DOJ accuses Apple of illegal iPhone monopoly

The Justice Department and a group of state attorneys general filed a sweeping antitrust case against Apple on Thursday, accusing the $2.6 trillion company of violating antitrust law through its control of the iPhone, and raising costs for consumers, developers, artists and others.

In a complaint filed in New Jersey federal court, a bipartisan group of attorneys general in 15 states including California, New Jersey, Oklahoma, North Dakota and Washington, D.C., joined the 88-page lawsuit, which broadly complains of conduct centered around the billions of iPhones sold since 2007 and claims the smartphones were designed to lock users into Apple products.

“For years, Apple responded to competitive threats by imposing a series of ‘Whac-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,” said Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division.

Apple disputed the allegations in a statement. “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets,” 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.”

The case marks the culmination of a five-year probe and comes as Apple is facing regulatory scrutiny around the world. The Biden administration has made confronting corporate power a key part of its domestic economic policy, and the suit is just the latest major legal problem besetting the country’s biggest tech companies. The DOJ also has two ongoing lawsuits against Google, targeting both its search and advertising businesses. And the Federal Trade Commission is both accusing Amazon of illegally inflating the cost of goods sold on its platform and suing to force Meta to sell Instagram and WhatsApp. The investigations all began during the Trump administration.

The fight against corporate power is also a key message for Biden on the campaign trail.

"The American people want a president who is standing up to the most powerful companies and most people identify the tech companies as the most powerful," said Columbia Law School Professor Tim Wu, who previously led competition policy for Biden. "Americans don't like unaccountable power."

Apple’s App Store and its 30 percent commissions on many purchases have drawn the bulk of the criticism from companies like Epic Games, Spotify and Match Group. In Thursday’s case though, the DOJ is accusing the company of antitrust violations across its mobile business. The government is attacking the entirety of its so-called walled garden, which Apple allegedly uses to keep customers tied to its products and services at the expense of rival developers and hardware makers like Samsung.

“Apple props up its monopoly through contractual provisions with software developers and by withholding key features of its iPhone from rivals,” the DOJ and states said in the complaint.

Through its ironclad control of the iPhone and other devices, the DOJ says Apple illegally favors its own offerings over rivals. Among the effects of Apple’s conduct, according to the lawsuit, has been to limit cloud streaming services and apps that allow easy messaging between iPhones and phones using Google’s Android operating system, giving users the dreaded green chat bubbles. Apple has also made it harder for competing smartwatches to work with iPhones, and imposed obstacles for other payment providers to compete with its digital wallet, according to the complaint.

"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," Attorney General Merrick Garland said at a press conference Thursday.

Apple responded that it is working to make messaging with competing devices easier in a secure manner.

“The cumulative effect of [Apple’s] course of conduct has been to maintain and entrench [its] smartphone monopoly at the expense of the users, developers, and other third parties who helped make the iPhone what it is today,” according to the complaint. “Despite major technological changes over the years, Apple’s power to control app creation and distribution and extract fees from developers has remained largely the same, unconstrained by competitive pressures or market forces.”

Apple says the DOJ and states are cherry-picking quotes and taking examples out context, which will come to light as the case is litigated. And it maintains that it does not have any obligation to design its products in way that benefits rivals, and that its sole focus is its customers. Further, it says the changes DOJ wants to impose on its business practices would compromise the security of its devices. It pointed to potential security harms around making its iMessage service available on Android phones and allowing more interoperability with its digital wallet.

The DOJ responds in the lawsuit, saying that "Apple wraps itself in a cloak of privacy, security, and consumer preferences to justify its anticompetitive conduct." It points to messages sent between iPhones and other devices that are unencrypted and mobile payments that could be more secure if not for Apple's involvement, "introducing an additional point of failure for privacy and security."

And while the DOJ is focused on competition in the smartphone market, the complaint said Apple's conduct threatens new innovations as well. "Apple may use its smartphone monopoly playbook to acquire or maintain power over next-frontier devices and technologies," the DOJ and states said.

