On Thursday, the US Department of Justice (DOJ) intensified its unique antitrust fight against Big Tech by filing a lawsuit that claims Apple Inc. is unlawfully keeping a monopoly on the smartphone market with its limiting mobile ecosystem. For years, many of us have encountered some of the tactics Apple uses to push consumers into its ecosystem, such as the green versus blue SMS messages or its tight file-sharing rules. Now, the DOJ is finally paying attention.
The 88-page complaint, filed in US District Court in New Jersey, alleges that Apple (AAPL) has violated federal antitrust laws by engaging in “a broad, sustained, and illegal course of conduct” to stifle competition and harm consumers.
It argues that Apple leverages control over the key entry points of iPhone software to “extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others”.
The lawsuit, filed by 16 state attorneys general, aims to halt Apple’s claimed anticompetitive actions and bring back competition in several markets impacted by the company’s practices. This could require Apple to make major changes to how it runs its business areas, including smartphones and its services and software divisions.
“Consumers should not have to pay higher prices because companies break the law”, claimed Attorney General Merrick Garland when he announced the legal proceeding. “If left unchallenged, Apple will only continue to strengthen its smartphone monopoly.”
Apple forcefully denied the DOJ’s allegations, stating that the lawsuit “threatens who we are and the principles that set Apple products apart in fiercely competitive markets.”. The company vowed to “vigorously defend against it” and claimed that the case is an example of government overreach in technology design.
Apple Exerts Monopolistic Powers Spanning from Instant Messaging to Digital Payments
At the heart of the case is the assertion that Apple has exerted monopolistic powers in the smartphone market in the United States, giving it outsized control over a key gateway technology. The DOJ alleges Apple has “the power to control prices or exclude competition” for mobile devices.
“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 Jonathan Kanter, head of the DOJ’s Antitrust Division.
The complaint outlines a range of alleged anticompetitive behaviors by Apple stemming from its control over iOS, the operating system that powers its flagship smartphones – the iPhones.
The DOJ accuses the company of undermining competing services and technologies through technical restrictions, selective enforcement of policies, and restrictive contractual terms with developers and partners.
Also read: Apple Shuts Down Epic’s Developer Account in Escalating App Store Battle
For example, the lawsuit contends that Apple has prevented rival cloud gaming services from allowing iPhone users to access high-quality games without buying expensive hardware. It also claims that the company has degraded the quality of messaging between iPhones and Android devices (especially with certain file types like videos), making it harder for consumers to switch away from iPhones.
In addition, the DOJ argues Apple uses its control over iPhone software and services to harm competition in digital payments, web browsers, video communications, news subscriptions, automotive services, advertising, and more. The company’s conduct “extends beyond these examples”, the complaint states.
The DOJ Cites Green Bubble vs. Blue Bubble Issue as an Example
One particular focus is on Apple’s control over messaging through its iMessage service, which DOJ officials highlighted in the press conference. By restricting how third-party messaging apps interoperate with iMessage, the suit argues that Apple “knowingly and deliberately” undermined the quality, privacy, and security of these apps compared to its own messaging.
It cites the example of the “green bubble” vs. “blue bubble” experience, where messages between iPhones (blue bubbles) include enhanced features like encryption, high-quality multimedia, typing indicators, and read receipts that are stripped from messages to Android users (green bubbles).
“This effect is particularly powerful for certain demographics, like teenagers — where the iPhone’s share is 85 percent, according to one survey”, the complaint states. Teenagers are sometimes shamed because they don’t have iPhones because of ‘features’ like the green vs blue bubbles. It quotes Apple executives acknowledging the scenario creates a “very sticky” incentive for families to keep buying iPhones to avoid a diminished messaging experience.
The lawsuit also claims that Apple makes third-party messaging apps “worse generally and relative to Apple Messages” by limiting their access to key APIs and functionality like the ability to set a default messaging app.
Limiting Third-Party Integrations and Access to Proprietary Apps
Similar allegations are made about how Apple restricts third-party integrations and functionality for services like smartwatches, digital wallets, web browsers, and cloud services that compete with its own offerings.
“Apple prevents iPhone users from responding to notifications using a third-party smartwatch”, the complaint states, arguing that this and other limitations are designed to force users to buy an Apple Watch if they want to access advanced features to control their iPhone remotely.
