US accuses Apple of monopolising smartphone market

By Alagbe Shenayon On Mar 22, 2024

A groundbreaking lawsuit has been filed by the US against Apple, alleging that the tech giant has monopolized the smartphone market and suppressed competition.

The lawsuit alleges that Apple abused its dominance over the iPhone app store to “lock in” customers and developers, according to the Justice Department.

It claims that the company took illegal measures to undermine apps perceived as competitive threats and to diminish the appeal of rival products.

Apple has pledged to vigorously contest the lawsuit and refutes the allegations.

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This extensive complaint, filed in a federal court in New Jersey, represents one of the most significant challenges to Apple thus far, as it faces increasing scrutiny over its practices in recent years.

The lawsuit contends that Apple employed “a series of shapeshifting rules” and restricted access to its hardware and software to bolster its own profits while raising expenses for consumers and stifling innovation.

“Apple has maintained monopoly power in the smartphone market not simply by staying ahead of the competition on the merits but by violating federal anti-trust law,” Attorney General Merrick Garland said at a press conference announcing the suit.

“Customers should not have to pay higher prices because companies break the law.”

The complaint targets five specific areas where Apple is alleged to have wielded its influence improperly.

One allegation suggests that Apple leveraged its app review process to impede the development of “super apps” and streaming apps, fearing that such applications would diminish the allure of iPhones for customers.

Additionally, the complaint contends that Apple has obstructed the compatibility of iPhones with smartwatches produced by competitors and hindered access to its tap-to-pay technology for banks and other financial institutions, enabling Apple to generate substantial revenue from processing Apple Pay transactions.

Another area of focus is Apple’s treatment of messages received from rival phones, which are differentiated by green bubbles and subjected to limitations on videos and other features. The complaint suggests that these actions have fostered a “social stigma,” thereby reinforcing Apple’s dominance in the market.

Apple has countered these allegations by asserting that customer loyalty stems from satisfaction and that, under US law, it retains the freedom to select its business partners. The company has cited privacy and security concerns as grounds for its policies.

Furthermore, Apple has announced its intention to seek dismissal of the lawsuit, expressing confidence that it will not succeed.

“We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it,” the company said.

Proving that security and privacy concerns – not efforts to boost its own business – will be key if Apple hopes to fend off the case, said Bill Baer, a visiting fellow at Brookings who was an anti-trust official under the Obama administration.

“It’s a question of what the motivation is,” he said. “Anti-trust laws and the courts’ interpretation of them suggest that once you’re a monopolist, if you do engage in behaviours that have no legitimate business justification other than to limit competition and cement your monopoly, then that is problematic.”

This marks Apple’s third encounter with legal action from the US government since 2009 and represents the first antitrust challenge brought against the company during President Joe Biden’s administration.

Should the government prevail in its case, it could compel Apple to revamp its existing contracts and practices, or potentially lead to the company’s dissolution.

Following the announcement of the legal dispute, Apple’s shares dropped by over 4% as investors assessed the ramifications of the legal battle.

Any prospective changes resulting from the lawsuit would likely take years to materialize as the case navigates through the judicial system.

Rebecca Allensworth, a professor at Vanderbilt University, described the case as “a blockbuster,” echoing similar lawsuits brought forth by the Justice Department against major tech conglomerates.

She emphasized that at its core, the case revolves around enhancing the functionality of smartphones and making technology and software more accessible to consumers and businesses alike.

“It’s not about breaking up Apple into small units or spinning off divisions,” she said.

Apple has encountered an increasing wave of legal challenges regarding its iOS ecosystem and business practices.

It is currently embroiled in a protracted legal dispute with Epic Games, the creator of Fortnite.

Just last month, the company was fined €1.8bn (£1.5bn) by the EU for violating competition laws pertaining to music streaming.

According to the European Commission, Apple had barred streaming services from informing users about alternative payment options outside of the Apple app store.

Competition Commissioner Margrethe Vestager asserted that Apple had exploited its dominant market position for over a decade and mandated the tech giant to eliminate all such restrictions. Apple, however, declared its intention to contest the ruling.

Anat Alon-Beck, a business law professor at Case Western Reserve University in Ohio, remarked that the Justice Department’s latest lawsuit represents a significant escalation compared to its previous legal battles in the EU.

“It’s not just about the 30% app store fee, but about the core unfair practices of Apple,” she said, adding that it was “about time” that the DOJ took action.

“Apple systematically excludes rivals from the Apple ecosystem. By doing that, Apple is hurting so many startup businesses, stakeholders, customers and, in my opinion, its shareholders,” she said.

According to the justice department, Apple’s share of the US smartphone market exceeds 70%, and its share of the broader smartphone market exceeds 65%.

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