US sues Apple in antitrust lawsuit

California Attorney General Rob Bonta said in a news conference Thursday that the landmark lawsuit filed against Apple will ultimately be good for business and consumers.

“This is a pro-business action,” Bonta told reporters. “When we make sure that the rules of the marketplace are being followed, that no one is acting illegally, abusing their power, acting in a way that's anti-competitive or exclusionary, it provides an opportunity for the next innovator, the next dreamer, the next visionary, the next startup, the next mom and pop to be able to participate in the marketplace and compete, as opposed to being squashed out and pushed out because of the dominant market force.” 

California is one of the states participating in the DOJ action against Apple. As the largest state by population and the home state of Apple and many other Big Tech companies, California's participation was notable.

“We need to make sure that consumers and competition in a fair market exist, and that’s what this lawsuit is about,” Bonta said. He noted that investigators have spent years building the case against Apple. And the bench trial in the US District Court in New Jersey may go on for roughly three years. 

“It is pro-consumer, it is pro-business, it is anti-monopoly, anti-manipulation,” the California attorney general added. 

As the case moves forward, expect Apple to challenge a vital component of the government's lawsuit: How it defines the markets that Apple has allegedly monopolized.

The US government claims Apple has monopolized two distinct markets: A market for smartphones, and a separate market for "performance smartphones."

Market definitions are critically important to antitrust lawsuits, because the courts can only rule on illegal monopolization claims with respect to specific, well-defined geographic and product markets.

The Justice Department describes "performance smartphones" as phones that are made with premium materials such as metal and glass; boast faster and better processors, or bigger storage sizes; and have advanced communications tech inside such as tap-to-pay chips. Performance smartphones are distinct from basic, entry-level devices that don't have these same features, according to the complaint.

Defining the market this way allows the DOJ to make specific claims about Apple's marketshare.

"Apple's share of the US performance smartphone market exceeds 70% and its share of the entire US smartphone market exceeds 65%," Attorney General Merrick Garland said at a press conference.

Apple, for its part, accuses the DOJ of using the wrong frame of reference, telling reporters Thursday the market for smartphones is global, not restricted to the US, and that by this measure Apple's marketshare is closer to 20%.

Minnesota Democratic Sen. Amy Klobuchar is one of several lawmakers who have increased focus and pressure on Big Tech companies in recent years. On Thursday, Klobuchar said she views the DOJ suit against Apple as a key part of Washington's effort to rein in the tech industry:

“Tech monopolies impede competition, harming consumers and small businesses. As the gatekeeper controlling the smartphones used by more than half of all Americans, Apple has restricted consumer choice, raised prices, and preferenced its own products and services — reducing quality and innovation across the digital economy. I strongly support today’s action by the DOJ to put a stop to Apple’s anticompetitive conduct."

Klobuchar said the case is a bellwether for Washington's increased focus on competition and regulation of the broader technology sector. Klobuchar and other lawmakers are pushing for new regulations on social media, curbing its harms. And she sees regulatory oversight on Big Tech platforms as part of Washington's current efforts.

Klobuchar is an architect of the American Innovation and Choice Online Act, a bill that aims to force US app stores to be more open. While it has cleared the Senate Judiciary Committee in the past, the legislation has yet to be passed by the full Senate amid stiff industry opposition.

"This case demonstrates why we must reinvigorate competition policy and establish clear rules of the road for Big Tech platforms. I will continue to push for updates to the antitrust laws, including the bipartisan American Innovation and Choice Online Act, to promote competition and innovation, strengthen our economy, and make sure consumers and small businesses benefit from free and fair competition.”

The Apple lawsuit contains "damning" internal communications, a former top antitrust official with the Justice Department told CNN.

The lawsuit "seems thorough, well written and focused," said Bill Baer, who was Assistant Attorney General for Antitrust during the Obama administration. "Damning for Apple are the internal communications suggesting anticompetitive intent by limiting interoperability with messaging in order to lock folks into Apple products — for themselves and their families."

During Thursday's press conference, Attorney General Merrick Garland referenced a 2013 internal communication in which a senior Apple executive acknowledged that improving how Apple works with third-party messaging platforms would "simply serve to remove [an] obstacle to iPhone families giving their kids Android phones."

He also referenced a 2022 event at which Apple CEO Tim Cook was confronted about Android-to-iPhone messaging compatibility. Cook responded with the recommendation to "buy your mom an iPhone" to resolve the issue.

