The Justice Department on Thursday announced a sweeping antitrust lawsuit against , 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 and leverages control over the iPhone to 鈥渆ngage in a broad, sustained, and illegal course of conduct.鈥�
鈥淎pple has locked its consumers into the iPhone while locking its competitors out of the market,鈥� said Deputy Attorney General Lisa Monaco. Stalling the advancement of the very market it revolutionized, she said, it has 鈥渟mothered an entire industry.鈥�
Apple called the lawsuit 鈥渨rong on the facts and the law鈥� and said it 鈥渨ill vigorously defend against it.鈥�
The sweeping action takes aim at how Apple molds its technology and business relationships to 鈥渆xtract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others.鈥�
That includes diminishing the functionality of non-Apple smartwatches, limiting access to contactless payment for third-party 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 鈥� in areas including streaming, messaging and digital payments 鈥� and prevent it from continuing to craft contracts with developers, accessory makers and consumers that let it 鈥渙btain, maintain, extend or entrench a monopoly.鈥�
The lawsuit 鈥� filed with 16 state attorneys general 鈥� is just the latest example of aggressive antitrust law enforcement by a Justice Department that has also taken on Amazon, Google and other tech giants with the stated aim of making the digital universe more fair, innovative and competitive.
鈥淭he Department of Justice has an enduring legacy taking on the biggest and toughest monopolies in history,鈥� said Assistant Attorney General Jonathan Kanter, head of the antitrust division, at a press conference announcing the lawsuit. 鈥淭oday we stand here once again to promote competition and innovation for next generation of technology.鈥�
Antitrust researcher Dina Srinavasan, a Yale University fellow, compared the lawsuit鈥檚 significance to the government鈥檚 action against Microsoft a quarter century ago 鈥� in picking a 鈥渢remendous fight鈥� with what has been the world鈥檚 most prosperous company.
鈥淚t鈥檚 a really big deal to go up and punch someone who is acting like a bully and pretending not to be a bully,鈥� she said.
President Joe Biden has called for the Justice Department and to vigorously enforce . While its stepped-up policing of corporate mergers and questionable business practices has met resistance from some business leaders 鈥� accusing the Democratic administration of overreach 鈥� it鈥檚 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 so its meticulously designed hardware and software can seamlessly flourish together while requiring consumers to do little more than turn the devices on.
The strategy has helped Apple attain annual revenue of nearly $400 billion and, until recently, . But Apple鈥檚 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 to seize the mantle as the world鈥檚 most valuable company.
Apple said the lawsuit, if successful, would 鈥渉inder our ability to create the kind of technology people expect from Apple 鈥� where hardware, software, and services intersect鈥� and would 鈥渟et a dangerous precedent, empowering government to take a heavy hand in designing people鈥檚 technology.鈥�
鈥淎t Apple, we innovate every day to make technology people love 鈥� designing products that work seamlessly together, protect people鈥檚 privacy and security, and create a magical experience for our users,鈥� the company said in a statement. 鈥淭his lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets.
Apple has 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鈥檚 Android software, which isn鈥檛 as restrictive and is licensed to a wide range of manufacturers.
鈥淎pple claims to be a champion of protecting user data, but its app store fee structure and partnership with Google search erode privacy,鈥� Consumer Reports senior researcher Sumit Sharma said in a statement.
The lawsuit complains that Apple charges as much as $1,599 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 鈥渟ignificant cut鈥� of the advertising revenue those searches generate.
The company鈥檚 app store also charges developers up to 30 percent of the app鈥檚 price for consumers.
Critics of Apple鈥檚 anticompetitive practices have long complained that its claim to prioritize user privacy is hypocritical when profits are at stake. While its iMessage services is sheathed from prying eyes by end-to-end encryption, that protection evaporates the moment someone texts a non-Apple device.
But Will Strafach, a mobile security expert, said that while he believes Apple needs reigning in, he is concerned that the Justice Department鈥檚 focus on messaging may be misplaced and could weaken security and privacy.
鈥淚 am quite glad that access to SMS messages is restricted,鈥� said Strafach, creator of the Guardian Firewall app.
He notes that a number of apps, ostensibly for weather and news, on iPhones have secretly and persistently sent users鈥� GPS data to third parties. Strafach said he is concerned weakened Apple security 鈥渃ould open the door to stalkerware/spouseware, which is already more difficult to install on Apple devices compared to Android.鈥�
However, prominent critic Cory Doctorow has complained that while Apple has blocked entities like Facebook from spying on its users it runs its 鈥渙wn surveillance advertising empire鈥� that gathers the same kinds of personal data but for its own use.
Fears about an antitrust crackdown on Apple鈥檚 business model haven鈥檛 just contributed to the drop in the company鈥檚 stock price. There is also concerns it lags Microsoft and Google in the push to develop products powered by artificial intelligence technology.
Antitrust regulators made it clear in their complaint that they see Apple鈥檚 walled garden mostly as a weapon to ward off competition, creating market conditions that enable it to charge higher prices that have propelled its lofty profit margins while stifling innovation.
鈥淐onsumers should not have to pay higher prices because companies break the law,,鈥� said Attorney General Merrick Garland. Left unchallenged, Apple would 鈥渙nly continue to strengthen its smartphone monopoly,鈥� he added.
With the attempt to rein in Apple鈥檚 dominance, the Biden administration is escalating an antitrust siege that has already triggered lawsuits against Google and Amazon accusing them in engaging in illegal tactics to thwart competition, as well as unsuccessful attempts to block acquisitions by Microsoft and Meta Platforms, formerly Facebook.
Apple鈥檚 business interests are also entangled in the Justice Department鈥檚 case against Google, which and is headed toward final arguments scheduled to begin May 1 in Washington, D.C. In that case, regulators are alleging Google has stymied 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 mounting a direct attack across its business, Apple stands to lose even more.
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Liedtke reported from San Francisco.
Michael Liedtke, Lindsay Whitehurst, Frank Bajak And Mike Balsamo, The Associated Press