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The U.S. Justice Department and 17 states sued Apple on Thursday, alleging the tech giant blocked software developers and mobile gaming companies from offering better options on the iPhone, resulting in higher prices for consumers.
The government’s antitrust complaint, filed in a New Jersey federal court, alleges Apple used its control of the iPhone to prevent competitors from offering innovative services such as digital wallets and limited the functionality of hardware products that compete with Apple’s own devices. The suit also claims that Apple makes it difficult for users to switch to devices that don’t use Apple’s operating system, such as Android smartphones.
Apple “has maintained its power, not because of its superiority, but because of its unlawful exclusionary behavior,” Attorney General Merrick Garland said at a press event.
Apple said it plans to vigorously defend against the lawsuit.
“This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets,” an Apple spokesman said in a statement. “If successful, it would hinder our ability to create the kind of technology people expect from Apple—where hardware, software, and services intersect.”
Thursday’s lawsuit doesn’t appear to focus on the App Store’s tie to Apple’s payment technology. It focuses instead on claims that Apple took measures to lock in its users and prevent iPhone users from having access to software, such as cloud-based mobile games, that might convince them to switch to cheaper phones, such as those using Google’s Android operating system.
Apple viewed cloud-based games as a threat, the Justice Department said in its complaint, because cloud-based games could be played without needing Apple’s premium devices.
The company was worried about a world in which “all that matters is who has the cheapest hardware” and people could use an “Android for 25 bux at a garage sale and have a solid cloud computing device,” the lawsuit quotes Apple officials as saying.
For similar reasons, Apple declined to integrate standard text messaging with its own iMessage app, the government said. Messages sent from non-Apple phones don’t have all of the features that iMessage offers and the communication isn’t encrypted, it said. Apple worried that making iMessage work better with devices that use SMS text messaging would lead people to buy less expensive, non-Apple phones, the Justice Department alleged.
The department noted Apple Chief Executive Tim Cook’s 2022 comment at an event to a questioner who complained that he couldn’t send his mother videos because of Apple’s messaging quirks to Android phones. Cook quipped: “Buy your mom an iPhone.”
The Justice Department also pointed to Apple’s blocking of so-called ‘super apps’ as crucial to keeping iPhone users locked into its ecosystem. Super apps incorporate multiple mini apps into a single app, such as Tencent’s WeChat that offers messaging, digital payment and a social network in one. The Justice Department quoted an unnamed Apple manager, saying that permitting super apps to become “‘the main gateway where people play games, book a car, make payments, etc.” would “let the barbarians in at the gate.”
Apple has already faced calls around the world to open up its tightly-controlled iPhone software ecosystem.
The lawsuit against Apple has been in the works for years. An investigation began in 2019 but picked up momentum following the appointment of Kanter, the Biden administration’s top antitrust official, in 2021.
The complaint also alleges that Apple prevents banks and credit unions from offering products that would compete with the iPhone’s digital wallet. Permitting other “tap to pay” technologies would lead to better options for iPhone users, the government said.
A group of credit unions challenged the same restrictions in San Francisco federal court in 2022.
Some analysts and investors say Apple’s proliferating legal risks may be a problem.
The government’s case could take years to play out. Still, the litigation is distracting to Apple’s management and could make it harder for Apple to grow its subscription services business.
While Apple’s stock has fallen 7% so far this year, it is the second-largest company in the world by market capitalization and produces tens of billions of dollars in profit each quarter.
In recent years, Apple has relied on growth from its App Store and associated services—video and audio streaming, cloud storage and news—while the pace of iPhone hardware revenue increases has slowed. Oppenheimer analyst Martin Yang estimated that the App Store has margins as high as 80%.
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