U.S. Moves Closer to Filing Sweeping Antitrust Case Against Apple

U.S. Moves Closer to Filing Sweeping Antitrust Case Against Apple
U.S. Moves Closer to Filing Sweeping Antitrust Case Against Apple

The Justice Department is in the late stages of an investigation into Apple and could file a sweeping antitrust case taking aim at the company’s strategies to protect the dominance of the iPhone as soon as the first half of this year, said three people with knowledge of the matter.

The agency is focused on how Apple has used its control over its hardware and software to make it more difficult for consumers to ditch the company’s devices, as well as for rivals to compete, said the people, who spoke anonymously because the investigation was active.

Specifically, investigators have examined how the Apple Watch works better with the iPhone than with other brands, as well as how Apple locks competitors out of its iMessage service. They have also scrutinized Apple’s payments system for the iPhone, which blocks other financial firms from offering similar services, these people said.

Senior leaders in the Justice Department’s antitrust division are reviewing the results of the investigation so far, said two of the people. The agency’s officials have met with Apple multiple times, including in December, to discuss the investigation. No final decision has been made about whether a lawsuit should be filed or what it should include, and Apple has not had a final meeting with the Justice Department in which it can make its case to the government before a lawsuit is filed.

The Justice Department is closing in on what would be the most consequential federal antitrust lawsuit challenging Apple, which is the most valuable tech company in the world. If the lawsuit is filed, American regulators will have sued four of the biggest tech companies for monopolistic business practices in less than five years. The Justice Department is currently facing off against Google in two antitrust cases, focused on its search and ad tech businesses, while the Federal Trade Commission has sued Amazon and Meta for stifling competition.

The Apple suit would likely be even more expansive than previous challenges to the company, attacking its powerful business model that draws together the iPhone with devices like the Apple Watch and services like Apple Pay to attract and keep consumers loyal to its products. Rivals have said that they have been denied access to key Apple features, like the Siri virtual assistant, prompting them to argue the practices are anticompetitive.

A spokesman for the Justice Department declined to comment for this article. Apple also declined to comment.

The company has previously said that its practices do not violate antitrust law. In defending its business practices against critics in the past, Apple said that its “approach has always been to grow the pie” and “create more opportunities not just for our business, but for artists, creators, entrepreneurs and every ‘crazy one’ with a big idea.”

The company prides itself on the way the iPhone integrates hardware and software to create a seamless customer experience. In 2020, Tim Cook, Apple’s chief executive, said during testimony before a congressional antitrust committee that the company redefined mobile phones with “its effortless user experience, its simplicity of design and a high-quality ecosystem.” He added that Apple competed against Samsung, LG, Google and other smartphone makers, which offer a different approach.

“Apple does not have a dominant market share in any market where we do business,” Mr. Cook said at the time. “That is not just true for iPhone; it is true for any product category.”

The case would add to the growing regulatory pressure both domestically and abroad cutting into Apple’s business, currently valued at $2.83 trillion.

This year, European regulators are expected to force Apple to accommodate app stores beyond its own under the Digital Markets Act, a law passed in 2022 to rein in tech giants. Similar actions against the App Store have been taken or are under consideration in South Korea and Japan.

Additionally, the European Commission said in 2021 that Apple had violated its antitrust laws by imposing app store fees on competitors to its Apple Music product. The commission’s investigation into the issue is continuing.

The resolution of the Justice Department’s investigation could be affected by the details of how Apple complies with European regulations, said two people with knowledge of the matter, who spoke anonymously because the investigation was ongoing.

Apple is facing the increased regulatory pressure as its business slows. Last year, the company reported its annual revenue fell 2.8 percent, to $383 billion, its first decline in a fiscal year since 2019, as sales of iPhones, iPads and Macs slowed. Still, the company sold more than 200 million iPhones and accounted for nearly three-quarters of the smartphones sold worldwide that were priced above $600, analysts estimate.

When the Justice Department started its tech investigations in 2019, it prioritized its antitrust review of Google over Apple because it lacked the financial resources and personnel to fully evaluate both companies, according to two people with knowledge of the matter. That changed in 2022 after the department’s budget increased.

The investigation has encompassed a wider span of Apple’s business interests than previously reported, said six people with knowledge of the meetings. That includes how Apple has blocked cloud gaming apps, which let users stream a multitude of titles to their phones, from being offered in its App Store.

Investigators spoke with executives at Tile, the Bluetooth tracking service, about Apple’s competing AirTag product and the company’s restrictions to outside parties on access to the iPhone’s location services. Executives at Beeper, a start-up that made iMessage available on Android phones, spoke with investigators about how Apple blocked it from making it possible to offer messaging across competing smartphone operating systems. Investigators also had conversations with banks and payment apps about how Apple prevents them from accessing the tap-to-pay function on iPhones.

Tile and Beeper declined to comment for this article.

They have also looked at how the Apple Watch works better alongside the iPhone than other competing smartwatches. Users of Garmin devices have complained in Apple’s support forums about being unable to use their watches to reply to certain text messages from their iPhones or tweak the notifications they receive from the iPhone that they have connected to their watch.

Apple’s new privacy tool, App Tracking Transparency, which allows iPhone users to explicitly choose whether an app can track them, drew scrutiny because of its curtailing of user data collection by advertisers. Advertising companies have said that the tool is anticompetitive.

Meta, the owner of Facebook and Instagram, encouraged the Justice Department to look at the issue in its conversations with the agency, two of the people said. The company — which makes most of its money from advertising — said in 2022 that it could lose roughly $10 billion in revenue that year because of the changes. Meta declined to comment. Investigators have also examined Apple’s policy of applying fees to purchases made inside of iPhone apps, which companies like Spotify and the dating app powerhouse Match Group say is anticompetitive.

In 2020, Epic Games, the maker of the popular game Fortnite, sued Apple over the App Store’s requirement that developers use the tech giant’s payment system. A federal judge found that Apple didn’t have a monopoly in mobile games, dealing a major blow to Epic’s claim.

When Epic Games sued Google over similar claims, it got a different result. A jury ruled in December that Google’s app store policies had violated antitrust laws. Google plans to appeal the verdict.

The Justice Department last sued Apple in 2012, accusing it of conspiring with book publishers to raise the price of digital books. Apple lost the case and paid a $450 million settlement.

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Kyle C. Garrison

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