Apple accused of illegal market monopoly that stifles innovation in historic US lawsuit

Apple accused of illegal market monopoly that stifles innovation in historic US lawsuit
  • PublishedMarch 25, 2024

The US justice department has announced a sweeping antitrust lawsuit against Apple, accusing the tech giant of engineering an illegal monopoly in smartphones that boxes out competitors and stifles innovation. 

It alleges that Apple has monopoly power in the smartphone market and uses its control over the iPhone to “engage in a broad, sustained, and illegal course of conduct”.

The lawsuit, filed in federal court in New Jersey, 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 building language into its contracts with developers, accessory makers and consumers that lets it “obtain, maintain, extend or entrench a monopoly”.

The lawsuit — which was also filed with 16 state attorneys-general — is the latest example of the justice department’s approach to aggressive enforcement of federal antitrust law that officials say is aimed at ensuring a fair and competitive market, even as it has lost some significant anti-competition cases.

Head of the antitrust division, Assistant Attorney-General Jonathan Kanter, announced the lawsuit saying that the department “has an enduring legacy taking on the biggest and toughest monopolies in history”.

“Today we stand here once again to promote competition and innovation for the next generation of technology,” Mr Kanter said.

An Apple iPhone 15 sits on a stand in a brightly lit showroom
Apple said it would vigourously defend itself against the accusations made in the lawsuit.(AP: Jeff Chiu, File)

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

US President Joe Biden has called for the justice department and the Federal Trade Commission to vigorously enforce antitrust statutes.

The increased policing of corporate mergers and business deals has been met with resistance from some business leaders who have said the Democratic administration is overreaching, but it has been lauded by others as long overdue.

Apple’s ‘walled garden’ key issue

The case is taking direct aim at 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 meticulously designed hardware and software can seamlessly flourish together while requiring consumers to do little more than turn the devices on.

The strategy has helped make Apple the world’s most prosperous company, with annual revenue of nearly $US400 billion ($609 billion) and until recently, a market value of more than $US3 trillion.

However, Apple’s shares have fallen by 7 per cent this year even as most of the stock market has climbed to new highs, resulting in long-time rival Microsoft — a target of a major justice department antitrust case a quarter-century ago — to seize the mantle as the world’s most valuable company.

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”.

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.

Antitrust regulators have 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 lawsuit complains that Apple charges as much as $US1,599 for an iPhone and that the high margins it earns on each is more than double what others in the industry get and states that 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 per cent of the app’s price for consumers.

Fears about an antitrust crackdown on Apple’s business model have contributed to the drop in the company’s stock price, along with concerns that it is lagging Microsoft and Google in the push to develop products powered by artificial intelligence technology.

With the attempt to rein in Apple’s dominance, the Biden administration is escalating an antitrust siege that has already triggered lawsuits against Google and Amazon, accusing them of engaging in illegal tactics to thwart competition, as well as unsuccessful attempts to block acquisitions by Microsoft and Facebook parent Meta Platforms.

The antitrust lawsuit against Apple comes on top of a $US2 billion fine that European regulators slapped on the company this month after concluding that the company had undermined competition in the music streaming through the iPhone, despite Spotify being the leader in that market.

SOURCE: ABCNEWS

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