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The US is suing Apple for allegedly using its power in the smartphone sector to quash competition from rivals and limit consumer choice, in the latest broadside against the dominant Big Tech companies from Joe Biden’s administration.
The move comes as Apple faces pressure from regulators, courts and rivals around the world over the way it runs the iPhone, putting its $85bn a year services revenue at risk. Apple shares were down about 3 per cent.
The landmark lawsuit filed on Thursday in federal court in New Jersey by the US Department of Justice, along with a bipartisan group 16 state and district attorneys, accuses the group of imposing contractual limitations on developers while making it more difficult for users to switch devices.
The DoJ’s antitrust chief Jonathan Kanter described Apple’s response to competition over the years as “a series of ‘Whac-A-Mole’ contractual rules and restrictions” that had allowed it to crush competition.
The complaint accuses the company of abusing its market power in a variety of ways: to squash the growth of innovative apps and messaging services, reduce the appeal of rival smartwatches, keep rival tap-and-pay apps from its devices and block the development of game streaming apps. Apple changed its policy that prohibited game streaming apps on its App Store earlier this year.
At a press conference on Thursday, US attorney-general Merrick Garland noted that Apple’s net income — which was $97bn in 2023 — now “exceeds the GDP of more than 100 countries”, in large part due to the success of its iPhone, which he said has more than a 65 per cent share of the US smartphone market.
Over the years “Apple has maintained monopoly power in the smartphone market” not simply by “competition on the merits” but through an intentional strategy to exclude competitors, Garland said.
“Apple has maintained its power not because of its superiority but because of its unlawful exclusionary behaviour,” he added.
Apple called the lawsuit “wrong on the facts and the law”.
“This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets,” it said. “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.”
It is the first antitrust challenge against Apple under Biden’s administration, which is pursuing antitrust cases against some of the biggest Silicon Valley companies.
Senior DoJ officials on Thursday compared the Apple lawsuit to some of the most significant antitrust cases in US history, including challenges against AT&T, Standard Oil and Microsoft, which was accused two decades ago of using its Windows monopoly to crush web browser pioneer Netscape. “Today we add to that distinguished legacy,” said Kanter.
The DoJ last year sued Google for allegedly exercising monopolistic control of the digital advertising market. A trial is ongoing in a separate federal case over the Alphabet-owned company’s market power for internet search.
The Federal Trade Commission, another US competition regulator, has sued Amazon, alleging it illegally uses monopoly power to overcharge consumers and exploit sellers, and is pursuing a case that aims to force Meta to unwind its acquisitions of Instagram and WhatsApp.
The DoJ joins a growing global backlash against Apple’s tight control of its iOS ecosystem, which critics claim allows the company to levy monopoly fees and impose unfair business terms.
EU antitrust regulators fined Apple €1.8bn earlier this month over “steering” policies that prevent rival music streaming apps such as Spotify from directing customers outside of its App Store to make payments.
This month the bloc’s Digital Markets Act also came into force, requiring the iPhone maker to make historic changes to its mobile ecosystem in Europe, opening it up to rival stores and payment methods.
Five ways the US alleges that Apple abused its power
Blocking ‘super apps’ The DoJ says that so-called super apps would allow users to access a variety of content, “not unlike how Netflix and Hulu allow users to find and watch thousands of movies and television shows in a single app”. The complaint cites an Apple manager saying that such apps would “let the barbarians in at the gate”, threatening “iOS stickiness”.
Blocking competing cloud gaming apps These apps, offered by the likes of Microsoft and Nvidia, allow a library of games to be streamed on an app via the cloud. The DoJ quotes individuals at Apple as saying that, with such services, “all that matters is who has the cheapest hardware” and consumers could “buy[] a [expletive] Android for 25 bucks at a garage sale and . . . have a solid cloud computing device” that “works fine”.
Cross-system messaging The DoJ says Apple degrades the messaging experience on iPhone for messages from Android users, noting the infamous “green bubble” denoting messages from non-Apple users. “Apple could have made a better cross-platform messaging experience itself by creating iMessage for Android but concluded that doing so ‘will hurt us more than help us,’” the DoJ says.
Smartwatch incompatibility “Having copied the idea of a smartwatch from third-party developers, Apple now prevents those developers from innovating and limits the Apple Watch to the iPhone to prevent a negative ‘impact to iPhone sales,’” the DoJ says.
Digital wallets “While Apple actively encourages banks, merchants and other parties to participate in Apple Wallet, Apple simultaneously exerts its smartphone monopoly to block these same partners from developing better payment products and services for iPhone users,” the DoJ alleges.