US sues Apple for monopolistic practices with the iPhone

The United States is continuing its crusade against big tech. Be it via the Department of Justice (DOJ) or the Federal Communications Commission (FCC), Joe Biden’s government has launched an offensive against what it considers illegal monopolistic practices by companies such as Alphabet (Google), Amazon and Microsoft. The latest chapter of this battle is a major lawsuit against Apple for the digital fortress it has built around its flagship product, the iPhone.

The 88-page lawsuit — announced by Attorney General Merrick Garland on Thursday — was filed in a federal court in New Jersey by the Department of Justice and the attorneys general of 16 states. The suit accuses the technology giant of violating antitrust laws by blocking rivals from accessing the hardware and software functions of its smartphone, thereby hindering their ability to offer alternative products and services to those of the company led by Tim Cook.

“Consumers should not have to pay higher prices because companies violate the antitrust laws,” Attorney General Merrick Garland said in a statement. “If left unchallenged, Apple will only continue to strengthen its smartphone monopoly.”

“Apple has employed a strategy that relies on exclusionary, anticompetitive conduct that hurts both consumers and developers,” he continued. “For consumers, that has meant fewer choices; higher prices and fees; lower quality smartphones, apps, and accessories; and less innovation from Apple and its competitors. For developers, that has meant being forced to play by rules that insulate Apple from competition. And as outlined in our complaint, we allege that Apple has consolidated its monopoly power not by making its own products better — but by making other products worse.”

According to the DOJ, Apple anticompetitive course of conduct has taken several forms. First, Apple imposes contractual restrictions and fees that limit the features and functionality that developers can offer iPhone users. Second, Apple selectively restricts access to points of connection between third-party apps and the iPhones’ operating system, degrading the functionality of non-Apple apps and accessories. As a result, for most of the past 15 years, Apple has collected what Garland called “a tax in the form of a 30% commission on the price of any app downloaded from the App Store.” Apple has also suppressed the emergence of programs such as cloud streaming apps — including gaming apps — as well as super apps that could reduce the user’s dependence on Apple’s own operating system and expensive phones, which, as Garland pointed out, cost as much as $1,600.

“And, as any iPhone user who has ever seen a green text message, or received a tiny, grainy video can attest, Apple’s anticompetitive conduct also includes making it more difficult for iPhone users to message with users of non-Apple products,” said Garland. “It does this by diminishing the functionality of its own messaging app and by diminishing the functionality of third-party messaging apps. By doing so, Apple knowingly and deliberately degrades quality, privacy, and security for its users.”

If an iPhone user sends a message to a non-iPhone user via their messaging app, that text appears not only as a green bubble, but incorporates limited functionality. The conversation is not encrypted. Videos appear pixelated and grainy, and users cannot edit messages.

“As a result, iPhone users perceive rival smartphones as being lower quality because the experience of messaging friends and family who do not own iPhones is worse — even though Apple is the one responsible for breaking cross-platform messaging. And it does so intentionally,” said Garland, who also pointed out that a smartwatch or a digital wallet also has difficulties communicating with Apple’s operating system.

“Each step in Apple’s course of conduct built and reinforced the moat around its smartphone monopoly,” the government said in the lawsuit, which accuses the company of using its monopoly to charge more from consumers, developers, content creators, artists, publishers, small businesses and retailers.

The lawsuit begins by exposing an internal email in which an Apple senior executive warns Steve Jobs about an ad for the new Kindle e-reader, which shows that it can be used even if a person switches from an iPhone to an Android smartphone. “Not fun to watch,” the message read. “Over many years, Apple has repeatedly responded to competitive threats like this one by making it harder or more expensive for its users and developers to leave than by making it more attractive for them to stay,” the complaint states.

It continues: “For many years, Apple has built a dominant iPhone platform and ecosystem that has driven the company’s astronomical valuation. At the same time, it has long understood that disruptive technologies and innovative apps, products, and services threatened that dominance by making users less reliant on the iPhone or making it easier to switch to a non-Apple smartphone.”

“Rather than respond to competitive threats by offering lower smartphone prices to consumers or better monetization for developers, Apple would meet competitive threats by imposing a series of shapeshifting rules and restrictions in its App Store guidelines and developer agreements that would allow Apple to extract higher fees, thwart innovation, offer a less secure or degraded user experience, and throttle competitive alternatives,” it adds.

This is the third time in the last 14 years that the Department of Justice has sued Apple for antitrust violations. This lawsuit, however, is the largest. In 2010, the company agreed to settle a lawsuit over its illegal deals not to hire staff from Google, Adobe or Disney subsidiary Pixar. Two years later, the Justice Department sued Apple and book publishers for illegally fixing the price of e-books sold on the iPad. After the DOJ won the lawsuit, Apple was forced to change certain practices to improve its antitrust compliance.

In addition, Apple is also facing demands from its competitors. The pressure intensified Wednesday when Meta Platforms, Microsoft, the social network X and the firm Match Group allied themselves to a complaint by Epic Games — the maker of the video game Fortnite — that Apple has breached a court order regulating payments in its app store.

Epic sued Apple in 2020, alleging it violated antitrust law by forcing consumers to obtain apps through the App Store and charging developers up to 30% commission on purchases. The injunction required Apple to allow developers to provide links and buttons to direct consumers to alternative payment options. Last week, Epic demanded that Apple be held in contempt, claiming that the new rules and a new 27% fee imposed on developers rendered the links effectively useless.

The Department of Justice filed two lawsuits against Google, one for alleged abuse of its dominant position in the search engine market — which has gone to trial and is awaiting judgment — and another for its monopolistic behavior in the digital advertising market, which is still pending. Now, the same Department, headed by Attorney General Merrick Garland, has targeted Apple, a company it had already targeted in two other minor cases.

The FCC unsuccessfully tried to stop Microsoft’s purchase of the video game company Activision with another legal action. In addition, last September, it sued Amazon, arguing the company wielded monopoly power to “inflate prices, degrade quality, and stifle innovation for consumers and businesses.”

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