The federal government's aggressive crackdown on Big Tech expanded on Thursday to include the Justice Department's antitrust lawsuit against Apple, one of the world's most famous and valuable companies.
The department joins 16 states and the District of Columbia in raising significant challenges to Apple's reach and influence. The 88-page lawsuit alleged that Apple violated antitrust laws with practices aimed at maintaining customers' dependence on iPhones. You're less likely to switch to a competing device. The tech giant has blocked other companies from offering applications that compete with Apple products, such as digital wallets, which the government said could devalue the iPhone and hurt consumers and small businesses that compete with it.
The Justice Department's lawsuit seeks to end this practice. The government also has the right to demand that the Silicon Valley icon disband.
The lawsuit ends years of regulatory scrutiny of Apple's popular line of devices and services that helped the company grow into an estimated $2.75 trillion public company for many years, making it the most valuable public company on the planet. It takes direct aim at Apple's most popular device and strongest business, the iPhone, and attacks the way Apple has turned the billions of smartphones it has sold since 2007 into the centerpiece of its empire.
Apple has tightly controlled the user experience on the iPhone and other devices, creating what critics say is an uneven playing field. Apple allows its products and services access to core features that its competitors deny. Over the years, it has restricted financial companies from accessing mobile phone payment chips and Bluetooth trackers to utilize location services features. It's also easier for users to connect Apple products, such as smartwatches or laptops, to their iPhones than to products made by other manufacturers.
“Each step of Apple’s course of conduct built and strengthened the moat surrounding its smartphone monopoly,” the government said in the lawsuit filed in the U.S. District Court for the District of New Jersey. He added that the company's practices “have led to higher prices and less innovation.”
Apple says this practice makes iPhones safer than other smartphones. But app developers and rival device makers say Apple is using its power to crush competition.
“This lawsuit threatens who we are and the principles that set Apple products apart in a fiercely competitive marketplace,” an Apple spokesperson said. “If successful, it would disrupt Apple’s ability to create the kinds of technologies people expect from Apple at the intersection of hardware, software and services. “It would also set a dangerous precedent for empowering governments to play a larger role in designing people’s technologies.”
Apple is the latest company to try to be controlled by the federal government in recent years in the face of antitrust pressure from the Justice Department and the Federal Trade Commission, and the Biden administration has appointed a director focused on changing the law accordingly. modern era. Google, Meta and Amazon are all facing similar lawsuits, and companies from Kroger to JetBlue Airways have faced greater scrutiny over potential acquisitions and expansions.
The lawsuit asks the court to stop Apple from engaging in current practices that include blocking cloud streaming apps, weakening messaging features across smartphone operating systems, and preventing the creation of digital wallet alternatives.
A Justice Department official, who spoke on condition of anonymity, said the department has the right under the law to demand structural changes to Apple's business, including a spin-off. Officials declined to say what additional actions the agency might request in the case, but any requests would likely be tied to the court's ruling on whether and how Apple violated the law.
It's unclear how consumers will be affected by the lawsuit, which will likely take years to reach any type of resolution. Apple plans to file a motion to dismiss the case within the next 60 days. In the filing, the company plans to emphasize that competition laws allow it to adopt policies or designs that rivals oppose. Especially when these designs can make using your iPhone a better experience.
Apple has effectively fought other antitrust issues. In a lawsuit over App Store policies brought by Fortnite maker Epic Games in 2020, Apple convinced a judge that customers could easily switch between the iPhone operating system and Google's Android system. We presented data showing that the reason so few customers switch phones is because of their loyalty to the iPhone.
It also defended past business practices by highlighting how the App Store, which opened in 2008, has generated millions of new businesses. Over the past decade, the number of paid app makers has increased 374% to 5.2 million, which Apple said is evidence of a thriving market.
All modern big tech companies face major federal antitrust challenges. The Justice Department is also pursuing litigation focused on Google's search business and its advertising technology holdings. The Federal Trade Commission accused Meta, which owns Facebook, of stifling competition when it acquired Instagram and WhatsApp, and another company, Amazon, for its involvement in online retail. A lawsuit was filed accusing the company of abusing its influence. The FTC also tried and failed to block Microsoft's acquisition of video game publisher Activision Blizzard.
The lawsuit reflects pressure from regulators to apply greater scrutiny to companies' roles as gatekeepers to commerce and communications. In 2019, under President Donald J. Trump, the agency launched antitrust investigations into Google, Meta, Amazon and Apple. The Biden administration has put more energy into these efforts, appointing critics of the tech giants to lead the FTC and the Justice Department's antitrust division.
In Europe, regulators recently punished Apple and fined it 1.8 billion euros for preventing music streaming rivals from informing users about promotions and subscription upgrade options. The app makers also appealed to the European Commission, the European Union's executive arm, to investigate claims that Apple is violating a new law requiring iPhones to be made available to third-party app stores.
In South Korea and the Netherlands, companies can be fined for the fees they charge app developers for using alternative payment processors. Other countries, including the UK, Australia and Japan, are considering rules that would weaken Apple's grip on the app economy.
The Justice Department, which began investigating Apple in 2019, decided to file a broader and more ambitious lawsuit than those filed against the company by other regulators. Instead of focusing narrowly on the App Store like European regulators, it focused on Apple's entire ecosystem of products and services.
The lawsuit filed Thursday focuses on a series of practices the government says Apple used to consolidate its dominance.
The government said the company “impairs” the ability of iPhone users to send and receive messages with owners of other types of smartphones, including those running the Android operating system. This distinction, represented by a green bubble showing a message from an Android owner, sent a signal that other smartphones were of lower quality than the iPhone, according to the lawsuit.
The government claimed that Apple similarly made it difficult for the iPhone to work with smartwatches other than its own Apple Watch. Once an iPhone user owns an Apple Watch, it becomes much more expensive to part with their phone.
The government also said Apple tried to maintain its monopoly by not allowing other companies to build their own digital wallets. Apple Wallet is the only app on iPhone that can use an NFC chip for tap-to-pay payments. Apple encourages banks and credit card companies to allow their products to be used within Apple Wallet, but blocks them from accessing the chip to create their own wallets as an alternative for customers.
The government said Apple would not allow game streaming apps that could make iPhones less valuable hardware or offer “super apps” that allow users to perform multiple activities in one application.
The government's complaint uses arguments similar to those brought against Microsoft decades ago in a high-stakes lawsuit alleging that the company was tying its Web browser to its Windows operating system, according to a Proskauer Rose exclusive. said prohibition attorney Colin Kass. He added that the most compelling argument, and one that brings it closest to the Microsoft case, is that Apple could contractually prohibit its competitors from developing apps that work with other app providers, like “super apps.”
Other legal experts pointed out that since companies are legally allowed to favor their own products and services, the government would have to explain why that's a problem for Apple.
“This case is about technology,” Kass said. “Could antitrust laws force a company to redesign its products to make them more compatible with competitors’ products?”
Apple has defended itself from other antitrust issues by arguing that its policies are critical to making its devices private and secure. In its defense against Epic Games, it argued that limiting app distribution would protect iPhones from malware and fraud. This practice benefited customers and made the iPhone more attractive than competing devices using the Android operating system.
The government will try to show that the effect of Apple's policies is to harm consumers rather than help them.
“Competition makes devices more private and secure,” said Jonathan Kanter, deputy attorney general for the Justice Department’s antitrust division. “In many cases, Apple’s actions undermined the privacy and security of the ecosystem.”