On March 21, the US Department of Justice Antitrust Division, along with 15 states and the District of Columbia, filed an antitrust suit against Apple, alleging violation of Section 2 of the Sherman Antitrust Act. The suit claims that Apple is using anticompetitive practices in order to maintain its monopoly in the smartphone market.
With a market capitalization over $2.5 trillion dollars and a 2023 revenue of $383 billion, the company ranks atop the list of the world’s most valuable enterprises, with a net income higher than any other company in the Fortune 500.
The lawsuit, filed in the New Jersey District Court, alleges that Apple illegally maintains a monopoly along its entire product line by selectively imposing contractual restrictions on its platforms, and withholding critical access points from developers. The complaint also claims that Apple systematically undermines applications and services that would otherwise make users less reliant on the iPhone, promote interoperability and lower costs for consumers and developers.
“Apple’s smartphone business model, at its core, is one that invites as many participants, including iPhone users and third-party developers, to join its platform as possible while using contractual terms to force these participants to pay substantial fees. At the same time, Apple restricts its platform participants’ ability to negotiate or compete down its fees through alternative app stores, in-app payment processors, and more.”
The complaint alleges that Apple systematically reduces competition in the market for smartphones by “delaying, degrading or outright blocking technologies that would increase competition in the smartphone markets by decreasing barriers to switching to another smartphone.”
“By denying iPhone users the ability to choose their trusted banking apps as their digital wallet, Apple retains full control both over the consumer and also over the stream of income generated by forcing users to use only Apple authorized products in the digital wallet.”
Some of the ways the complaint cites Apple does this is by diminishing the functionality of non-Apple products when used in tandem with Apple products, limiting access to contactless payment for third-party digital wallets and refusing to allow its iMessage app to exchange encrypted messages with competing platforms.
“Apple also prohibits the creation and use of alternative app stores curated to reflect a consumer’s preferences with respect to security, privacy, or other values. These and many other features would be beneficial to consumers and empower them to make choices about what smartphone to buy and what apps and products to patronize. But allowing consumers to make that choice is an obstacle to Apple’s ability to maintain its monopoly.”
This lawsuit is now the fourth antitrust enforcement lawsuit filed by a Biden administration that has been emboldened to take on Big Tech, with the express purpose of making the digital ecosystem fairer and more competitive.
Attorney General Merrick Garland announced the case in a press conference, claiming that Apple’s business model is designed to place impediments on what developers can offer to Apple users, and restricts access to points of connection via the policing of APIs with third-party applications. “Apple has employed a strategy that relies on exclusionary anti-competitive conduct… for consumers that has meant fewer choices, higher prices and fees, lower quality smartphones… and less innovation from Apple and its competitors,” said the Attorney General.
Apple released a statement pushing back against the DOJ’s claims, claiming that “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. This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets. If successful, it would hinder our ability to create the kind of technology people expect from Apple—where hardware, software, and services intersect. It would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology. We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it.”
Ironically, Apple’s defense is part of the DOJ’s claims against the company – that its claims of protecting consumer data privacy and security is one of the ways that the company has built up what is referred to as the “walled garden.”
The ease of operating within Apple’s ‘walled garden’ is what endears the company’s products to many of their users, with the company being one of the world’s most beloved companies, and some of the strongest marketing and branding presence worldwide.
Why does this suit matter?
While the injunctions that the DOJ is seeking against Apple are unclear, the suit is motivated by the company’s emerging dominance not just in consumer technology, but also in pockets of the automobiles, financial services, gaming and entertainment markets, “often by doing so in exclusionary ways that further reinforce and deepen the competitive moat around the iPhone.”
Apple’s dominant position has given it the market power to boss around not only banks, but also car companies. CarPlay, the Apple entertainment system that allows drivers to use their iPhones to control navigation and entertainment in a car, has become a must-have feature if car makers want their models to be competitive. The DOJ complaint alleges that Apple is strongarming automakers into accepting that the next generation of Apple CarPlay will be able to take over all the screens, sensors and gauges in a car, locking drivers into an iPhone-like experience.
Apple also owns a notable movie studio, a newspaper content management and payments system, and many more, and to top it all off, the company is trying to sequester all these disparate businesses into its ‘walled garden.’
The DOJ also claims that “Apple wraps itself in a cloak of privacy, security, and consumer preferences to justify its anticompetitive conduct,” but it “selectively compromises privacy and security interests when doing so is in Apple’s own financial interest—such as degrading the security of text messages, offering governments and certain companies the chance to access more private and secure versions of app stores, or accepting billions of dollars each year for choosing Google as its default search engine when more private options are available.”
Apple has become as much middleman between consumers and businesses as it is a technology development firm. It uses its controlling position in all of these disparate markets to extract rents from both businesses and consumers, and the company is not above using coercive tactics like unfair contractual terms and denial of access to defend its position as the middleman.
While the timeline for the trial has not been decided yet, the suit is bound to have significant implications for how Apple does business. The case will be presided over by Judge Michael E. Farbiarz.