25 Years After the Microsoft Antitrust Case, DOJ and 16 AGs Take Aim at Apple

DOJ alleges Apple engages in “exclusionary, anticompetitive conduct” by imposing contractual restrictions and fees that limit features and functionality app developers can offer smartphone users, and by restricting access “to the points of connection between third-party apps and the iPhone operating system,” thus degrading the functionality of non-Apple apps and accessories. For the past 15 years, Apple has collected “a tax in the form of a 30% commission on the price of any app downloaded from the App Store, as well as in-app purchases,” Garland said.

Apple, in a statement Thursday, said the lawsuit “threatens who we are and the principles that set Apple products apart in fiercely competitive markets.” If the lawsuit is successful, “it would hinder our ability to create the kind of technology people expect from Apple -- where hardware, software, and services intersect,” it said. A ruling in favor of the DOJ would “set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology,” it said. “We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it.”

Apple’s monopoly power in the smartphone market has suppressed the emergence of cloud streaming apps, such as gaming apps, and “super apps” that could reduce dependence on Apple’s operating system “and expensive hardware,” Garland said. He cited green text messages non-iPhone users receive from iPhone users and “grainy videos,” saying Apple’s anticompetitive conduct makes it “more difficult for iPhone users to message with users of non-Apple products.” The company does so “by diminishing the functionality of its own messaging app” and third-party messaging apps as it “knowingly and deliberately degrades quality, privacy and security for its users,” he said.

Apple is violating the law by conditionally restricting developers’ access to the interface needed to make an app functional on its operating system, Garland said. For a smartwatch or a digital wallet to be useful to a smartphone user, “it must be able to communicate with the iPhone operating system,” but Apple “creates barriers that make it extremely difficult and expensive” for users and developers “to venture outside the Apple ecosystem,” he said.

With its digital wallet, Apple “actively encourages banks, merchants and other parties to participate in Apple Wallet, but it simultaneously exerts its monopoly power to block these same partners from developing alternative payment products and services for iPhone users,” Garland said. Apple has blocked third-party developers from creating competing tap-to-pay digital wallets for the iPhone, he said.

Apple also forces customers who use the Wallet “to share personal information with Apple, even if they would prefer to share that information solely with their bank, medical provider or other trusted third-party," said Garland. When an iPhone user puts a debit or credit card in Apple Wallet, Apple "inserts itself into the process that would otherwise occur directly between the user and the card issuer,” introducing an additional “potential source of failure for the privacy and security of Apple users,” he said.

DOJ alleges Apple “crossed the line from rigorous competition to anticompetitive exclusion, unlawfully maintaining a monopoly in violation of the Sherman Act,” said Deputy Attorney General Lisa Monaco. “For years, Apple has tightened its grip on the smartphone market,” she said, “not through product improvements but by maintaining a chokehold on competition.”

Jonathan Kanter, chief of DOJ's Antitrust Division, compared DOJ’s antitrust lawsuit against Apple with the case it brought against Microsoft 25 years ago, saying “that successful litigation and remedy created opportunities for the next generation of technologies, including and especially, for Apple.” The remedy in that case “paved the way for iTunes, the iPod and eventually, the iPhone, free from anticompetitive restrictions, excessive fees and retaliation," he said. DOJ and the AGs bring the Apple suit “to protect competition and innovation for the next generation of technology,” he said.

Acting Associate Attorney General Ben Mizer also cited the “landmark Microsoft case” that “held a monopolist liable” under antitrust laws for “leveraging its market position to undermine technologies" that would have made it easier for users to choose a different computer operating system. Apple has engaged in “many of the same tactics that Microsoft used,” DOJ alleges: Its anticompetitive behavior discourages developers from offering innovative apps and makes it “difficult for consumers to switch to other smartphones," Mizer said.

Garland cited Apple’s position as one of the most valuable companies in the world with net income that exceeds the gross domestic product of over 100 countries, “due in large part to the success of the iPhone.” The iPhone’s share of the U.S. “performance smartphone market” is over 70%, and 65% for the entire smartphone market, he said. Apple hasn’t maintained its dominant position just by staying ahead of the competition, Garland said, but “by violating federal antitrust law," and consumers “shouldn’t have to pay higher prices because companies break the law.”

California Attorney General Rob Bonta (D) said Apple’s conduct “intentionally leaves consumers bearing the cost of sky-high smartphone prices at a time when smartphones are now essential to so much of our day-to-day lives.” Consumers, innovation and competition -- “not Apple alone -- should decide what options consumers should have.” Arizona Attorney General Kris Mayes (D) said that holding Apple accountable is “critical to ensuring a competitive" marketplace that "protects consumer choice and encourages innovation.” Also suing Apple are the AGs of Connecticut, Maine, Michigan, Minnesota, New Hampshire, New Jersey, New York, North Dakota, Oklahoma, Oregon, Tennessee, Vermont and Wisconsin

The immediate reaction to the lawsuit was somewhat mixed. Apple “clearly isn’t harming consumers as Americans consistently rank it as one of the most trusted companies in the world,” said Carl Szabo, NetChoice vice president-general counsel, in a statement. This is another “hopeless” lawsuit from the Biden administration’s “ideologues” showing that his administration “isn’t protecting Americans but instead is focused on advancing a progressive agenda to undermine successful U.S. companies,” he said.

Though U.S. antitrust law protects consumers from harmful practices, this complaint “takes aim at design choices that have produced a product beloved by consumers,” said Computer & Communications Industry Association President-CEO Matt Schruers. The government’s complaint, if successful, “could prevent Apple from offering consumers the unique products and integrated services they love,” he said.

But Consumer Reports "applauds" the government’s action against Apple, said Sumit Sharma, senior researcher-tech competition. “Apple has been an outlier in its willingness to make changes to products and services to the benefit of consumers and developers,” said Sharma. It's critical that the U.S. join regulators and competition authorities worldwide "to make Apple change the way it does business,” he said.