Apple Hit With Landmark Antitrust Lawsuit From DOJ, 16 States

The US Department of Justice, along with 16 state and district attorneys general has filed a massive antitrust lawsuit, accusing Apple of operating an illegal monopoly in the smartphone market, and seeking to force the iPhone maker to end its tyrannical app store policy.

The DOJ accuses Apple of driving up prices for consumers and developers at the expense of making users more reliant on its phones. The parties allege that Apple “selectively” imposes contractual restrictions on developers and withholds critical ways of accessing the phone as a way to prevent competition from arising, according to the release.

“Apple exercises its monopoly power to extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others,” the DOJ wrote.

The government points out several different ways that Apple has allegedly illegally maintained its monopoly:

• Disrupting “super apps” that encompass many different programs and could degrade “iOS stickiness” by making it easier for iPhone users to switch to competing devices

• Blocking cloud-streaming apps for things like video games that would lower the need for more expensive hardware

• Suppressing the quality of messaging between the iPhone and competing platforms like Android

• Limiting the functionality of third-party smartwatches with its iPhones and making it harder for Apple Watch users to switch from the iPhone due to compatibility issues

• Blocking third-party developers from creating competing digital wallets with tap-to-pay functionality for the iPhone

For years, Apple responded to competitive threats by imposing a series of ‘Whac-A-Mole’ contractual rules and restrictions that have allowed Apple to extract higher prices from consumers, impose higher fees on developers and creators, and to throttle competitive alternatives from rival technologies,” DOJ Antitrust Division Chief Jonathan Kanter said in a statement.

The case is being filed in the US District Court for the District of New Jersey. Attorneys general from New Jersey, Arizona, California, Connecticut, Maine, Michigan, Minnesota, New Hampshire, New York, North Dakota, Oklahoma, Oregon, Tennessee, Vermont, Wisconsin, and the District of Columbia joined the DOJ in the complaint.

The enforcers are asking the court to stop Apple from “using its control of app distribution to undermine cross-platform technologies such as super apps and cloud streaming apps,” prevent it from “using private APIs to undermine crossplatform technologies like messaging, smartwatches, and digital wallets,” and keep it from “using the terms and conditions of its contracts with developers, accessory makers, consumers, or others to obtain, maintain, extend, or entrench a monopoly.”

They also ask the court for any other relief needed to restore competition. On a background call with reporters, DOJ officials would not address if they would seek to break up Apple if it wins at the liability stage. They said any relief would need to be tied to what the court ultimately finds Apple to be liable for.

At a press conference on Thursday announcing the lawsuit, DOJ Deputy Attorney General Lisa Monaco said Apple has maintained “a chokehold on competition” and “smothered an entire industry” through its shift from “revolutionizing the smartphone market to stalling its advancement.” Kanter added that Apple was a “significant beneficiary” of the DOJ’s suit against Microsoft over 20 years ago, and this case aims “to protect competition and innovation for the next generation of technology.”

In a statement, Apple spokesperson Fred Sainz said the 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 plans to move to dismiss the case, an Apple spokesperson told reporters in a background briefing with several news outlets on Thursday. The company also disagrees with the relevant market the DOJ defined for the case, believing it should be the global smartphone market, not just the US one, a spokesperson said.

App developers for Apple’s iOS have complained for years about the platform’s closed and often opaque marketplace rules. Among the most vocal have been companies like  Epic, and Spotify, which run paid subscription services that Apple requires a 15 to 30 percent cut of to be offered on its platform. On top of that, Apple has its own apps that compete with those on its app store -- the only place Apple lets users download apps for what it says are security reasons -- which has raised even more distrust among developers about whether they are getting a fair shot in the marketplace.

Apple is also facing scrutiny in the European Union where the new DMA that came into effect this month has forced the company to open up its app store in EU region. App developers have slammed the iPhone maker for "malicious compliance" with the law, accusing the company of using new rules to make it harder for developers to take advantage of the EU law..