The US has filed a significant lawsuit against Apple, accusing the tech giant of monopolizing the smartphone market and stifling competition.
The lawsuit alleges that Apple abused its control of the iPhone app store to “lock in” customers and developers, making it difficult for rivals to compete. It also accuses the company of taking illegal actions to hinder apps that posed a threat and make competing products less attractive.
Apple has stated that it will “vigorously” contest the lawsuit and denies the allegations.
The lawsuit, filed in a federal court in New Jersey along with the attorneys general of 16 states, represents a major legal challenge for Apple. It comes amid increasing scrutiny of the company’s practices in recent years.
The complaint alleges that Apple implemented “a series of shapeshifting rules” and restricted access to its hardware and software to increase its own profits while raising costs for consumers and stifling innovation.
“Apple has maintained monopoly power in the smartphone market not simply by staying ahead of the competition on the merits but by violating federal anti-trust law,” Attorney General Merrick Garland said at a press conference announcing the suit.
“Customers should not have to pay higher prices because companies break the law.”
The 88-page complaint details five areas where Apple is accused of abusing its power. One allegation is that Apple used its app review process to hinder the development of “super apps” and streaming apps, fearing that these apps would reduce the appeal of iPhones.
The complaint also claims that Apple has made it challenging to connect iPhones to smartwatches made by competitors and has blocked banks and other financial institutions from accessing its tap-to-pay technology, which has resulted in Apple earning billions in transaction fees from Apple Pay.
Another focus of the complaint is how Apple treats messages sent from rival phones, identifying them with green bubbles and limiting certain features. This practice, according to the complaint, has created a “social stigma” that has helped Apple maintain its dominance in the market.
Apple has defended its actions, stating that customer loyalty is driven by satisfaction and that it has the right under US law to choose its business partners. The company has also cited privacy and security concerns as reasons for its rules.
The company said it would ask the court to dismiss the lawsuit, which it predicted would fail.
“We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it,” the company said.
The case will hinge on the question of motivation, said Bill Baer, a visiting fellow at Brookings who was an anti-trust official under the Obama administration.
“Anti-trust laws and the courts’ interpretation of them suggest that once you’re a monopolist,” he said, “if you do engage in behaviours that have no legitimate business justification other than to limit competition and cement your monopoly, then that is problematic.”
It is the third legal action Apple has faced from the US government since 2009 and the first anti-trust challenge filed against the company under President Joe Biden’s administration.
A victory for the government in this case could compel Apple to revamp its existing contracts and practices, potentially even leading to the company’s breakup.
Following the news of the legal battle, Apple’s shares dropped more than 4% as investors contemplated the implications.
However, any changes resulting from the case would likely take years to materialize as the legal process unfolds.
Rebecca Allensworth, a professor at Vanderbilt University, described the case as “a blockbuster,” noting that it follows similar lawsuits the Justice Department has filed against other major tech companies like Google, Meta, and Amazon.
She emphasized that the case centers on enhancing functionality between smartphones and making technology and software more accessible to consumers and businesses alike.
Competition commissioner Margrethe Vestager said Apple had abused its dominant position in the market for a decade, and ordered the tech giant to remove all of the restrictions. Apple said it would appeal against the decision.
“It’s not about breaking up Apple into small units or spinning off divisions,” she said.
Apple has faced a growing legal backlash over its iOS ecosystem and business practices.
It is engaged in a lengthy legal battle with Epic Games, which makes Fortnite.
Last month, it was fined €1.8bn (£1.5bn) by the EU for breaking competition laws over music streaming.
The firm had prevented streaming services from informing users of payment options outside the Apple app store, the European Commission said.
Anat Alon-Beck, a business law professor at Case Western Reserve University in Ohio, said the justice department’s new lawsuit was “far more extensive” than its previous legal challenges in the EU.
“It’s not just about the 30% app store fee, but about the core unfair practices of Apple,” she said, adding that it was “about time” that the DOJ took action.
“Apple systematically excludes rivals from the Apple ecosystem. By doing that, Apple is hurting so many startup businesses, stakeholders, customers and, in my opinion, its shareholders,” she said.
According to the justice department, Apple’s share of the US smartphone market exceeds 70%, and its share of the broader smartphone market exceeds 65%.