy.

Jonathan Kanter, Biden’s top DOJ antitrust official, is expected to closely oversee the Apple case. Kanter, known for his representation of Google rivals including Microsoft and Yelp, is seen as part of a new generation of regulators.

Together with the Federal Trade Commission's Lina Khan, Kanter has argued that the United States has allowed corporate consolidation and anticompetitive practices to persist for decades, ultimately to the detriment of the public through higher prices, limited choices, or reduced innovation.

European Challenge to Apple's Dominance

In addition to pressure from the US government, Apple has faced scrutiny from the European Union, particularly with the implementation of the Digital Markets Act (DMA). Apple has made adjustments to comply with the law, including allowing users in the EU to download apps from third-party app stores, but criticisms and investigations persist.