US technology giant Apple is being sued by the US government for allegedly building an anti-competitive “moat” around its monopolistic iPhone ecosystem.
The Department of Justice (DOJ) filed its lawsuit on Thursday in New Jersey federal court, alleging that Apple had used “broad-based, exclusionary conduct” to make it harder for Americans to switch smartphones and for companies to provide applications, products and services to iPhone users. The federal government was joined by 16 state attorneys general in lodging the civil claim.
“Consumers should not have to pay higher prices because companies violate the antitrust laws,” US Attorney General Merrick Garland said in a statement. “We allege that Apple has maintained monopoly power in the smartphone market, not simply by staying ahead of the competition on the merits, but by violating federal antitrust law. If left unchallenged, Apple will only continue to strengthen its smartphone monopoly.”
The iPhone monopoly has driven Apple’s “astronomical valuation” – the company’s market capitalization of over $2.6 trillion is second only to Microsoft’s $3.2 trillion – at the expense of consumers and other technology companies, the lawsuit argued. The stock dropped 4.1% after the DOJ lawsuit was announced, wiping out over $100 billion in market value.
The case challenges Apple’s so-called “walled-garden” business model, which makes the company’s products largely inaccessible to competitors. It comes just weeks after the EU fined Apple €1.84 billion ($2 billion) for breaking the bloc’s competition laws. The company allegedly blocked providers of rival streaming services, such as Spotify, from informing iPhone users of cheaper music subscription alternatives.
Apple monopolized the smartphone app market by blocking advances from competitors. “By stifling these technologies, and many others, Apple reinforces the moat around its smartphone monopoly not by making its products more attractive to users, but by discouraging innovation that threatens Apple’s smartphone monopoly,” the lawsuit said.
The company denied the DOJ’s claims. The lawsuit could “hinder our ability to create the kind of technology people expect from Apple – where hardware, software and services intersect,” a company spokesperson told media outlets. “It would also set a dangerous precedent, empowering the government to take a heavy hand in designing people’s technology.”
If successful, the lawsuit could force Apple to make changes to some of its most profitable products, including the iPhone and the Apple Watch. It could even lead to the company being forced to sell off some of its businesses to promote more competition. The iPhone had a 64% share of the US smartphone market in last year’s fourth quarter, far ahead of Samsung’s 18% share, according to Counterpoint Research.