Concerns include Apple's conduct in the auto market, with its CarPlay entertainment system that could force "users to experience driving as an iPhone-centric experience," according to the suit.

It's also not just the DOJ in the U.S. that has competition concerns about Apple.

“Apple has engaged in a pattern of gatekeeper conduct that harms competition and consumers alike,” said GOP Federal Communications Commissioner Brendan Carr. “I’ve been working at the FCC to promote competition among mobile wireless carriers but that competition now has to filter down through a single choke point—it is Apple and its gatekeeper conduct” with iPhones.

That extends to issues under the FCC’s purview, including what spectrum bands go into phones and which carriers get to offer iPhones, Carr said. “We’ve ended up in a tail-wags-dog scenario, where Apple’s conduct is imposing negative consequences up into the mobile wireless segment.”

"It's a really strongly framed complaint," said Rebecca Haw Allensworth, a Vanderbilt University law professor. "It's a convincing case that Apple is sacrificing revenue in the short-term by making its products worse for consumers, while maximizing long-term revenue by blocking competitors."

Apple has fought off other antitrust challenges, including a case brought by Epic Games. Allensworth, though, noted a key difference between the DOJ complaint and the Epic case of 2021. There, Epic argued that Apple is essentially monopolizing the iPhone. DOJ is accusing Apple of illegally controlling smartphones more broadly, where its market share is as high as 70 percent.

In the Epic case, a judge ruled that Apple's conduct does not violate the antitrust laws, noting the potential for consumers to switch devices and the validity of Apple's security concerns, a fact the company is highlighting today.

DOJ officials declined to comment on whether there were any settlement talks with Apple, but in recent weeks lawyers and executives for Apple met multiple times with senior DOJ officials including antitrust head Kanter in an unsuccessful effort to avoid a lawsuit.

Kanter and Federal Trade Commission Chair Lina Khan "have reputations as people who wont settle easily," Wu said. "I wouldn't expect them to accept something quick from Apple to make it go away."

As for the outcome of the case, the DOJ is staying quiet, with all options on the table, including a potential break up of the company.

Still, the total effect of all the tech cases could pressure all of the major tech companies into acting with more accountability, Wu said. "If you're trying to take on a risky merger, for example, maybe you pass."

Sen. Amy Klobuchar (D-Minn.) has advocated for the past several years for tech focused antitrust legislation barring the largest companies from discriminating against rivals.

"All of these major cases are piling up," Klobuchar said in an interview. "Over time these legal actions and legislation around the world will have a cumulative affect" on how the largest tech companies do business. Klobuchar said she intends to continue pushing for legislation, and the Apple case only makes the need for it more urgent.

The DOJ case is just one piece of Apple's antitrust problems. The European Commission recently fined the company nearly $2 billion for blocking music streaming competitors from offering cheaper deals outside their apps, and EU officials are scrutinizing how Apple is complying with Europe’s recently enacted Digital Markets Act. Elsewhere, countries including South Korea are also coming for Apple and other tech companies.

As recently as Wednesday, companies including Meta, Microsoft, Match, X and Spotify told a federal judge that Apple is not complying with a separate U.S. court ruling, in the case brought by Epic Games. That 2021 ruling required Apple to allow developers to inform customers of cheaper options available off its platforms like the App Store, but the tech companies bringing the complaint say Apple created “dozens of requirements and limitations to which developers must adhere to be eligible to include an external purchase link within their apps.”

The DOJ’s case Thursday is the third antitrust suit the DOJ has filed against Apple since 2010. It previously settled accusations that Apple colluded with other tech companies to suppress worker salaries, and won a trial accusing the company of facilitating a conspiracy to fix prices of e-books. The most recent case, though, is by far the most wide-ranging in scope.

Apple is expected to file a motion in the coming months to throw out the case. Antitrust cases tend to move glacially, and the Justice Department's lawsuit will likely take years to resolve. If it does go to trial, a court will likely first determine whether Apple violated the law before deciding how to respond.