US Department of Justice (DoJ)

US DOJ sues Apple alleging Smartphones Illegal Monopoly

Apple has defended the walled garden as an indispensable feature

The United States Justice Department (DOJ) has filed a sweeping antitrust lawsuit against Apple, accusing the company of engineering an illegal monopoly in smartphones that boxes out competitors, stifles innovation and keeps prices artificially high.

The lawsuit, filed in federal court in New Jersey, alleges that Apple has monopoly power in the smartphone market and leverages control over the iPhone to “engage in a broad, sustained, and illegal course of conduct.”

Attorneys general from New Jersey, Arizona, California, Connecticut, Maine, Michigan, Minnesota, New Hampshire, New York, North Dakota, Oklahoma, Oregon, Tennesse, Vermont, Wisconsin and the District of Columbia participated in Thursday’s filing.

“Apple has locked its consumers into the iPhone while locking its competitors out of the market,” said Deputy Attorney General Lisa Monaco.

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Stalling the advancement of the very market it revolutionized, it has “smothered an entire industry.”

Apple called the lawsuit “wrong on the facts and the law” and said it “will vigorously defend against it.”

The suit takes aim at how Apple allegedly moulds its technology and business relationships to “extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others.”

The suit notes that the Apple Watch is “only compatible with the iPhone” — a longstanding complaint among Android users interested in picking up what is far and away the market share leader.

“if Apple can steer a user towards buying an Apple Watch, it becomes more costly for that user to purchase a different kind of smartphone because doing so requires the user to abandon their costly Apple Watch and purchase a new, Android-compatible smartwatch.”

The filing goes on to to cite the appeal of “cross-platform smartwatches,” which it claims, “can reduce iPhone users’ dependence on Apple’s proprietary hardware and software.” There’s no doubt that a big piece of Apple’s ecosystem play is compelling users to stick with its own hardware across a range of product lines. That’s an important piece of the “just works” ethos.

The filing cites an internal message from an Apple VP of Product Marketing, noting that the watch’s limited compatibility, “may help prevent iPhone customers from switching.” The suit primarily discusses the Apple Watch in terms of its relation to iPhone sales, though it does accuse the company of “limiting third-party access to new and improved APIs for smartwatch functionality.

The Apple Watch has historically been even more dominant in its respective category than the iPhone in the global market. Should the DOJ’s suit force the company to open Apple Watch functionality, it would not only limit watch-based iPhone sales, it would also potentially open the device to Android users, which, in turn, could have a positive impact on sales.

It specifically seeks to stop Apple from undermining technologies that compete with its own apps — in areas including streaming, messaging and digital payments — and prevent it from continuing to craft contracts with developers, accessory makers and consumers that let it “obtain, maintain, extend or entrench a monopoly.”

“The Department of Justice has an enduring legacy taking on the biggest and toughest monopolies in history,” said Assistant Attorney General Jonathan Kanter, head of the antitrust division, at a press conference announcing the lawsuit.

“Today we stand here once again to promote competition and innovation for next generation of technology.”

The case seeks to pierce the digital fortress that Apple has assiduously built around the iPhone and other popular products such as the iPad, Mac and Apple Watch to create what is often referred to as a “walled garden” so its hardware and software can seamlessly offer user-friendly harmony.

Apple said the lawsuit, if successful, would “hinder our ability to create the kind of technology people expect from Apple — where hardware, software, and services intersect” and would “set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.”

At Apple, we innovate every day to make technology people love—designing products that work seamlessly together, protect people’s privacy and security, and create a magical experience for our users.

This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets. If successful, it would hinder our ability to create the kind of technology people expect from Apple—where hardware, software, and services intersect. It would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.

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

Apple has defended the walled garden 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 isn’t as restrictive and is licensed to a wide range of manufacturers.

The lawsuit complains that Apple charges as much as $1,599 for an iPhone and that the high margins it earns on each is more than double what others in the industry get. And when users run an internet search, Google gives Apple a “significant cut” of the advertising revenue those searches generate.

