In the latest attack on the Big Tech giants, Joe Biden’s government is suing Apple over its alleged use of power to limit competition and restrict consumer choice in the smartphone industry.
Apple is under pressure from rivals and regulators in the world to change the way the iPhone works. This puts its $85bn revenue per year at risk. Apple shares fell by 4 percent.
The US Department of Justice filed a landmark lawsuit on Thursday, in federal court, in New Jersey, with a group of bipartisan 16 state and district attorney attorneys. They accuse the group of placing contractual restrictions on developers, while making it harder for users to change devices.
Jonathan Kanter, the DoJ’s chief antitrust officer, described Apple’s response to competition in recent years as a “series of ‘Whac-A-Mole’ contractual rules and limitations” that allowed it to crush competitors.
The complaint accuses Apple of abusing its power to stifle the growth of innovative messaging and apps, deter rival smartwatches from being attractive, prevent rival tap-and pay apps from appearing on its devices, and stop the development of streaming game apps. Apple’s policy prohibiting game streaming apps from its App Store was changed earlier this year.
In a press briefing on Thursday, US Attorney-General Merrick Garland said that Apple’s Net Income — $97bn by 2023 — “exceeds GDP of more 100 countries”, largely due to its iPhone. He noted that the iPhone has more than a 65 per cent market share in the US smartphone industry.
He said that Apple has been able to maintain its monopoly in the smartphone market not just by “competition based on merits”, but also through a deliberate strategy of excluding competitors.
Garland said that Apple’s power was not due to its superiority, but rather because of the illegal exclusionary behavior of its employees.
Apple said that the suit was “wrong in fact and law”.
It said: “This lawsuit threatens our identity and the principles which set Apple products apart on fiercely competitive markets.” If successful, this lawsuit would hamper our ability to develop the technology that people expect from Apple – where hardware, software, and services are intertwined. This would set a dangerous precedent by empowering the government to design people’s tech.”
This is the first antitrust case against Apple brought by Biden, whose administration is currently pursuing antitrust lawsuits against some of Silicon Valley’s biggest companies.
If the DoJ succeeds, possible remedies could range from an order to break up the company or impose changes in how Apple creates contracts or runs its businesses. US officials refused to comment on the remedies they would ultimately seek.
Senior DoJ officials compared Apple’s lawsuit on Thursday with some of most significant antitrust suits in US history. These included challenges against AT&T and Standard Oil, as well as Microsoft, who was accused 20 years ago of using Windows to crush the web browser pioneer Netscape. Kanter said, “Today, we add to this distinguished legacy.”
Last year, the DoJ filed a lawsuit against Google over alleged monopolistic control on the digital advertising industry. In a separate federal lawsuit, a trial is underway over Alphabet’s company’s monopoly power in internet search.
The Federal Trade Commission (FTC), another US competition regulator has sued Amazon for allegedly using monopoly power illegally to exploit consumers and overcharge sellers. Meta is also pursuing an action to force it to undo its acquisitions Instagram and WhatsApp.
The DoJ has joined a global backlash against Apple for its tight control over the iOS ecosystem. Critics claim that this allows Apple to levy monopoly charges and impose unfair terms of business.
Apple was fined EUR1.8bn by EU antitrust regulators earlier this month for “steering policies” that prevented rival music streaming apps like Spotify from directing their customers to the App Store in order to make payments.
The Digital Markets Act of the EU came into effect this month, and required the iPhone maker make significant changes to its mobile eco-system in Europe. This included opening up the ecosystem to rival stores, payment methods, and other competitors.
Blocking “super apps”The DoJ claims that super apps will allow users to watch a wide variety of content in one location, similar to how Netflix and Hulu let users access thousands of movies. According to the complaint, an Apple manager said that these apps “would let the barbarians into the gate”, which would threaten “iOS Stickiness”.
Blocking rival cloud gaming appsThese applications allow games to stream via the cloud. Apple employees are quoted by the DoJ as saying that with these services “all that counts is who has cheapest hardware”. Consumers could buy a “[expletive] Android at a garage. . . Have a solid cloud-computing device that “works well”.
Cross system messagingThe DoJ claims that Apple degrades iPhone messaging for messages sent by Android users. They also note the infamous green bubble. Apple could have created a better cross platform messaging experience by creating iMessage on Android, but decided that it would ‘hurt us more than benefit us’.
Smartwatch compatibility “Having copied the smartwatch idea from third-party developers Apple prevents these developers from innovating, and limits the Apple Watch only to the iPhone in order to prevent a negative impact on iPhone sales,” the DoJ states.
Digital wallets “While Apple actively encourages merchants, banks and other parties to take part in Apple Wallet,” the DoJ claims, Apple also uses its smartphone monopoly as a way to prevent these partners from creating better payment products and service for iPhone users.