US Government Files Antitrust Lawsuit Against Apple for Alleged Smartphone Monopoly

The Justice Department has filed a comprehensive antitrust lawsuit against Apple, accusing the tech giant of creating an illegal monopoly in smartphones that excludes competitors, stifles innovation, and maintains high prices. The lawsuit, filed in a federal court in New Jersey, claims that Apple has monopoly power in the smartphone market and uses control over the iPhone to engage in a broad, sustained, and illegal course of conduct.

"Apple has locked its consumers into the iPhone while locking its competitors out of the market," said Deputy Attorney General Lisa Monaco. She added that Apple has stalled the advancement of the very market it revolutionised and smothered an entire industry. Apple has responded by calling the lawsuit "wrong on the facts and the law" and stated that it will vigorously defend against it.

The lawsuit targets how Apple shapes its technology and business relationships to extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants. This includes diminishing the functionality of non-Apple smartwatches, limiting access to contactless payment for third-party digital wallets, and refusing to allow its iMessage app to exchange encrypted messaging with competing platforms.

The lawsuit seeks to stop Apple from undermining technologies that compete with its own apps in areas such as streaming, messaging, and digital payments. It also aims to prevent Apple from continuing to craft contracts with developers, accessory makers, and consumers that allow it to obtain, maintain, extend or entrench a monopoly.

Assistant Attorney General Jonathan Kanter, head of the antitrust division, said at a press conference announcing the lawsuit that "The Department of Justice has an enduring legacy taking on the biggest and toughest monopolies in history." He added that they stand once again to promote competition and innovation for the next generation of technology.

Antitrust researcher Dina Srinavasan compared the lawsuit's significance to the government's action against Microsoft a quarter-century ago. She said it's a big deal to go up against someone acting like a bully and pretending not to be one.

President Joe Biden has called for the Justice Department and the Federal Trade Commission to vigorously enforce antitrust statutes. While its stepped-up policing of corporate mergers and questionable business practices has met resistance from some business leaders accusing the Democratic administration of overreach, it has been lauded by others as long overdue.

Apple has defended its walled garden approach as an indispensable feature prized by consumers who want the best protection available for their personal information. It has described the barrier as a way for the iPhone to distinguish itself from devices running on Google's Android software, which is not as restrictive and is licensed to a wide range of manufacturers.

However, critics argue that Apple's claim to prioritise user privacy is hypocritical when profits are at stake. While its iMessage services are protected by end-to-end encryption, that protection disappears when someone texts a non-Apple device.

Fears about an antitrust crackdown on Apple's business model have contributed to a drop in the company's stock price. There are also concerns that it lags behind Microsoft and Google in developing products powered by artificial intelligence technology.

Antitrust regulators made it clear in their complaint that they see Apple's walled garden mostly as a weapon to ward off competition. They argue that this creates market conditions that enable Apple to charge higher prices that have propelled its lofty profit margins while stifling innovation.

"Consumers should not have to pay higher prices because companies break the law," said Attorney General Merrick Garland. He added that if left unchallenged, Apple would only continue to strengthen its smartphone monopoly.

With this attempt to rein in Apple's dominance, the Biden administration is escalating an antitrust siege that has already triggered lawsuits against Google and Amazon accusing them of engaging in illegal tactics to thwart competition. This comes alongside unsuccessful attempts to block acquisitions by Microsoft and Meta Platforms (formerly Facebook).

Apple's business interests are also entangled in the Justice Department's case against Google. In this case, regulators allege Google has stymied competition by paying for its dominant online search engine to be the automatic place to handle queries on the iPhone and various web browsers. This arrangement generates an estimated USD 15 billion to USD 20 billion annually.

Now that the Justice Department is mounting a direct attack across its business, Apple stands to lose even more.