The company’s app store also charges developers up to 30 percent of the app’s price for consumers.

Critics of Apple’s alleged anticompetitive practices have long complained that its claim to prioritize user privacy is hypocritical when profits are at stake. While its iMessage services is sheathed from prying eyes by end-to-end encryption, that protection evaporates the moment someone texts a non-Apple device.

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

The DOJ Lawsuit – What could it change?

If the DOJ lawsuit were to prevail, this could significantly impact the iPhone in your pocket. Here are a few brief changes we could see.

iMessage and Android

Currently, people receiving text messages from iPhones on their Android phones don’t get end-to-end encryption, read receipts, live typing updates, or stickers and effects.

For a long time, Apple refused to adopt the widely used RCS (Rich Communication Services) standard. Under pressure from regulators, Apple relented last year, saying it will support RCS at some point during 2024, though it did not mention iMessage.

Better Messaging Apps

The suit is clear when it come to messaging.

“Apple makes third-party messaging apps on the iPhone worse generally and relative to … Apple’s own messaging app,” it claims.

You cannot send or receive SMS text messages on an iPhone without using iMessage.

The suit also criticizes Apple for blocking third-party messaging apps from operating in the background when the app is closed, preventing message delivery confirmation, and blocking access to the iPhone camera to allow users to preview their appearance on video before answering a call, like you can with FaceTime.

More Wallets and Payment Options

If you want to store bank cards, IDs, movie tickets, or car keys on your iPhone, you use Apple Wallet. As the only iPhone app that can access NFC (near-field communication) for payments, you must use Apple Pay if you want to tap to pay for something with your iPhone.

The lawsuit accuses Apple of preventing third parties, including trusted banks, from offering digital wallets and supporting tap-to-pay transactions on iPhones.

Apple doesn’t just block other options for iPhone users, it also takes a cut of credit card transactions (0.15 percent commission) from banks, which none of its smartphone competitors do.

If Apple were forced to open this up, you could use a cross-platform digital wallet of your choice, making it easier to switch smartphones. You could also use digital car keys in your car manufacturer’s cross-platform app.

Cloud Gaming

The DOJ alleges that Apple resists cloud gaming services and apps because it perceives them as a threat to the “high-performance local compute” that sets iPhones apart from competitors. The idea is that the hardware doesn’t matter if you offload the processing to the cloud. All you need is a fast internet connection and a cheap device, even a budget Android phone.

The suit also criticizes Apple for insisting cloud-streaming games be submitted as standalone apps for its approval, and for forcing the cloud games it does allow to use its proprietary payment system.

If developers could create a single cloud app to run across platforms, it would significantly cut their costs compared with Apple’s current system, and make many more games available on iPhones.

Better Smartwatches

Apple wants you to buy an Apple Watch to go with your iPhone. To that end, the lawsuit points out that Apple only allows third-party smartwatches to access a subset of the application programming interfaces (APIs) that the Apple Watch has access to.

Only the Apple Watch can respond to messages, accept calendar invites, or stay connected to your iPhone when the battery-saving Low Power Mode is on.

Without these restrictions, using third-party smartwatches with an iPhone could be a far better experience.

Apple Watch on Android

Quite simply, you must own an iPhone to use an Apple Watch.

The suit points out that this makes it harder for those who own both to switch away from Apple – because they’ll need a new phone and a new watch – but it also drives iPhone sales.

Super Apps

The lawsuit talks about Apple’s alleged suppression of “super apps” a lot. Super apps provide multiple functions or mini apps all in one—so they might combine an app store, messaging functionality, and a payment syste.

The suit claims that super apps would be good for users and developers, reducing dependence on the iPhone, making it easier to switch to another smartphone, and creating a homogenous experience across platforms.

Apple Antitrust Suit Case 2:24-cv-04055

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