The Justice Department and 16 state and district attorneys general filed an antitrust lawsuit against Apple on Thursday, accusing the tech giant of creating an illegal monopoly over smartphones in the United States.

What You Need To Know

  • The Justice Department and 16 state and district attorneys general filed an antitrust lawsuit against Apple on Thursday

  • The complaint alleges that Apple created an illegal monopoly over smartphones in the United States

  • States joining the Justice Department's lawsuit include New York, California, Maine and Wisconsin, as well as the District of Columbia

  • In a statement, the company said it disagrees with the claims made in the lawsuit and vowed to "vigorously" fight it

The lawsuit, filed on Thursday in federal court in New Jersey, alleges that the company's so-called "walled garden" ecosystem -- which allows Apple to maintain total control over its hardware and software -- creates a monopoly by stifling competition. It accuses the company of using control over the iPhone to "engage in a broad, sustained, and illegal course of conduct." Apple has defended its approach by pointing to it as a means to protect users' information 

"Each step in Apple’s course of conduct built and reinforced the moat around its smartphone monopoly," the complaint reads, charging that the company uses "a series of shapeshifting rules and restrictions in its App Store guidelines and developer agreements that would allow Apple to extract higher fees, thwart innovation, offer a less secure or degraded user experience, and throttle competitive alternatives."

"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," Attorney General Merrick Garland said at a news conference on Thursday, noting that Apple, who he said "charges as much as nearly $1,600 for an iPhone," controls 65% of the smartphone market.

"Consumers should not have to pay higher prices because companies break the law," he continued, adding: "We allege that Apple has consolidated its monopoly power, not by making its own products better, but by making other products worse."

Garland gave the example of how the company handles messages from non-Apple devices, saying that the "limited functionality" in the experience leads to a perception of "lower quality" for rival smartphones.

"As any iPhone user who has ever seen a green text message, or received a tiny, grainy video can attest, Apple's anti-competitive conduct also includes making it more difficult for iPhone users to message with users of non-Apple products,” Garland said Thursday, charging that Apple "does this by diminishing the functionality of its own messaging app, and by diminishing the functionality of third-party messaging apps.”  

When an iPhone user messages an individual without an iPhone, Garland said, "the text appears not only as a green bubble, but incorporates limited functionality."

And that "limited functionality," he said, means: "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," he charged. 

In a statement, the company said it disagrees with the claims made in the lawsuit and vowed to "vigorously" fight it.

"This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets," the company's statement reads. "We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it."

Shares of the company fell 3.6% after the lawsuit was announced. The company, which reported an annual revenue of roughly $400 billion and became the first company with a $3 trillion valuation last year, has seen shares of its stock fall by roughly 10% this year despite other tech stocks surging.

States joining the Justice Department's lawsuit include New York, California, Maine and Wisconsin, as well as the District of Columbia.

This is the latest instance of vigorous antitrust enforcement action undertaken by the Biden administration, including suing to block the proposed merger of airlines JetBlue and Spirit. The White House on Thursday afternoon declined to comment on the lawsuit.

"The Biden-Harris Administration has made clear that no American should pay higher prices and lose choices because companies break the law," White House assistant press secretary Michael Kikukawa said. "President Biden strongly supports fair and robust enforcement of the antitrust laws, and recently launched his Strike Force on Unfair and Illegal Pricing to ensure accountability when companies break the law and keep prices high."

It's also the latest in recent efforts to try and change the way Apple does business. Epic Games, the maker of popular video game Fortnite, filed an antitrust suit against the company in a dispute over payments in the company's App Store. While Epic lost its broader antitrust suit against Apple, lower courts determined that outside payment options can be permitted. 

European regulators also hit Apple with a $2 billion fine over music streaming services, which the company said it plans to appeal, and separately forced it to comply with its Digital Markets Act, which will allow customers in the European Union to download apps from competing app stores.