Apple shares drop as DOJ sues firm over “monopoly power”

Apple shares lower on DOJ lawsuit as regulators zero in on Silicon Valley

The U.S. Department of Justice (DoJ) filed a landmark antitrust lawsuit against Apple Inc. on Thursday, alleging that the tech giant has engaged in anti-competitive practices that stifle competition and harm consumers.

The civil suit, joined by attorneys general for 15 states and the District of Columbia, marks a significant escalation in the scrutiny of Silicon Valley's business practices by U.S. regulators.

“Consumers should not have to pay higher prices because companies violate the antitrust laws,” Attorney General Merrick Garland said in a news release.

Apple stock closed 4.09% lower on Thursday at $171.37.

At the time of writing at 13:45 GMT on Friday, AAPL shares were down 0.51% in early trading. Apple stock has shed close to 11.5% of its value year-to-date but remains 6.35% up on a 12-month basis.

What are the accusations against Apple?

The DoJ has accused Apple of using its market dominance, particularly in the smartphone market, to suppress competition and innovation.

Here are some of the accusations levied against Apple:

• The DOJ is accusing Apple of obstructing the emergence of "super apps," which would streamline the process for users to switch between different smartphone ecosystems.
• The legal action also targets Apple's restrictions on the advancement of cloud-streaming applications, alleging that these limitations prevent consumers from accessing high-quality video game play unless they invest in additional hardware.
• The DOJ also claims Apple hampers the creation of cross-platform messaging applications, compelling customers to continue purchasing iPhones. A key point of contention highlighted by the DOJ includes consumer grievances regarding the treatment of messages sent from non-iPhone devices, which appear as green rather than the customary iMessage blue — and lack the full array of features present between iMessage users.

At a press briefing on Thursday following the lawsuit's unveiling, Attorney General Garland remarked on Apple's significant market presence, pointing out that its market capitalization surpasses the GDP of over 100 countries.

However, he attributed Apple's success not to the superiority of its products but to its "exclusionary" tactics, claiming that the company has developed "not by making its own products better, but by making other products worse."

Apple responds to DoJ, accuses U.S. government of overreach

In response, Apple refuted the claims and criticized the government's intervention as excessive.

The company defended its operational decisions, arguing it is not required to adopt designs or policies favored by its competitors, particularly if such changes would degrade the user experience for iPhone owners.

Apple specifically mentioned its decision not to develop a cross-platform version of iMessage, explaining that such a move would fail to deliver the high-quality user experience that aligns with the company's standards. In a statement, the company said:

"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.

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. It would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology. We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it.”

Apple lawsuit part of Biden administration’s antitrust push vs. Big Tech

This lawsuit against Apple is part of President Joe Biden's broader antitrust crackdown on Big Tech.

The U.S. Justice Department has previously initiated legal action against Google, accusing it of monopolizing digital advertising services. The Federal Trade Commission (FTC) is also engaged in a longstanding antitrust lawsuit against Facebook's parent company, Meta Platforms, and has recently filed another against Amazon.

In December, the FTC attempted to thwart Microsoft's now-closed acquisition of video game company Activision.

The current legal action marks the third time an attorney general has targeted the Cupertino, California-based tech giant — it is the first, however, to challenge Apple on such a broad basis.

In an investor note cited by CNBA, Dan Ives, a managing director and senior equity research analyst at Wedbush Securities, said:

“This clearly escalates the Biden Administration antitrust efforts against Big Tech giants and adds to the current ongoing antitrust case against Google and other various cases against Meta and Amazon”.

As the case progresses, it will be closely watched by the technology industry, legal experts, and consumers, highlighting the ongoing debate over the balance between innovation, competition, and regulation in the rapidly evolving digital marketplace.

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