U.S. Department of Justice Files Lawsuit Against Apple for Alleged Monopolistic Practices

On March 21, 2024, the U.S. Department of Justice, along with 15 states and the District of Columbia, filed a lawsuit in the District Court of New Jersey, accusing Apple Inc. of engaging in monopolistic practices within the smartphone market. The lawsuit alleges that Apple's actions have hindered healthy competition and harmed consumer interests. Furthermore, officials from the Department of Justice have indicated that they are considering the possibility of breaking up Apple as a means to address the monopoly concerns.

The lawsuit, consisting of an 88-page indictment, targets not just specific applications or services offered by Apple, but rather the entire ecosystem provided by the company. This ecosystem includes features such as smartwatch integration, cross-system text messaging, mobile wallets, and cloud gaming. The U.S. Department of Justice, along with the attorneys general of 16 states and territories, assert that Apple has created an exclusive smartphone ecosystem, shielding itself from competition and consistently raising product prices to maximize profits.

Following the announcement of the lawsuit, Apple's stock price experienced a 4.1% decline on Thursday, resulting in a market value decrease of over $110 billion. Apple has responded to the lawsuit by stating that it will mount a "strong defense" against the allegations.

The indictment highlights Apple's establishment of a dominant smartphone platform and ecosystem over the years, leading to the company's market value reaching astronomical heights. In terms of revenue, Apple holds a market share of over 65% in the U.S. smartphone market, with its share of the high-performance smartphone market surpassing 70%.

According to the indictment, Apple has been aware of the challenges posed by breakthrough technologies and innovative applications that have emerged in recent years, which could potentially threaten its mobile phone dominance. However, instead of lowering the selling price of its devices and creating better monetization conditions for application developers, Apple has chosen to respond to these challenges by implementing a series of policies and restrictions within the App Store and developer agreements. These actions have allowed Apple to impose higher fees, impede innovation, compromise user experience, and stifle competition. The indictment specifically references the "Apple tax" imposed by the company over the past 15 years. Whenever users of Apple mobile phones download apps from the App Store, Apple charges a 30% commission. Apple's net profit for fiscal year 2023 is reported to have reached $97 billion.

The indictment further alleges that Apple, in fear of disintermediation within its mobile phone platform, has employed various tactics to bind users and developers to its devices, thereby maintaining high profits. These tactics include imposing contract terms and fee regulations that restrict the functionality of applications developed by third parties, as well as limiting access to Apple's mobile application programming interfaces (APIs) for non-Apple applications and accessories, thereby diminishing their capabilities.

The indictment against Apple's monopolistic behavior in the smartphone market specifically highlights five key areas: super applications, cloud gaming applications, cross-system text messaging, smartwatch compatibility, and electronic wallets.

Super applications, which allow users to perform various activities within a single app, such as social networking, transportation, food delivery, shopping, and entertainment, are seen as convenient by users. However, Apple restricts the installation of super apps to protect its monopoly and prevent users from switching away from the iOS system.

The indictment presents statements from multiple Apple executives to demonstrate the company's awareness of the impact super apps could have on its mobile phone ecosystem. One executive likened allowing super apps on Apple's phones to allowing "barbarians" into the country, suggesting that it would reduce user loyalty to the iOS system.

Regarding cloud gaming applications, the indictment accuses Apple of year-round prevention of users from installing such apps. Apple is aware that these applications reduce the hardware requirements for gaming, allowing users to play games even on second-hand Android phones without needing to purchase expensive Apple devices.

Cross-system text messaging has long been a contentious issue associated with Apple phones in the United States. When an Apple phone user sends a text message, the background of the message appears as blue bubbles if the recipient also has an Apple phone. If the recipient does not have an Apple phone, the background appears as green bubbles, and the user is unable to access various Apple-specific messaging functions or even send emoticons and high-definition pictures. This distinction has even led to instances of "green bubble bullying" among American teenagers.

Under pressure, Apple announced late last year that it would adapt to support the Rich Communication Services/Converged Communications (RCS) standard, developed by Google as a replacement for the SMS text messaging standard, to provide higher-quality communication. With the RCS standard, Apple mobile phones will be able to share high-definition pictures, videos, and emoticons when sending text messages to non-Apple mobile phones. However, the distinction between blue and green bubbles will remain.

The indictment argues that Apple deliberately weakened the user experience of cross-system text messaging to discourage users from switching to phones with alternative operating systems.

Regarding smartwatch compatibility, the indictment accuses Apple of intentionally limiting the Apple Watch's compatibility to only Apple phones, preventing users from purchasing other brands. Furthermore, Apple has made it more challenging for users to connect Apple phones with third-party smartwatches through various settings.

In the case of electronic wallets, the indictment states that while Apple encourages banks to join Apple's mobile phone electronic wallets, it also prevents banks and other institutions from developing their own payment tools in order to maintain its monopoly power. Additionally, when users transfer funds using Apple Pay with credit cards, Apple charges a fee to the user's bank.

The U.S. Department of Justice, along with 16 state and territorial attorneys general, has requested the court to rule that Apple violated antitrust laws and engaged in illegal monopolization or attempted monopolization of the U.S. smartphone market. The parties also seek a court order to halt Apple's anti-competitive practices, including the use of APIs to hinder cross-platform technologies and the implementation of contract terms with developers to establish a monopoly position.

An unnamed official from the U.S. Department of Justice stated in an interview with the media that, according to the law, the department has the authority to require Apple to make structural changes, including potential breakup. However, the official did not disclose the specific steps the Department of Justice plans to take, stating that the final decision would depend on the court ruling.

An Apple spokesperson responded to the lawsuit, asserting that it was factually and legally incorrect and announced that the company would mount a strong defense against the allegations.

The spokesperson further emphasized that if the Department of Justice and the 16 states were to prevail in the lawsuit, it would severely impact Apple's ability to innovate and set a dangerous precedent by allowing extensive government interference in private technology design.

White House press secretary Michael Kikukawa stated that President Biden strongly supports the fair enforcement of antitrust laws in response to the Justice Department's lawsuit.

Increased scrutiny of large technology companies by the U.S. judicial department has been observed under both Democratic and Republican administrations. The antitrust investigation into Apple began in 2019 during the presidency of Republican Donald Trump. Similar investigations have also targeted other technology giants such as Google (now known as Meta) and Amazon.

The U.S. Department of Justice filed a lawsuit against Google last year, while the Federal Trade Commission sued Meta in 2020. Court proceedings for these cases are expected to commence this year, and such cases typically take several years to reach a resolution.

In 1998, the U.S. Department of Justice and 20 states launched an antitrust lawsuit against Microsoft. The two parties reached a settlement in 2001, which prevented Microsoft from being broken up. However, nine dissatisfied states later appealed the settlement, and the appeal process lasted four years before the court ultimately upheld the settlement.

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Outside of the United States, Apple has faced recent troubles as well. The European Union fined Apple $2 billion earlier this month for imposing unfair rules on music streaming app developers. Furthermore, the EU is reportedly preparing to investigate four companies, including Apple and Google, for potential violations of the Digital Markets Act, according to Reuters.The Netherlands has already fined Apple $53 million for payment-related issues in the App Store. South Korea is considering imposing fines on Apple for its App Store developer commissions. Japan, the United Kingdom, and Australia are also contemplating legal measures to compel Apple to make changes to its payment methods and commissions.