What does the Apple lawsuit mean for the company and tech industry?

The iPhone maker has vowed to vigorously defend its business practices

Apple is facing another legal obstacle after the US Department of Justice sued the technology company for allegedly running a monopoly that has harmed consumers and market competition.

The landmark antitrust lawsuit – reminiscent of the antitrust case that hit Microsoft in 1998 – is significant as it threatens the iPhone maker's dominance, with a number of possibilities that could change not only Apple, but the entire technology landscape as well.

However, Apple is likely to fight the case in what is expected to be a lengthy legal battle.

The National takes a closer look at the legal showdown between Apple and the US Department of Justice, and explores its potential impact on the company and the wider technology industry.

Why is Apple sued?

The allegations against Apple are manifold, some of which are pointed, according to the 88-page lawsuit filed by the Department of Justice and 15 other US states in New Jersey's district court. The investigation began in 2019 under the administration of former president Donald Trump.

“For many years, Apple has built a dominant iPhone platform and ecosystem that has driven the company's astronomical valuation,” the lawsuit said, referring to California-based Apple's market capitalisation, which peaked at about $3.1 trillion.

It also said that Apple's ecosystem – using a so-called “walled garden” approach – effectively prevents users from switching to other products, as they are limited to services provided by Apple and only for its devices.

The Apple Watch, for instance, only works with iPhones, and AirDrop, Apple's protocol for transferring files via Bluetooth, only works between the company's devices – meaning consumers have no choice, the lawsuit alleged.

“Apple feared the disintermediation of its iPhone platform and undertook a course of conduct that locked in users and developers while protecting its profits,” it added.

Apple “maintained monopoly power in the smartphone market not simply by staying ahead of the competition on the merits but by violating federal antitrust law”, US Attorney General Merrick Garland said in a press conference announcing the case.

As such, “customers should not have to pay higher prices because companies break the law”, America's top lawyer stressed.

Apple says the lawsuit is 'wrong'

Apple is adamant that the allegations against it are untrue – and it is not a surprise that the company, which has one of the best legal teams in the world, will fight off the case.

“This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets,” Apple said in response, according to a statement reportedly attributed to Fred Sainz, a senior director in the company's corporate communications team.

Apple is highly protective of its technology ecosystem across its iPhones, Macs, Watches, iPods, AirPods and other products.

It has long argued that doing so results in several benefits, most notably guaranteeing user security and privacy – which the company has continuously said its users value the most.

On the apps front, Apple has maintained that developers have benefitted from the App Store's global hold, allowing them to reach more users and earn revenue.

While significantly below market leader Google Play in terms of the total number of apps – about 2.44 million as of December 2023, according to Statista – the App Store still leads in revenue as iPhone sales tend to be higher in countries with higher incomes.

If the lawsuit will be successful, it would hinder Apple's “ability to create the kind of technology people expect from Apple – where hardware, software and services intersect”, Mr Sainz said.

“We believe this lawsuit is wrong on the facts and the law.”

How has the lawsuit affected Apple?

Apple's stock has suffered the most so far. The company slid 4.1 per cent at the close of trading on Thursday, wiping out about $113 billion from its market capitalisation, which stands at $2.65 trillion, and bringing its year-to-date losses to about 11 per cent.

Apple has argued that the lawsuit “would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology”.

The case caps a “week full of surprises” in the market.

Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a note that Apple “looks like it’s carrying the misery of the world on its shoulders these days”.

“It missed the AI rally, it’s sued by regulators around the world and China is not playing along,” she said.

That last bit refers to Apple chief executive Tim Cook's visit to China this week, as the company opened a new Apple Store in Shanghai amid attempts to prop up flagging iPhone sales in the world's second-largest economy, a key market for the company.

Apple chief executive Tim Cook at the opening of the new Apple Store in Jing'An, Shanghai, on Thursday. AP

What could this mean for Apple and Big Tech?

The Department of Justice has not ruled out the possibility of forcing Apple to break up its business – similar to its attempts to do the same with Facebook parent Meta Platforms.

Breaking up a company usually happens when it becomes too big and has a monopoly on an industry, stifling the competition.

But will this have a domino effect on Big Tech?

Apple, along with Meta and Alphabet's Google, are expected to be probed by the EU, using its powers under the newly formed Digital Markets Act, Reuters reported, citing sources.

This could also put companies such as OpenAI, the Microsoft-backed company that is leading the generative AI revolution, in the crosshairs of authorities.

Any legal action against OpenAI and Microsoft could be “coming up around the corner”, said William Kovacic, a professor at George Washington University and former chairman of the US Federal Trade Commission, the Associated Press reported.

No stranger to litigation

Apple has been the subject of numerous lawsuits and has fought them off. It has been involved in antitrust investigations in Japan, South Korea and Europe, apart from competing with rivals in the corporate scene.

Most recently, the company said it would appeal a $2 billion fine from the European Commission, stemming from an accusation that Apple unfairly shut out music-streaming rivals on its platforms, most notably Spotify.

One of the most notable cases in recent memory was that against Epic Games, the maker of Fortnite, which challenged Apple's restriction of third-party in-game purchases and the 30 per cent cut Apple receives from developers.

Apple survived the case: While it was ruled that Apple did not breach any antitrust laws, a judge ordered the company to allow purchases without the cut.

The iPhone maker does not routinely comment on its future plans but said it would “vigorously defend against [the latest lawsuit]".