By Stephen Nellis, Andrew Goudsward and David Shepardson
WASHINGTON (Reuters) -The U.S. Department of Justice and 15 states on Thursday sued Apple (NASDAQ:AAPL) as the government cracks down on Big Tech, alleging the iPhone maker monopolized the smartphone market, hurt smaller rivals and drove up prices.
Apple joins competitors sued by regulators, including Alphabet (NASDAQ:GOOGL)'s Google, Meta Platforms (NASDAQ:META) and Amazon.com (NASDAQ:AMZN) across the administrations of both former President Donald Trump and President Joe Biden.
"Consumers should not have to pay higher prices because companies violate the antitrust laws," Attorney General Merrick Garland said in a statement. "If left unchallenged, Apple will only continue to strengthen its smartphone monopoly."
The Justice Department said that Apple charges as much as $1,599 for an iPhone and makes larger profit than any others in the industry. Officials also said Apple charges various business partners - from software developers to credit card companies and even its rivals such as Google - behind the scenes in ways that ultimately raise prices for consumers and drive up Apple's profit.
Dating back to its time as a marginal player in the personal computer market, Apple's business model has long been based on charging users a premium for technology products where the company dictates nearly all of the details of how the device works and can be used. The Justice Department seeks to unwind that business model by forcing Apple, which has a market value of $2.7 trillion, to offer users more choices around how apps can tap in to the hardware that Apple designs.
Shares of the iPhone maker fell 4.1% to close at $171.37 on Thursday.
CHANGES SOUGHT
Apple denied the allegations made by the government.
"This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets. If successful, it would hinder our ability to create the kind of technology people expect from Apple — where hardware, software, and services intersect."
White House assistant press secretary Michael Kikukawa said: "President Biden strongly supports fair and robust enforcement of the antitrust laws."
The Justice Department, which was also joined by the District of Columbia in the lawsuit, is seeking changes at Apple. An official suggested some form of breakup or reduction of the size of Apple was a possibility when they noted "structural relief is also a form of equitable relief."
The 88-page lawsuit, filed in U.S. federal court in Newark, New Jersey, said it was focused on “freeing smartphone markets from Apple's anticompetitive and exclusionary conduct and restoring competition to lower smartphone prices for consumers, reducing fees for developers, and preserving innovation for the future.”
In the lawsuit, the U.S. accused Apple of making it harder for consumers to block competitors and cited five examples where Apple used mechanisms to suppress technologies that would have increased competition among smartphones: so-called super apps, cloud stream game apps, messaging apps, smartwatches and digital wallets.
For example, the U.S. alleges Apple made it more difficult for competing messaging apps and smartwatches to work smoothly on its phones. It also alleges that Apple's app store policies around streaming services for games have hurt competition.
The Justice Department seeks to define the market as that of smartphones in the United States, where most analysts believe Apple has slightly more than half of the market. Apple representatives said they will try to persuade the court to define the market as the global smartphone market, where the iPhone has only one-fifth of consumers.
The Justice Department quoted an email chain from Steve Jobs, the Apple co-founder who died in 2011, saying that it was "not fun to watch" how easily consumers could switch from iPhones to Android phones and vowing to "force" developers to use its payment systems in an effort to lock in both developers and consumers.
It is unclear what specific changes the Justice Department seeks. The complaint asks a court to prevent Apple from using its control of app distribution, contracts and use of private software interfaces to undermine rivals and to order anything else necessary "to restore competitive conditions in the markets affected by Apple’s unlawful conduct."
Apple has already been subject to antitrust probes and orders in Europe, Japan and Korea, as well as lawsuits from corporate rivals such as Epic Games.
On Thursday Reuters reported that Apple, Meta Platforms and Alphabet's Google will be investigated for potential violations of the European Union's Digital Markets Act that could lead to hefty fines by the end of the year, according to people with direct knowledge of the matter.
In Europe, Apple's App Store business model has been dismantled by a new law called the Digital Markets Act that went into effect earlier this month. Apple plans to let developers offer their own app stores - and, importantly, pay no commissions - but rivals such as Spotify (NYSE:SPOT) and Epic argue Apple is still making it too hard to offer alternative app stores.