Merrick G. Garland

Address Announcing DOJ Lawsuit Against Apple for Allegedly Monopolizing Smartphone Markets

delivered 21 March 2024, Washington, D.C.

Good morning. Earlier today, the Department of Justice, joined by 15 states¹ and the District of Columbia sue Apple in the U.S. District Court for the District of New Jersey for violating Section 2 of the Sherman Antitrust Act.

Over the last two decades, Apple has become one of the most valuable public companies in the world. Today, its net income exceeds the individual Gross Domestic Product of more than 100 countries. That is in large part due to the success of the iPhone, Apple’s signature smartphone product.

For over a decade, iPhone sales have made up a majority of Apple's annual revenue. Today, Apple's share of the U.S. performance smartphone market exceeds 70%, and its share of the entire U.S. smartphone market exceeds 65%. Apple charges as much as nearly $1,600 for an iPhone.

But as our complaint alleges, 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.

Consumers should not have to pay higher prices because companies break the law.

We allege that Apple has employed a strategy that relies on exclusionary, anticompetitive conduct that hurts both consumers and developers.

For consumers, that has meant fewer choices; higher prices and fees; lower quality smartphones, apps, and accessories; and less innovation from Apple and its competitors.

For developers, that has meant being forced to play by rules that insulate Apple from competition.

And as outlined in our complaint, we allege that Apple has consolidated its monopoly power not by making its own products better -- but by making other products worse.

Apple carries out its exclusionary, anticompetitive conduct in two principal ways:

[1] First, Apple imposes contractual restrictions and fees that limit the features and functionality that developers can offer iPhone users.

[2] Second, Apple selectively restricts access to the points of connection between third-party apps and the iPhone’s operating system, degrading the functionality of non-Apple apps and accessories.

As a result, for most of the past 15 years, Apple has collected a tax in the form of a 30% commission on the price of any app downloaded from the App Store as well as on in-app purchases. Apple is able to command these fees from companies of all sizes.

Apple has also suppressed the emergence of programs like cloud streaming apps -- including gaming apps -- as well as super apps that could reduce user dependence on Apple's own operating system and expensive hardware.

Example of text message exchange between IMessage and Android SMS users.

And, as any iPhone user who has ever seen a green text message, or received a tiny, grainy video can attest -- Apple's anticompetitive conduct also includes making it more difficult for iPhone users to message with users of non-Apple products.

It does this by diminishing the functionality of its own messaging app and by diminishing the functionality of third-party messaging apps.

By doing so, Apple knowingly and deliberately degrades quality, privacy, and security for its users.

For example, if an iPhone user messages a non-iPhone user in Apple Messages, the text appears not only as a green bubble, but incorporates limited functionality:

- The conversation is not encrypted;
- Videos are pixelated and grainy; and
- Users cannot edit messages or see typing indicators.

As a result, iPhone users perceive rival smartphones as being lower quality because the experience of messaging friends and family who do not own iPhones is worse -- even though Apple is the one responsible for breaking cross-platform messaging.

And it does so intentionally.

For example, in 2013, a senior executive at Apple explained that supporting cross-platform messaging in Apple Messages, “would simply serve to remove [an] obstacle to iPhone families giving their kids Android phones.”

In 2022, Apple’s CEO was asked whether Apple would fix iPhone-to-Android messaging. The questioner added: “not to make it personal but I can’t send my mom certain videos.”

Apple's CEO responded, “Buy your mom an iPhone.”

In addition to selectively controlling app distribution and creation, we allege that Apple is violating the law by conditionally restricting developers’ access to the interface needed to make an app functional on the Apple operating system.

For a product like a smartwatch or a digital wallet to be useful to an iPhone user, it must be able to communicate with the iPhone’s operating system. But Apple creates barriers that make it extremely difficult and expensive for both users and developers to venture outside the Apple ecosystem.

When it comes to smartwatches, Apple not only drives users to purchase an Apple Watch -- which is only compatible with an iPhone -- it also uses its technical and contractual controls to make it harder for someone with an iPhone to use a non-Apple smartwatch.

And when it comes to digital wallets, Apple’s exclusionary conduct goes a step further. Digital wallets allow users to store and use passes and credentials in a single app -- including credit cards, personal identification, movie tickets, and car keys. Apple Wallet is Apple’s proprietary digital wallet on the iPhone.

Apple actively encourages banks, merchants, and other parties to participate in Apple Wallet. But it simultaneously exerts its monopoly power to block these same partners from developing alternative payment products and services for iPhone users.

For example, Apple has blocked third-party developers from creating competing digital wallets on the iPhone that use what is known as tap-to-pay functionality. That is the function that makes a digital wallet -- well, a wallet.

Instead, Apple forces those who want to use the wallet function to share personal information with Apple -- even if they would prefer to share that information solely with their bank, medical provider, or other trusted third party.

When an iPhone user puts a credit or debit card into Apple Wallet, Apple inserts itself in a process that could otherwise occur directly between the user and card issuer. This introduces an additional potential point of failure for the privacy and security of Apple users.

And that is just one way in which Apple is willing to make the iPhone less secure and less private in order to maintain its monopoly power.

The Supreme Court defines monopoly power as “the power to control prices or exclude competition.”

As set out in our complaint, Apple has that power in the smartphone market.

Now, having monopoly power does not itself violate the antitrust laws.

But it does when a firm acquires or maintains monopoly power -- not because it has a superior product or superior business acumen -- but by engaging in exclusionary conduct.

As set out in our complaint, Apple has maintained its power not because of its superiority, but because of its unlawful exclusionary behavior.

Monopolies like Apple's threaten the free and fair markets upon which our economy is based. They stifle innovation; they hurt producers and workers; and they increase costs for consumers.

If left unchallenged, Apple will only continue to strengthen its smartphone monopoly.

But there’s a law for that.

The Justice Department will vigorously enforce antitrust law.

Enforcing the law protects consumers from higher prices and fewer choices.

That is the Justice Department’s legal obligation. That is what the American people expect. That is what they deserve.

I am grateful to the attorneys and staff of the Department’s Antitrust Division for their tireless work on this case on behalf of the American people.

¹ Arizona, California, Connecticut, Maine, Michigan, Minnesota, New Hampshire, New Jersey, New York, North Dakota, Oklahoma, Oregon, Tennessee, Vermont, and Wisconsin [Source: here]

Original Text Source: DOJ.gov

Original Image of Text Message Source: William E. Eidenmuller, MD

Page Updated: 3/22/24

U.S. Copyright Status: Text = Public domain. SMS Image = Property of AmericanRhetoric.com.