DOJ sues Apple for monopolizing smartphone market

The US Department of Justice (DOJ) and 16 state Attorneys General have filed a sweeping antitrust lawsuit against Apple and its business practices involving the iPhone. 

Announced during news conference in Washington, D.C. today, the 88-page lawsuit drew quick fire from Apple, which said it “threatens who we are.” The company vowed  to “vigorously defend’ itself against the DOJ.

Following several years of investigation, the suit cites numerous internal Apple emails, makes numerous arguments about what the company is doing wrong, and demands that Apple’s anti-competitive business practices “must stop.”

It’s the latest big anti-big tech antitrust case to come out of the Biden administration.

What Apple is accused of

Apple is accused of multiple violations of the Sherman Act and of holding back innovation through a range of what the department sees as abusive business practices.

It also claims consumers are paying more for smartphones, and for digital goods and services, than they would be doing in the absence of Apple’s alleged monopolistic behavior.

Among other arguments, the litigation claims:

• Apple harms competition by imposing contractual restrictions, fees, and taxes on app creation and distribution.
• Apple has disrupted the growth of so-called “super” apps that would make it easier for consumers to switch between competing smartphone platforms.
• That Apple has held back the evolution of cloud streaming apps.
• That Apple uses APIs and other critical access points in the smartphone ecosystem to control third-party innovation, with Messages, smartwatches, and digital wallets now in the regulatory sights.

Whack-a-mole ecosystem

Many of the arguments made in the case echo those that have emerged in other parts of the world, particularly Europe and the DMA. This lawsuit goes much deeper, though, and challenges core elements of the iPhone ecosystem.

The complaint goes even further, alleging that Apple’s conduct extends beyond these examples, affecting web browsers, video communication, news subscriptions, entertainment, automotive services, advertising, location services, and more.

“For years, Apple responded to competitive threats by imposing a series of ‘Whack-A-Mole’ contractual rules and restrictions that have allowed Apple to extract higher prices from consumers, impose higher fees on developers and creators, and to throttle competitive alternatives from rival technologies,” DOJ Antitrust Division Chief Jonathan Kanter said in a statement.

What the Justice Department said

“Consumers should not have to pay higher prices because companies violate the antitrust laws,” said Attorney General Merrick B. Garland. “We allege that Apple has maintained monopoly power in the smartphone market, not simply by staying ahead of the competition on the merits, but by violating federal antitrust law.

“If left unchallenged, Apple will only continue to strengthen its smartphone monopoly. The Justice Department will vigorously enforce antitrust laws that protect consumers from higher prices and fewer choices. That is the Justice Department’s legal obligation and what the American people expect and deserve.”

“No matter how powerful, no matter how prominent, no matter how popular — no company is above the law,” said Deputy Attorney General Lisa Monaco. “Through today’s action, we reaffirm our unwavering commitment to that principle.”

What Apple said in response

In a statement provided to Computerworld and attributed to Apple, the company said “At Apple, we innovate every day to make technology people love — designing products that work seamlessly together, protect people’s privacy and security, and create a magical experience for our users. 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,” the company said. “It would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology. We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it.”

Not all of the DOJ arguments will hold

It is worth noting that some of the claims in the litigation seem flawed. For example, the lawsuit points to the failure of both Amazon and Microsoft to successfully enter the smartphone business despite all their money and power.

I recall the sheer amount of marketing and media power that was put behind both attempts, and it seems fair to think that Apple will be able to successfully argue it simply did it better. It was, after all, also facing major competitive threat from Android at that time — and still does.

The litigation also argues that Apple’s Messages makes messaging insecure for non-iPhone users, which is also not entirely true – the SMS standard is insecure without Apple’s help.

It is also worth pointing out that Apple holds just about 50% of the US market and that its rivals are far from weak. (Some will counter that Apple’s alleged actions have limited what developers can do with iPhone hardware and software, even as Apple gave itself carte blanche to use those very same features to support its own products.)

The latest attempt by the DOJ to take Apple to task, despite the weakness of some components in the case, will be a lucrative gravy for lawyers on both sides. It’s hard to predict what happens in court, but I can’t imagine every argument will be upheld.

What the analysts are saying

The DOJ accusations and Apple’s determination to fight back mean we must get ready for a long battle, said analysts from Wedbush. While they expect Apple will get fined and might need to adjust some of its business models, they also see the litigation taking years in courts.

“The headline risk is added to the Apple story as this case will not be resolved in the short term and Cupertino will be under a further microscope both in the Beltway and Brussels as well as other Big Tech stalwarts caught in this complex spider web,” the analysts said.

In related news, it now seems more certain Apple faces additional antitrust scrutiny in the EU following its DMA announcements earlier this week.

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