The Department of Justice (DOJ), supported by 15 states and the District of Columbia, has filed a lawsuit against Apple in the U.S. District Court for the District of New Jersey, accusing the tech giant of monopolistic practices in violation of Section 2 of the Sherman Antitrust Act. The lawsuit highlights Apple’s dominance in the U.S. smartphone market, where it holds over 65% of the total market and more than 70% of the performance smartphone segment. It attributes Apple’s significant net income, which surpasses the GDP of over 100 countries, largely to the success of its iPhone product line.
The DOJ alleges that Apple’s monopoly is not merely a result of superior product offerings but is maintained through exclusionary and anti-competitive behavior that harms consumers, developers, and innovation. This conduct includes imposing contractual restrictions and fees on developers, limiting the functionality of third-party apps and accessories, and controlling app distribution and functionality through restrictive access to the iPhone’s operating system.
Apple’s practices have led to higher prices and fees, fewer choices, lower quality products, and less innovation. Specifically, the company is accused of collecting a 30% commission on app store downloads and in-app purchases, suppressing the development of cloud streaming and “super apps,” and intentionally degrading cross-platform messaging quality to discourage iPhone users from communicating with users of non-Apple products.
The lawsuit details how Apple’s actions make it difficult and expensive for users and developers to explore options outside the Apple ecosystem. Examples include Apple’s barriers against non-Apple smartwatches and digital wallets, forcing users into its proprietary products and services, and compromising user privacy and security to maintain its monopoly.
The DOJ argues that Apple’s behavior constitutes unlawful exclusionary conduct that maintains its monopoly power not through product superiority but through anti-competitive practices. The lawsuit emphasizes the importance of enforcing antitrust laws to protect consumers, encourage innovation, and maintain a fair and competitive market. The Justice Department pledges to vigorously enforce antitrust laws to challenge Apple’s conduct and protect the principles of a free and fair economy.
Specific Issues
Apple has been accused of employing several specific technological and operational practices that are alleged to be anti-competitive and exclusionary, leading to its maintenance of monopoly power in the smartphone market. These practices include:
- Contractual Restrictions and Fees: Apple imposes contractual limitations and fees on developers, which restrict the features and functionality that developers can offer to iPhone users. This includes collecting a 30% commission on the price of any app downloaded from the app store, as well as on in-app purchases.
- Selective Restriction of Access: Apple selectively restricts access to the points of connection between third-party apps and the iPhone’s operating system. This degrades the functionality of non-Apple apps and accessories, making it difficult for them to operate effectively on the iPhone.
- Suppression of Cloud Streaming Apps: Apple has suppressed the emergence of cloud streaming apps, including gaming apps, which could reduce user dependence on Apple’s operating system and hardware.
- Suppression of Super Apps: Apple has also suppressed the development of “super apps” that could offer a wide range of services, potentially reducing the need for Apple’s proprietary services and apps.
- Degrading Cross-Platform Messaging: Apple intentionally makes it more difficult for iPhone users to message with users of non-Apple products by degrading the quality and functionality of cross-platform messaging. This includes making texts from non-iPhone users appear as green bubbles with limited functionality, such as unencrypted messages, pixelated and grainy videos, and the absence of features like message editing and typing indicators.
- Barrier Creation Against Non-Apple Smartwatches: Apple uses technical and contractual controls to discourage iPhone users from using non-Apple smartwatches, driving them towards purchasing an Apple Watch, which is only compatible with iPhones.
- Exclusionary Conduct with Digital Wallets: Apple blocks third-party developers from creating competing digital wallets on the iPhone, particularly those utilizing tap-to-pay functionality. This forces users who wish to use digital wallet functions to share personal information with Apple, even if they prefer to only share it with their bank or other trusted parties.
- Compromising Privacy and Security for Monopoly Maintenance: By inserting itself into transactions between iPhone users and third parties (such as credit card issuers), Apple potentially introduces additional risks to privacy and security, a move characterized as prioritizing its monopoly power over user safety.
These practices are alleged to contribute to fewer choices, higher prices, lower quality products, and less innovation for consumers and developers, fundamentally stemming from Apple’s efforts to maintain its monopoly power through means other than product superiority.