US sues Apple in historic antitrust case

(CNN) — The US Justice Department and more than a dozen states filed a major antitrust lawsuit against Apple on Thursday. It is the latest – but the biggest – in a series of big tech companies facing monopoly charges from the US government, cracking down on a vast industry whose power has gone largely unchecked for the past few years.

“Apple charges approximately $1,600 for an iPhone, but as our lawsuit alleges, Apple maintained monopoly power in the smartphone market not only by staying ahead of the competition on merits, but also by violating federal antitrust law. keeps.” Attorney Secretary Merrick Garland said. The lawsuit, which was filed in the District Court of New Jersey, was announced at a press conference.

“Consumers should not have to pay higher prices because companies break the law,” he said.

The long-awaited lawsuit comes after years of allegations by critics that Apple has harmed competition in the App Store with restrictive terms, high fees and a “walled-garden” approach to its hardware and software, in which Apple strictly Controls how other technology companies can interact with the tech giant’s products and services. In some cases, Apple offers its products with better accessibility and features than its competitors. The company said it denied the lawsuit’s allegations and would dispute them.

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

For example, the Apple iPhone allows customers to send high-quality photos and videos to each other seamlessly, but multimedia texts on Android phones are slow and grainy. Late last year, the company relented and agreed to improve the quality standard used to interact with Android phones via text messages.

The company also offers its own products the ability to access parts of its hardware that it blocks other companies from using. It provides an almost magical experience of how iPhones interact with AirTags, whereas competing products have much more limited capabilities.

This year, European regulations forced Apple to give other companies access to the iPhone’s payments hardware chip, allowing the creation of competing digital wallets. But those rules are only subject to the European Union.

Additionally, Apple keeps a hefty 30% commission on most sales through its App Store, a frequent complaint of companies trying to sell subscriptions, who claim that Apple’s large share of the smartphone market forces them to charge unnecessarily high fees. Forced to pay commission.

“We believe this lawsuit is factually and legally flawed and we will vigorously defend against it,” Apple said in a statement.

Thursday’s lawsuit claims Apple illegally monopolized smartphone markets by using a complex web of contract terms that undermine everything from text messaging to mobile payments. Among other things, the DOJ says, Apple used its control over the iOS, the iPhone operating system, to block innovative new apps and cloud streaming services from being available to the public; Downgrade the way Android messages display on iPhones; Restricting how competing smartwatches can work with iPhones; and disrupted rival payment solutions.

“By stifling these technologies and many others, Apple is protecting its smartphone monopoly not by making its products more attractive to users, but by discouraging innovation that threatens Apple’s smartphone monopoly,” Thursday’s complaint said. Strengthens the gap.”

Apple said in a statement that the lawsuit would hinder its ability to develop the attractive, consumer-friendly technology that has made the company one of the most valuable in the world.

“At Apple, we do something new every day to make people love technology: We design products that work better together, protecting people’s privacy and security,” the company said in its statement. And create a magical experience for our users.” “This lawsuit jeopardizes who we are and the principles that differentiate Apple products in highly competitive markets.”

years of investigation

Apple has for years ignored legal challenges and criticism that its practices are anti-competitive. Its excellent consumer reputation and disciplined legal and public relations strategy reflect the precision with which Apple creates and oversees its products.

However, the Justice Department’s landmark lawsuit challenges a wide range of Apple’s practices.

The case represents the Joe Biden administration’s latest effort to hold a tech giant accountable under US antitrust law. Apple is the only major technology company that has not yet been sued by the federal government for alleged antitrust violations.

Apple was cited in a lengthy House report in 2020 that found the iPhone maker has “monopoly power” along with Meta, Google and Amazon.

The legal action could impact Apple’s stock price, which currently values ​​the company at less than $3 trillion, and force changes to the tech giant’s policies, business strategies, products and apps. Even the divestiture of some assets to Apple, the technology company founded by Steve Jobs in the 1970s, has not been ruled out.

Apple shares fell less than 3% on Thursday. This demand was widely expected.

Along with some ongoing antitrust cases against Google, the Justice Department’s lawsuit against Apple is likely to symbolize the Joe Biden administration’s commitment to competition and price cutting. It will also be a test of how far courts are willing to go to enforce decades-old antitrust laws in the modern digital economy.

The Apple case could be one of the most watched lawsuits brought by Jonathan Cantor, the top antitrust official in Biden’s Justice Department. Cantor, who once represented Google rivals including Microsoft and Yelp in his private sector practice, is seen as part of a new generation of regulators.

Along with his counterpart Lina Khan at the Federal Trade Commission, Cantor argued that the United States allowed a wave of corporate consolidation and anti-competitive practices for decades, which ultimately harmed the public through higher prices, fewer choices, or less innovation. Caused harm.

“Apes” vs. Manzana

To solve the “green bubble” problem of Android phone customers, Eric Migicovsky, a technology entrepreneur, says that Apple has released an app he created called Beeper Mini to help Android users send messages to users immediately. has been closed. iPhone users without those limitations.

“This went on for a total of three days before Apple started attacking us,” Migicovsky said. “Technically, they worked very hard to take steps to punish Beeper Mini users by cutting the connection or making it progressively less reliable.”

This type of interaction has made Apple’s App Store the focus of antitrust complaints.

Starting in 2020, Apple began a very public court battle against Epic Games, the creator of the video game “Fortnite”.

Apple does not have an illegal monopoly in the distribution of iOS apps, federal courts ruled in that case, highlighting the difficulty of imposing federal antitrust charges on Apple. However, Apple was fined for violating California competition law and changed some of its App Store practices in response to the court order.

Legal experts say the court’s decisions highlight the challenges facing the Justice Department, which will need to present a solid legal theory about how Apple allegedly harmed competition. The Justice Department must also show that the benefits Apple provides to consumers are not outweighed by its alleged antitrust violations.

Apple’s troubles in Europe

The United States government is not alone in pressuring Apple to change its business practices. A new EU law went into effect in March, forcing Apple to make major adjustments.

In a major move to comply with the EU’s Digital Markets Act (DMA), Apple said it will allow users in the trading block for the first time to download apps from third-party app stores.

But critics, including Epic, are already accusing Apple of violating EU law. Just before the DMA took effect, Epic complained to competition authorities that Apple had blocked it from launching its App Store on iOS. The European Commission is investigating this matter.

Upstart turned giant

Since its founding, Apple has earned a reputation as a distinctive, high-design brand. It often focuses on premium user experience and design aesthetic, distinguishing its products from rivals such as Microsoft and Google. This narrow approach worked for years, until a wave of complaints from app developers and consumers brought more attention to the potential harms of Apple’s restrictions.

In the era led by founder Steve Jobs, “Apple was a cultural phenomenon that pitted formal shoes against sandals; Suits versus T-shirts,” said James Bailey, a professor of leadership development at the George Washington University Business School. “Apple innovated tirelessly. “They were always one step ahead of the competition.”

For now, however, Apple’s progress is more “incremental” than significant, Bailey said. “(CEO Tim) Cook is focused on financial management and growing market share.”

“Apple is financially healthy, but its reputation for innovation is waning,” Bailey said.