Also read: US Stays Crippling Ban of New Apple Watch Models Over Copyright Infringement
On digital wallets, the DOJ also contended: “Apple has prevented third-party apps from offering tap-to-pay functionality, inhibiting the creation of cross-platform third-party digital wallets.” This could be one of the DOJ’s best arguments as the anticompetitive nature of these restrictions is especially clear and obvious. Restricting the feature set of other wallet apps doesn’t improve the experience of the iPhone whatsoever.
The lawsuit portrays Apple as being threatened by cross-platform technologies that could make it easier for consumers to switch away from its ecosystem. It cites internal emails from Apple executives where they discuss blocking competitors like the Beeper messaging app that bridged iMessage to Android (thus eliminating the blue vs green bubble conundrum) out of fear that it could help families give kids Android phones – which are typically cheaper – if they are able to communicate with them via this type of instant messaging tool.
Is a Breakup Possible? The DOJ Says That All Remedies Are On the Table
While not explicitly calling for a corporate breakup, the DOJ suit asks the court to stop Apple from using its control over software to “undermine cross-platform technologies.” The government agency seeks to prevent contractual terms that “obtain, maintain, extend, or entrench” Apple’s monopoly power. It’s important to note here that a full breakup is extraordinarily unlikely.
The DOJ is also exploring “equitable relief” measures to alleviate the negative impact caused by Apple’s practices. When asked about potential structural remedies like a breakup, DOJ officials emphasized that it’s still premature to discuss this kind of arrangement. However, such options remain on the table if they will help restore healthy competition.
If successful, the lawsuit could have major implications for the core of Apple’s business model and products that rely on tightly integrating hardware, software, and services. The firm’s iPhones, iPads, MacBooks, Apple Watches, and various online services including the App Store, along with other key revenue drivers could all face court-mandated changes.
The suit follows years of entirely separate accusations that Apple has abused its control of the iOS platform with its monopolized app store to squeeze developers, underpay creators, and stifle innovation, and eliminate consumer choice. While Apple positions itself as a champion of privacy and security, the DOJ argues that this is just propaganda aimed at disguising multiple anticompetitive practices that primarily serve its bottom line.
Mounting Scrutiny Across the Globe Against Tech Incumbents Has Resulted in Large Fines and Policy Changes
Apple now faces a formidable legal challenge after similarly expansive antitrust lawsuits against Alphabet (GOOG), the parent company of Google, over its search and advertising businesses have resulted in huge fines and mandatory policy changes.
Moreover, the US Federal Trade Commission (FTC) has also brought forward cases against Meta Platforms (META), the parent company of Facebook, due to its monopolistic practices in the advertising business primarily.
The DOJ suit parallels efforts in Europe, where regulators recently hit Apple with a $2 billion fine over its App Store policies regarding music streaming apps. Meanwhile, the economic bloc recently approved a comprehensive piece of legislation called the Digital Markets Act (DMA) that will force Apple to open up its operating systems to allow third-party marketplaces to be installed in its flagship devices to some degree (but only in the EU). However, Apple is trying to replace its restrictive policies with even more anticompetitive practices by forcing developers to pay massive junk fees for sideloaded apps.
Critics like Spotify (SPOT), smartwatch manufacturers, and payment apps have accused Apple of abusing its control over iOS to hamstring competing services for a long time. The suit also echoes allegations from the messaging app developer Beeper after the company unsuccessfully tried to bring iMessage’s capabilities to Android phones. They were swiftly blocked by Apple as they were perceived as a threat to its closed ecosystem.
Some developers and security experts warn that forcing Apple to loosen control could compromise the iPhone’s security and privacy. Others counter that Apple weaponizes those arguments to protect an unfair competitive advantage.
Apple is likely to mount a vigorous defense arguing that the government has incorrectly defined the relevant market and Apple’s practices ultimately benefit rather than harm consumers.
However, with its dominant market share and staggering $383 billion in revenue produced last year, the iPhone maker could face an uphill battle in convincing courts that its actions don’t constitute illegal monopolization.
The high-stakes litigation kicks off what’s expected to be a lengthy legal process with appeals likely from either side after an initial ruling. It presages even more turbulence ahead in tech’s reckoning with competition enforcers and regulators around the world.