On a call with reporters Thursday, Apple representatives dismissed those internal messages as old and taken out of context, vowing to provide full context in litigation.

Apple claims the Justice Department has had to modify the legal theories underpinning its case at least six times over the course of a four-year investigation, as other court rulings have emerged undercutting the government's case.

For example, on a call with reporters Thursday, Apple said an appeals court ruling last year finding that the company didn't violate US antitrust laws with its app store was a major blow to the DOJ.

Apple declined to say how it knew the Justice Department was shifting its arguments, citing the need for confidentiality.

Apple also claimed DOJ is trying to make iPhones work more like Android devices — which Apple customers do not want — and would turn the US government into a de facto technology designer.

Although the lawsuit intends to break down Apple's so-called walled garden and make its products and services more open, some experts worry about the potential downsides.

Michael Santoro, a professor of management at the Leavey School of Business at Santa Clara University, said he believes the user experience could change for consumers.

“The antitrust laws are ultimately meant to protect consumers,” he said. “But there will be a lot of uncertainty because, for example, I worry the Apple store or an alternative app store may not work as well with my phone as it did previously, and people may be downloading something that Apple didn’t think it should.”

He also said if the lawsuit is successful, prices of an iPhone could potentially drop if the final product is “less robust.” 

“Customers may be less willing to pay for one,” he said.

Not all consumers and organizations appreciated the action against Apple. Under founder Steve Jobs, Apple pioneered a sleek design for its hardware and a disciplined user experience for its software. Its products found early, loyal adoption among designers, graphic artists and other creatives in the 1980s and 1990s before expanding to broader mainstream appeal. Some of Apple's most loyal fans see the DOJ's action as an assault on good taste and high design.

The Computer & Communications Industry Association says it has advocated for sound competition and consumer protection principles that support innovation in tech for more than 50 years.

CCIA President & CEO Matt Schruers criticized the DOJ's action:

“U.S. antitrust law protects consumers from harmful practices, but this complaint takes aim at design choices that have produced a product beloved by consumers. Consumers have ample hardware and software options to choose from and easily move to alternatives if they prefer different features. The DOJ’s complaint, if successful, could prevent Apple from offering consumers the unique products and integrated services they love.”

If successful, the lawsuit's impact could potentially ripple across Apple's products, services and business model. 

Fees: Apple may need to lower developer fees which could ultimately impact its services revenue.

App Store: The company could be forced to allow access to other app stores or direct app installations, called "side-loading." But interoperability and compatibility could raise some concerns; Tim Cook previously said its strict platform policies and oversight of app makers ensure that iOS apps are safe and trustworthy. “If we are forced to let unvetted apps onto the iPhone, the unintended consequences will be profound," he said in 2022.

Greater support for cross-platform messaging: Apple lets iPhone users send high-quality photos and videos to one another but similar texts to Android phones are slower and grainy. It also famously maintains those messages in green bubbles, creating a kind of class divide, critics argue. The company may be required to provide equal support across platforms.

Wallet compatibility: Apple currently blocks third-party developers from offering tap-to-pay functionality. The lawsuit could force the company to allow more digital wallets.

And more: Other changes could come to compatibility with Apple Watches – which currently requires users to own an iPhone – and its mobile cloud service services, which could allow users to access games and other cloud-based apps without having to pay for pricey hardware.

Attorney General Merrick Garland announced a landmark lawsuit against tech giant Apple over a variety of allegations, including that it:

• Uses its control over iOS, the iPhone operating system, to block innovative new apps and cloud streaming services from the public
• Degrades how Android messages appear on iPhones
• Restricts how competing smartwatches can work with iPhones
• Hinders rival payment solutions

Garland claimed that Apple has a monopoly over the smartphone market, but not because of the value of its own products.

"We allege that Apple has consolidated its monopoly power, not by making its own products better, but by making other products worse," Attorney General Merrick Garland said in a news conference on Thursday.

But, it will take some time to know whether Apple has, in fact, breached the antitrust laws. The case could take years to play out as it moves through the justice system.

The DOJ complaint points to remedies that could include:

• Preventing Apple's current control approach to its app store
• Limiting Apple from using its private APIs to "undermine cross-platform technologies like messaging, smartwatches and digital wallets, among others."
• Preventing Apple from using terms and conditions with developers, accessory makers, consumers and others "to obtain, mantain, extend, or entrench a monopoly."
• Restoring competitive conditions and awarding plaintiffs reasonable attorneys' fees and other costs.