A famed Apple advertising campaign exhorted customers to “think different”. In a sweeping antitrust lawsuit the US on Thursday alleged that the iPhone maker had betrayed that slogan, locking millions of its users into a powerful monopoly that has made it one of the most valuable companies in the world.
The long-awaited lawsuit is a watershed moment for Apple. For years it was one of the few Big Tech companies to avoid major antitrust action by the US. Now it is under intense scrutiny from regulators in two of its key markets, the US and the EU. Its responses have indicated it is steeling itself for an existential battle.
Apple said the US case “threatens who we are and the principles that set Apple products apart in fiercely competitive markets”. A loss would set a “dangerous precedent” by allowing the government to influence how technology markets developed, it added.
The new US lawsuit is broad and detailed, painting a picture of a company that has spent years knowingly heading off competitive threats to its ecosystem, be it on the App Store, in messaging with rival Android phones, on its “tap to pay” service, or in the smartwatch market.
The US has portrayed the alleged scheme as stretching all the way back to Steve Jobs, the company’s iconic founder who died in 2011. It was Jobs’s vision to maintain an oppressive monopoly, identifying at an early stage the power the iPhone could wield over the online economy — and going so far as to direct executives to “force” developers to use only its own payment system to keep them locked into its ecosystem, the US alleged.
The core of the claim is that Apple uses its market-leading device to draw a growing share of services revenue from users, excluding competitors from access. Services revenue — which includes its App Store, Apple Pay, and TV and music streaming — has been a continuing success story and an increasingly important source of growth for the company as its hardware sales face challenges.
The lawsuit makes plain that the purpose of the case is not just to hold Apple to account for prior violations but also to prevent it from stifling innovation and competition in future product categories, such as in-car systems and financial services.
For the company, the timing of the lawsuit could hardly be worse. Global smartphone sales have slowed in the last year. Apple is specifically struggling with a decline in sales for the devices in China that has left investors skittish. Its shares are down nearly 8 per cent since the start of 2024.
As the US unveiled the lawsuit on Thursday, chief executive Tim Cook was in Shanghai for a public relations offensive. “He surely knew it was coming this week,” said Gene Munster at Deepwater Asset Management. “Apple is going to war with the DoJ, and settlement is not an option.” Munster estimated that the potential changes the DoJ could force on Apple’s services business, should its lawsuit succeed, could have a negative impact on earnings of 2 per cent to 4 per cent.
Apple representatives said the US government’s intervention showed it trying to tip the scales in the favour of large multinational companies attempting to break open its devices, a similar issue it faces in the EU.
Apple was recently forced to make a series of U-turns by the EU regulator over its plan to comply with a new competition law, and has already changed parts of its business model in the bloc as a result. An EU investigation into whether it has gone far enough could soon follow.
While its problems in Europe deepen, the US legal fight is one that the company has, in some respects, already gone through. Epic Games sued the company over its App Store policies in 2020, claiming the company imposes an unfair 30 per cent “tax” on certain transactions — a case that Epic largely lost. But on Thursday, those same claims were echoed by US attorney-general Merrick Garland.
Apple says the DoJ is twisting the facts to match its theory, pointing to what it says is a 20 per cent share of the global smartphone market, which is far from a monopoly. The government contends that the company wields far more power in the US: around a 70 per cent share by revenue of the high-end smartphone market, and more than 65 per cent of all smartphones.
Apple believes that, post-Epic, case law and the facts are on its side. Yet a win in one case does not assure the same result in another. Rivals have been circling as well, with Meta, Microsoft and X this week teaming up to tell a court that Apple is failing to comply with an order forbidding it from stopping businesses from steering customers outside of the App Store to make payments.
“The DoJ’s case shows pretty keen learning from the other legal matters that have involved Apple,” said Bill Kovacic, a former Federal Trade Commission chair and professor of competition law and policy at George Washington University Law School.
The DoJ’s case, he said, “avoids some of the vulnerabilities” from Epic’s fight, and the case law governing the New Jersey federal court where the lawsuit was filed may be more favourable to the government than California’s, where Epic’s case was brought.
Antitrust cases can take years to go to trial, and even if Apple loses, any enforcement of the ruling would almost certainly be put off for longer by subsequent appeals. In the meantime, its business in the US continues as usual.
There is also the prospect that Joe Biden — and by extension his zealous antitrust enforcers, including Jonathan Kanter, the DoJ’s assistant attorney-general for antitrust — will be swept out of office in November’s election. But a second Donald Trump presidency would not necessarily improve Apple’s situation, Kovacic said, as the investigation had been launched under his previous administration.
“My intuition, based on Trump’s continued expressions of suspicion about the big tech information sector, is that he would likely turn to his justice department and say: ‘Carry on,’” he said.