Regulators on both sides of the Atlantic are training their eyes on Apple Inc., unnerving investors with fears over fines and threatening its market dominance.
In the US, the Justice Department and 16 attorneys general are suing the iPhone maker for violating antitrust laws. And in Europe, the company is said to be facing probes about whether it’s complying with the region’s Digital Markets Act.
Shares of the company slid 4.1% Thursday, erasing about $113 billion in market value and taking their year-to-date loss back to 11%. Once the world’s most valuable firm at more than $3 trillion, Apple has underperformed both the Nasdaq 100 and the S&P 500 in 2024.
It’s not the first time Apple is coming under regulatory scrutiny. The company and its peers have for years faced accusations of enriching themselves by suppressing competitors. But as Apple’s products have grown ever-more popular and established themselves as part of daily life around the world, authorities have also become more combative and wary of its power.
The American suit, filed Thursday in New Jersey federal court, accuses Apple of blocking rivals from accessing hardware and software features on its popular devices. The potential investigations in Europe, which are also targeting some of Apple’s rivals, will focus on the firm’s new fees, terms, and conditions for app store developers.
“There comes a point in which the downpour of cases and scrutiny that comes with them become a real drag on how these companies operate,” said Bill Kovacic, an antitrust professor at George Washington University Law School. “Even if they win, in an important way they’ve lost.”
Apple fired back at the US lawsuit by calling it “wrong on the facts and the law.” It warned that the action would “set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology” and vowed to “vigorously defend against it.” The company didn’t respond to a request for comment on the potential European probes.
The US lawsuit alleges that Apple has used its power over app distribution on the iPhone to thwart innovations that would have made it easier for consumers to switch phones. The company has refused to support cross-platform messaging apps, limited third-party digital wallets and non-Apple smartwatches, and blocked mobile cloud streaming services, according to the DOJ.
It highlights five examples of technologies in which it says Apple suppresses competition: super apps, cloud streaming game apps, messaging apps, smartwatches, and digital wallets. The company recently added support for cloud-based gaming services and said it would add RCS cross-platform messaging later this year.
“At Apple, we innovate every day to make technology people love — designing products that work seamlessly together, protect people’s privacy and security, and create a magical experience for our users,” the company said in a statement. “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets.”
The Digital Markets Act — which lays out a series of do’s and don’ts for some of the world’s largest tech platforms — allows the European Commission to levy hefty penalties of as much as 10% of a company’s total annual worldwide revenue, and up to 20% for firms who repeatedly flout the rules. After starting formal investigations into Apple — as well as Alphabet Inc.’s Google — regulators aim to wrap up their final decisions within 12 months.
Apple, fresh from its €1.8 billion ($2 billion) European Union fine for blocking music streaming apps from informing users of cheaper deals, has been under heavy scrutiny since the DMA came into full effect on March 7.
CHANGES SOUGHT
The biggest challenge that the Department of Justice has in winning its antitrust case against Apple Inc. is this: The iPhone is really, really awesome.
I’m not trying to be droll. The iPhone’s quality, and how Apple continues to make it so, goes to the heart of the case filed against the company on Thursday morning.
And it makes any potential remedy a touchy subject. Leveling the playing field invariably means adding complication, friction, and insecurity to a device that became successful because Apple was able to engineer away all of those things.
Unlike other recent antitrust cases filed against big technology companies, in which regulators have targeted Google’s search deal with Apple and Amazon.com Inc.’s tactics on price manipulation, this long-awaited filing against one of the richest US companies seeks to draw strength from its breadth, focusing on several crucial parts of Apple’s competitive “moat.”
After a five-year investigation, here are the chief points the government is bringing to court:
- It says the company prevents the existence of super apps — that is, apps that contain more apps within them, like a digital shopping mall. It means competitors must launch their apps in Apple’s store with its onerous controls and expensive fees.
- It says the company blocks “cloud streaming apps” that would allow, for example, streaming of games over the cloud, something that would reduce the need to have a more powerful smartphone — i.e. the latest iPhone.
- It goes after what users will know best as the “green bubble effect,” the clunky experience of sending and receiving messages between the iPhone’s iMessage app and smartphones that run Google’s Android operating system. Videos sent by Android users to the iPhone appear grainy and low quality — an artificial restriction concocted by Apple to benefit itself, regulators argue, creating a “social stigma.”
- It says Apple’s tight integration between the Apple Watch and the iPhone prevents people from switching smartphones, accusing Apple of “having copied the idea of a smartwatch from third-party developers.”
- And it says Apple is blocking developers from creating their own digital wallets that can use the iPhone’s near-field communication chip to use tap-to-pay.
In sum, the complaint contends: “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 or the disintermediation of the iPhone.”
I disagree with that framing. As any iPhone user knows, Apple clearly does both: It uses its maniacal control over the user experience on the iPhone to make it a vastly superior smartphone that is more attractive to consumers. But in doing so, it shuts out competitors in a manner that has anticompetitive side effects because of the iPhone’s scale.
Attempts to remedy this situation could be painful, unpopular, and have a high chance of failure. Just ask iPhone users in Europe, where regulators enforced their tough new rules to increase mobile browser competition — and all users got was a lousy menu. Hardly a tectonic shift in the competitive landscape.
Apple’s authoritarianism is what makes an iPhone an iPhone and not an Android. Fans of that competing platform will eagerly say it can do everything an iPhone can do while ignoring the fact that the user experience is a steaming hot mess — particularly for less tech-savvy users who aren’t as vigilant in keeping out nasty apps or for those who are too many separate apps doing similar things would be massively confusing. (It’s no coincidence that when my father calls with a tech support question, it’s always about his Android phone, never his Apple iPad.)
