Apple sued in landmark case for blocking competitors’ apps, sending shares down and wiping out $100 million in value in minutes

Justice officials said Thursday they are suing Apple, saying its devices and software constitute a monopoly and generate huge profits at the expense of customers.

“Every step in Apple’s course of action built and strengthened the moat around its smartphone monopoly,” the lawsuit said.

The U.S. Department of Justice and 15 states allege it used strong demand for its iPhone and other products to drive up prices and hurt smaller rivals in the first major antitrust effort against Apple.

For example, it is claimed that Apple is making it more difficult for competing payment apps and smartwatches to work with iPhones.

Instead, it prioritizes Apple Pay and Watch, rather than PayPal or Garmin, for example. Shares in both companies rose today on news of the lawsuit.

Another major complaint concerns messaging. U.S. Attorney General Merrick Garland said users who try to message owners of other brands of smartphones end up experiencing issues such as videos not being sent.

Apple shares are having their worst day since August 2023 – down 4 percent at one point – on a day when the stock market hit record highs across the board.

Apple joins a list of major tech companies indicted by U.S. regulators, including Alphabet’s Google, Meta Platforms and Amazon.com under the administrations of both former President Donald Trump and President Joe Biden.

The lawsuit accuses Apple of five key areas in which it has denied rival companies full access to its technology – in an effort to stifle competition.

In addition to messaging apps, smartwatches and digital wallets, Apple has been accused of blocking competition so-called ‘super apps’ and cloud streaming gaming apps.

Apple is said to be making it harder for competing messaging apps and smartwatches to work with iPhones.

Officials also say it has blocked access to its contactless technology that enables mobile payments – meaning iPhone owners can only use the Apple Pay service.

Meanwhile, App Store rules surrounding game streaming services have hurt competition.

Super apps are apps that combine multiple functions, such as calling, messaging and payments, in one place, making it easier to switch between smartphone platforms. They are common in China and include WeChat.

The Justice Department cited an email chain from Steve Jobs, the Apple co-founder who died in 2011, in which he said it “wasn’t nice to see” how easily consumers could switch from iPhones to Android phones and promised to protect developers ‘force’ its payment systems in an effort to capture both developers and consumers.

The case could drag on for years. If the DoJ wins or Apple makes concessions, Apple’s rivals will initially benefit.

But it would also mean better and cheaper apps and products made by third-party companies like Spotify or tracking gadget Tile.

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

Garland said monopoly power is classified by the Supreme Court as “the power to control prices or exclude competition.”

He said: “As outlined in our complaint, Apple has that power in the smartphone market.

“If there’s no doubt about it. Apple will only continue to strengthen its smartphone monopoly.”

The Justice Department alleges that Apple uses its market power to get more money not just from consumers, but also from developers, content creators, artists, publishers, small businesses and merchants.

The 88-page lawsuit, filed in U.S. federal court in Newark, New Jersey, said it aimed to “free the smartphone markets from Apple’s anticompetitive and exclusionary conduct and restore competition to lower smartphone prices for consumers , reduce costs for developers and preserve innovation for the future.”

The case takes direct aim at the digital fortress Apple has built around the iPhone and other popular products like the iPad, Mac and Apple Watch.

They have created what is often called a ‘walled garden’ – where the carefully designed hardware and software can flourish together seamlessly, while the consumer has to do little more than turn on the devices.

But the complaint is that this prevents other companies from working together so seamlessly.

The strategy has helped make Apple one of the largest companies in the world, with annual revenues of nearly $400 billion and, until recently a market value of more than $3 trillion.

Shares of Apple are down 7 percent this year, while most of the stock market has soared to new highs.

It has led to longtime rival Microsoft – the target of a major Justice Department antitrust lawsuit a quarter-century ago – taking the title of the world’s most valuable company.

Apple is already subject to antitrust investigations and injunctions in Europe, Japan and Korea, as well as lawsuits from corporate rivals such as Epic Games.

One of Apple’s most lucrative businesses – the App Store, which charges developers commissions of up to 30 percent – ​​has already survived a lengthy legal challenge under US law by Epic.

Although the lawsuit found that Apple had not violated antitrust laws, a federal judge ordered Apple to allow links and buttons to pay for apps without using Apple’s in-app payment commission.

“We believe this lawsuit is flawed on the facts and the law, and we will vigorously defend ourselves against it,” Apple said in a statement.