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Shoeleather Journalism in the Digital Age

Shoeleather Journalism
in the Digital Age

Apple accused of monopolizing smartphone markets in U.S. antitrust lawsuit

Photo of Apple
People stand outside an Apple Store as Apple’s new iPhone 15 officially goes on sale across China, in Shanghai, China September 22, 2023. REUTERS/Aly Song
By Doina Chiacu, Stephen Nellis and Andrew Goudsward | REUTERS

The U.S. Department of Justice and 15 states on Thursday sued Apple, alleging it used the powerful demand for its iPhone and other products to drive up prices for its services and hurt smaller rivals, the latest move in a U.S. crackdown on Big Tech.

Apple joins corporate rivals sued by U.S. regulators, including Alphabet’s Google, Meta Platforms and across the administrations of both former President Donald Trump and President Joe Biden.

“Consumers should not have to pay higher prices because companies violate the antitrust laws,” Attorney General Merrick Garland said in a statement. “If left unchallenged, Apple will only continue to strengthen its smartphone monopoly.”

Dating back to its time as a marginal player in the personal computer market, Apple’s business model has long been based on charging users a premium for technology products where Apple dictates nearly all of the details of how the device works and can be used.

The Justice Department seeks to unwind that business model by forcing Apple to offer users more choices around how apps can tap into the hardware that Apple designs.

Apple shares were trading 3.6% lower.

The Justice Department, which was also joined by the District of Columbia in the lawsuit, alleges that Apple uses its market power to get more money from consumers, developers, content creators, artists, publishers, small businesses and merchants.

The 88-page lawsuit, filed in U.S. federal court in Newark, New Jersey, said it was focused on “freeing smartphone markets from Apple’s anticompetitive and exclusionary conduct and restoring competition to lower smartphone prices for consumers, reducing fees for developers, and preserving innovation for the future.”

In the lawsuit, the U.S. accused Apple is making its products worse for consumers to block competitors and cited five examples where Apple used mechanisms to suppress technologies that would have increased competition among smartphones: so-called “super apps,” cloud stream game apps, messaging apps, smartwatches and digital wallets.

For example, the U.S. alleges Apple made it more difficult for competing messaging apps and smartwatches to work smoothly on its phones. They also allege that Apple’s app store policies around streaming services for games have hurt competition.

The Justice Department quoted an email chain from Steve Jobs, the Apple co-founder who died in 2011, saying that it was “not fun to watch” how easily consumers could switch from iPhones to Android phones and vowing to “force” developers to use its payment systems in an effort to lock in both developers and consumers.

Apple disagreed in a statement, saying: “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 is unclear what specific changes the Justice Department seeks. The complaint asks a court to prevent Apple from using its control of app distribution, contracts and use of private software interfaces to undermine rivals and to order anything else necessary “to restore competitive conditions in the markets affected by Apple’s unlawful conduct.”

Apple has already been subject to antitrust probes and orders in Europe, Japan and Korea, as well as lawsuits from corporate rivals such as Epic Games.

One of Apple’s most lucrative businesses — its App Store, which charges developers commissions of up to 30% – has already survived a lengthy legal challenge under U.S. law by Epic. While the lawsuit found that Apple did not violate antitrust laws, a federal judge ordered Apple to allow links and buttons to pay for apps without using Apple’s in-app payment commission.

During a press briefing, U.S. Attorney General Merrick Garland said the Justice Department believes it can win.

“We bring cases because we believe the facts on what justify them, and because we believe that we are likely to win those cases,” Garland said.

Apple has long argued that it restricts access to some user data and some of the iPhone’s hardware by third-party developers for privacy and security reasons.

Assistant Attorney General Jonathan Kanter of the antitrust division said the Justice Department would present evidence that Apple’s approach was not motivated purely by those concerns.

“Our complaint explains that, in many instances, Apple’s conduct has made its ecosystem less private and less secure,” Kanter said.

In Europe, Apple’s App Store business model has been dismantled by a new law called the Digital Markets Act that went into effect earlier this month. Apple plans to let developers offer their own app stores – and, importantly, pay no commissions — but rivals such as Spotify and Epic argue Apple is still making it too hard to offer alternative app stores.

The rulings on Apple’s App Store forced the Justice Department to look at Apple’s other practices for the basis of a complaint, such as how Apple allows outside firms to access the chips and sensors in the iPhone.

Consumer hardware firms, such as smart-tracker maker Tile Inc, have long complained that Apple has restricted the ways in which they can work with the iPhone’s sensors while developing competing products that have greater access.

Apple began selling AirTags – which can be attached to items like car keys to help users find them when they are lost – several years after Tile had been selling a similar product.

Similarly, Apple has restricted access to a chip in the iPhone that allows for contactless payments. Credit cards can only be added to the iPhone by using Apple’s own Apple Pay service.
And Apple has also faced criticism over its iMessage service, which only works on Apple devices.

Editor’s Note: Reporting by Doina Chiacu, David Shepardson and Andrew Goudsward in Washington and Stephen Nellis in San Francisco; Editing by Chris Sanders and Lisa Shumaker

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