Forcing Apple to open up to competition in the way the Justice Department is demanding would degrade the iPhone experience. Would it be better for users, for instance, if their credit cards, plane tickets, and IDs were squirreled away in different apps for banks, airlines, and everything else? Or would they rather have them, as Apple currently forces, in a single wallet they knew was secure? (Or to put it another way: How many physical wallets does the typical person carry?)
Would it be better for users if, instead of Apple deciding what apps are safe, individual companies could make their own decisions through their own “mini” app stores? More democratic, maybe, but more open to abuse.
The Apple Watch, meanwhile, finds its value in the software and hardware integration between it and the iPhone — including the secure monitoring and storing of health data. Could Apple make it compatible with Android? Yes, with trade-offs. But why should it? Shouldn’t competition come from Google doing something similar with its Pixel phone and a wearable? Indeed, Google tried, acquiring fitness device maker FitBit in 2021 for $2.1 billion; it has since run the once-competitive brand and its products into the ground. Saying Apple “copied” the smartwatch is like arguing Ferrari copied the Model T because Ford’s car had four tires and a steering wheel.
The annoyance at the “green bubble” has some credibility — the limitations Apple has imposed are petty — but a remedy arguably already exists in that users can already choose to use (free) interoperable services like Whatsapp or Signal. In fact, the US is just about the only country in which this is even an issue.
More may come out during a trial, but there are no real smoking guns in the government’s filing. One comment in particular, attributed to an unidentified “Apple Manager,” highlights the dichotomy. Allowing super apps, this manager wrote, would “let the barbarians in at the gate,” which is almost certainly true. It would also mean “iOS stickiness goes down.” Through examples like this, Apple will be able to credibly argue that the “anticompetitive” move was first and foremost the right one for its users.
Of all the recent legal actions against technology companies emanating from the joint assaults of the Federal Trade Commission and Justice Department, the case against Apple seems the most muddled and least convincing. It relies on a flimsy notion that Apple’s success has throttled innovation at other companies, rather than compelled it, without truly explaining how. It certainly doesn’t make a persuasive case that ordering Apple to make a worse iPhone would change anything for the better.
The government’s charges against Apple will probably face a high legal bar in court if the lawsuit makes it that far.
Apple said it would “vigorously” contest the lawsuit. A victory for the plaintiffs “would hinder our ability to create the kind of technology people expect from Apple,” the company said.
If you have an iPhone, you can see for yourself the heart of the government’s allegations.
The Justice Department says Apple limits choices with apps, text messaging, the ability to tap phones to buy lunch, and options for seamlessly using a Garmin or Samsung smartwatch with an iPhone.
Apple has previously said limitations like those protect your security and privacy. However, the government says that Apple’s restrictions limit your choices to allow Apple to grow even richer at the public’s expense.
If you use an iPhone, you’re subject to several limitations pointed out in the government’s lawsuit, including:
You can’t send secure iMessages to someone with an Android phone
If you have an iPhone and text a buddy with an Android phone, each of your phone companies gets a copy of that message — and it’s less secure from hackers.
If you text a video to your Android friend, it probably looks compressed or garbled on their end. You don’t get an indication that your buddy read your text, as you would if he had an iPhone.
If you have a Windows computer, you can’t easily read your iMessage chats on your PC as you can on a Mac.
Apple has said its choices keep you safer, but the company’s actions make many chat messages less secure and less functional.
According to the Justice Department lawsuit, an Apple executive in 2016 forwarded an email to CEO Tim Cook that said making it easier for iPhone and Android phone users to text one another “will hurt us more than help us.”
You can’t try some potentially useful apps
Imagine downloading one app that lets you play a bunch of games such as “Candy Crush” and “World of Warcraft.”
Xbox made an iPhone app like that several years ago, but Apple never let you try it. Instead, you generally must download and pay for each game app separately.
The Justice Department said that Apple’s decision to block those kinds of apps within apps stops you from trying potentially innovative products. The government lawsuit essentially compared it with Netflix only letting you watch one movie rather than giving you access to a bunch of programming.
Apple said in January that it would start to permit apps within other apps, although it’s not clear yet how that might work in practice.
You can’t tap to pay with anything other than Apple Pay
In the United States, Apple restricts access to the technology on your iPhone that lets you hover your phone near a payment register to pay for groceries, a subway fare, or a cup of coffee.
That’s partly to keep your phone secure, but it also steers all your tap-to-pay purchases through its own Apple Pay service, letting the company collect a fee every time. Even if you wanted, you can’t pay instead with PayPal, the Cash app, Venmo, or other payment services.
In its lawsuit, the Justice Department said that Apple “exerts its smartphone monopoly” to stop financial companies from “developing better payment products and services for iPhone users.”
After the European Union recently passed a law that forces Apple to allow access to its tap-to-pay features, PayPal told its investors that it planned to make its payment service available for tap-to-pay on iPhones.
Apple did previously lift some iPhone restrictions
If you click a link in the standard iPhone email app, you can open the page in the Chrome browser rather than Safari. You can ask Siri to play music from Spotify and not just from the Apple Music app.
You can now use the Gmail or Outlook apps as the standard email app on your iPhone instead of Apple’s email app.
Apple didn’t allow those options until a few years ago when it lifted those previous restrictions after claims from U.S. government officials and rival companies such as Spotify that Apple was unfairly limiting technology choices.
Also after pressure from regulators, Apple is working to make the iPhone messaging app a bit more compatible with the standard Android texting app.