The U.S. Department of Justice has filed an antitrust lawsuit against Apple (AAPL), accusing the iPhone maker of illegally maintaining its dominance in the smartphone market by excluding competing apps and devices.
Attorney General Merrick Garland said at a press conference Thursday that Apple “has maintained its power not because of its dominance, but through its illegal and xenophobic practices.”
Apple said the lawsuit “threatens our company's existence and the principles that differentiate Apple products in a fiercely competitive market, and, if successful, threatens our ability to develop the technology people have come to expect from Apple.” “It would hinder the development of the government,'' and announced their intention to fight the lawsuit.
A U.S. victory in this case “would set a dangerous precedent that would give governments greater power over how people design technology,” Apple added in a statement.
Apple's stock price fell more than 4% on news of the Justice Department's lawsuit against 16 state attorneys general.
The filing sets up a new standoff between the U.S. government and the Silicon Valley icon as the Biden administration seeks to rein in the power of Big Tech.
The Department of Justice has sued Google (GOOG, GOOGL) for violating antitrust laws, while the Federal Trade Commission has also sued Amazon (AMZN) and Facebook (META) for violating antitrust laws. It's happening.
A new Justice Department lawsuit filed Thursday poses a major new threat to Apple's various revenue streams.
Apple generates most of its cash from selling its wildly popular iPhone, which accounted for $200.6 billion of the company's total revenue of $383.3 billion in 2023. But Apple's services and hardware related to the iPhone are also incredibly lucrative.
The company's wearables, home and accessories business, which includes sales of the Apple Watch and AirPods, generated $39.8 billion last year, while its growing services business, which includes subscriptions such as Apple Music+ and sales on the App Store, earned $85.2 billion. brought about.
The Justice Department's lawsuit comes just weeks after the European Commission (EC) fined Apple $2 billion for alleged violations of regional competition law. The EC claimed that the company illegally exercised its dominance in the music streaming app distribution market to the detriment of its competitors.
The Justice Department lawsuit is just the latest headache for Apple as it gets off to a rocky start to 2024.
Apple's stock price has fallen 7% since the beginning of the year, and the company has struggled with slowing iPhone sales in China, its third-largest market. Apple also lost the title of world's most valuable company to rival Microsoft (MSFT).
How Apple allegedly wields power
At the center of the Justice Department's lawsuit is Apple's most famous product, the iPhone.
The government says the company is harming consumers by making it more difficult for iPhone users to switch to competing products or access competing services. The complaint also says Apple harms app developers by imposing restrictions on the creation and distribution of apps.
This includes everything from text messaging to digital wallets to apps that reduce users' dependence on their iPhones.
For example, Garland characterized Apple's iMessage as anti-competitive and said that iPhone users' reactions turn green instead of blue when they send text messages on Google's Android devices.
That “limits functionality,” he said. Garland added that videos sent via text can also be pixelated and grainy.
He also quoted Apple's CEO responding to a user's complaint about not being able to send certain videos to his mother by saying, “'Buy your mom an iPhone.'”
The complaint alleges that Apple is also making it more difficult for smartphone users to access competing digital wallets by blocking developers from using tap-to-pay features within apps. There is. It will also make it more difficult for a user using an iPhone to use a rival smartwatch, at the same time that his Apple iWatch will no longer be able to work with his Android smartphone.
“Apple has repeatedly responded to competitive threats by making it harder to leave and then more attractive to stay,” said Assistant Attorney General Jonathan Canter. I have something to say.''
According to the complaint, Apple is also throttling cloud streaming gaming apps and denying consumers access to so-called “super apps,” which allow users to access a wide range of features from a single interface.
Anat Elon Beck, an antitrust expert and law professor at Case Western Reserve, said the wide-ranging lawsuit “is about Apple's core misconduct.”
“Apple is systematically excluding competitors from the Apple ecosystem. In doing so, Apple is harming far too many startups, stakeholders, customers, and, in my opinion, shareholders. ”
As a result, he expects Apple stock to “fall further.”
Apple's epic battle
This is just the latest antitrust battle that Apple has had to fight in the United States.
The last time was in 2020, when Fortnite maker Epic Games sued the company, forcing third-party app developers to offer their own payment methods within their apps rather than using Apple's payment services. The company was sued for violating antitrust laws by prohibiting the use of
Justice Department lawyers were allowed to argue in this high-stakes dispute. It focuses on Apple's App Store, which is the only place a consumer can download apps for his iPhone or his iPad, and app developers typically pay for paid app purchases made through this platform. charge his 30% commission.
In this case, the appellate court upheld a California trial court's ruling that Apple did not hold a monopoly in the mobile app store market, resulting in a victory for Apple.
But in a narrow victory for Epic, the appeals court also upheld the trial court's ruling that Apple must allow app developers to offer more ways for app users to pay for purchases. did.
Both companies tried to take the case to the Supreme Court, but the high court refused to accept either appeal.
In response to this decision, Apple announced that it will allow developers to offer third-party payment options through their apps. But the company said developers would still have to pay fees of 12% or 27%, which Epic CEO Tim Sweeney called “anti-competitive.”
Apple is in the process of restructuring the App Store payment system in the European Union. Under the EU's new Digital Markets Act (DMA), the company must allow EU customers the option to download third-party app stores and access third-party payment options.
Apple has addressed this measure, saying it will allow third-party downloads and payments, but will charge developers 50 euro cents per download if they exceed the 1 million download market in a year. Ta.
However, both Epic and Spotify opposed the measure, along with Spotify CEO Daniel Ek. He calls the new rules “adversarial.””
Alexis Keenan is a legal reporter at Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Any tips? Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter @Daniel Howley.
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