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Justice Department Sues Apple, Claiming Illegal Monopoly Over Smartphone Market

The Justice Department and more than a dozen state attorneys general have sued Apple, claiming that the tech giant has an illegal monopoly over the smartphone market.

Attorney General Merrick Garland told reporters Thursday morning 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. Consumers should not have to pay higher prices because companies break the law.” He said that Apple’s share of the performance smartphone market exceeds 70%.

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In the lawsuit, the Justice Department and the states claim that “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, “It has deployed this playbook across many technologies, products, and services, including super apps, text messaging, smartwatches, and digital wallets, among many others.”

Read the Apple antitrust lawsuit.

The lawsuit is the latest Biden-era effort to curb the power of tech giants, as the DOJ and regulatory agencies also have sued Meta, Google and Amazon.

Apple’s stock price had fallen by 3.54% in the initial 90 minutes of trading this morning.

In a statement, Apple said that the 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 that the lawsuit “would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.”

The DOJ also warned that Apple’s monopoly on smartphones could extend to other areas of the economy, including entertainment.

In the lawsuit, the Justice Department said that “Apple’s anticompetitive conduct not only limits competition in the smartphone market, but also reverberates through the industries that are affected by these restrictions, including financial services, fitness, gaming, social media, news media, entertainment, and more. Unless Apple’s anticompetitive and exclusionary conduct is stopped, it will likely extend and entrench its iPhone monopoly to other markets and parts of the economy.”

“For example, Apple is rapidly expanding its influence and growing its power in the automotive, content creation and entertainment, and financial services industries — and often by doing so in exclusionary ways that further reinforce and deepen the competitive moat around the iPhone.”

The lawsuit cited Apple’s expansion into entertainment “as a TV and movie producer,” claiming that it “has exercised that role to control content.”

The lawsuit also cited what the DOJ characterized as excessive pricing, for consumers and app creators. Among other things, the government cited Apple’s 30% cut of iPhone app store sales, something that has long been a focus of antitrust hearings on Capitol Hill.

“Today, Apple charges as much as $1,599 for an iPhone and earns high margins on each one, more than double those of others in the industry,” the lawsuit stated. “When developers imagine a new product or service for iPhone consumers, Apple demands up to 30 percent of the price of an app whose content, product, or service it did not create. Then when a consumer wants to buy some additional service within that app, Apple extracts up to another 30 percent, again for a service Apple does not create or develop. When customers buy a coffee or pay for groceries, Apple charges a fee for every ‘tap-to-pay’ transaction, imposing its own form of an interchange fee on banks and a significant new cost for using credit cards. When users run an internet search, Google gives Apple a significant cut of the advertising revenue that an iPhone user’s searches generate.”

Garland claimed that Apple’s hold on app developers stifled the creation of cloud streaming apps, while its has tried to block users from being less dependent on its own operating system and hardware.

“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 marking it more difficult for iPhone users to message with users of non-Apple products,” he said.

The lawsuit seeks “relief as needed to cure any anticompetitive harm,” but wants a judgment that prevents Apple from using its control of app distribution to undermine cross-platform technologies like “super” apps and cloud streaming apps. The DOJ also is seeking a prohibition on Apple’s use of private application programming interfaces to limit things like messaging, smartwatches and digital wallets. The government also wants a restriction on Apple’s use of “the terms and conditions of its contracts with developers, accessory makers, consumers, or others to obtain, maintain, extend, or entrench a monopoly.”

The lawsuit takes aim at Apple’s attempts to keep consumers within its ecosystem. The complaint cites conversations and emails between Apple executives, including a March 2016 email that Apple’s senior vice president of worldwide marketing forwarded to CEO Tim Cook. It made the point that “moving iMessage to Android will hurt us more than help us.” In another instance, Cook was asked whether Apple would fix iPhone-to- Android messaging. The questioner noted that “I can’t send my mom certain videos.” According to the lawsuit, Cook responded, “Buy your mom an iPhone.”

The DOJ even goes back to the Steve Jobs era for examples of where Apple sought to wall itself off from competing products. In 2010, according to the lawsuit, a top executive emailed Jobs about an ad for Amazon’s Kindle. The ad featured a woman who used her iPhone to read books on the Kindle app. She was then able to switch to the Android smartphone and continue to read the books via the same app. The executive wrote to Jobs, “message that can’t be missed is that it is easy to switch from iPhone to Android. Not fun to watch.”

The lawsuit stated, “Jobs was clear in his response: Apple would ‘force’ developers to use its payment system to lock in both developers and users on its platform. 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.”

White House Assistant Press Secretary Michael Kikukawa said that they do not have a comment on the specific lawsuit, but added, “The Biden-Harris Administration has made clear that no American should pay higher prices and lose choices because companies break the law.”

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