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Apple (AAPL) has long avoided the government-sponsored antitrust headaches that currently plague Big Tech rivals like Amazon (AMZN), Google (GOOG, GOOGL) and Meta (META). until now.
The Justice Department is reportedly in the final stages of deciding whether to launch a full-scale legal attack on Apple, adding to the momentum already building for the world’s most valuable company after a tough start to the new year. This could further exacerbate existing headwinds.
According to the New York Times, U.S. antitrust investigators are wrapping up a two-year investigation into Apple’s highly protected ecosystem. Investigators are looking into whether integrations among the company’s suite of products, including the iPhone, App Store, Apple Watch, iMessage and AirTags, stifle competition.
Martin Edel, an adjunct professor at Columbia University Law School, said of the reported investigation: “Unless we know there are important facts that we want to investigate, we can’t intensify the investigation.” He said multi-year investigations tend to serve as a sign that the department has found something it wants to pursue.
Still, he cautioned that the Justice Department’s investigation may not reveal any wrongdoing on Apple’s part.
Threatening the “walled garden”
Apple’s antitrust concerns come as the company faces three downgrades from Wall Street analysts amid concerns about weak iPhone demand in the country as China’s economy continues to slump. There is. On Friday, Microsoft overtook Apple as the world’s most valuable publicly traded company at the end of the trading day.
Apple is also preparing to launch its most ambitious product yet, the Vision Pro spatial computer. The AR/VR headset, which goes on sale on February 2nd, is Apple’s first new device category since launching the Apple Watch in 2015, and could be the successor to the company’s iPhone.
However, the AR/VR market is still incredibly small compared to the smartphone space, and consumers tend to grow tired of devices after a few months of use.
A Justice Department lawsuit seeking to dismantle Apple’s “walled garden” ecosystem would pose a major threat to the company’s various revenue streams. Apple generates most of its cash through sales of the wildly popular iPhone, which accounted for $200.6 billion of the company’s total sales of $383.3 billion in 2023.
But Apple’s services and hardware related to the iPhone are also incredibly lucrative. The company’s wearables, home and accessories business, which includes sales of the Apple Watch and AirPods, generated $39.8 billion last year, while its growing services business, which includes subscriptions such as Apple Music+ and sales on the App Store, earned $85.2 billion. brought about.
Eder said the Justice Department’s antitrust case against Apple is not about how the company achieved a dominant market position, but rather how the company maintains a dominant position in a particular market where it has a purported monopoly. He said that he expected it to be something that people would pay attention to.
Apple could be especially vulnerable to government-sponsored antitrust claims in the final months of the Biden administration, which has continued its aggressive push to dominate Big Tech.
“The department has taken a fairly aggressive stance against companies that are believed to be maintaining their monopoly positions through illegal means,” Eder said.
John Newman, a professor at the University of Miami School of Law, told Yahoo Finance that while antitrust cases are not easy and monopoly cases are among the most difficult, the Department of Justice brings many strengths to the table.
One example, he said, is that prosecutors will be able to access company documents and data before filing charges.
“If I were Apple, I would be pretty concerned about this,” Newman said, adding that the Justice Department has some of the world’s top antitrust litigators in-house.
Critics say Apple abuses its market position in a variety of ways, including charging app developers 15% to 30% commissions on app store sales.
The company has also been accused of locking out competitors from using Apple services such as Find My and the tech giant’s payments technology.
Interoperability between Apple and third-party services is also an issue, with app developers and hardware manufacturers accusing Apple of intentionally blocking access to certain features available on Apple’s devices and services. is blaming.
epic effect
There are currently two separate antitrust cases pending that could affect how the Department of Justice approaches claims against Apple.
One is a federal antitrust case heard by the Ninth Circuit Court of Appeals in October. A Justice Department lawyer has been authorized to argue in a high-stakes dispute between popular app developer Epic Games and Apple.
In this case, the Court of Appeals upheld a California trial court’s decision that Apple did not hold a monopoly in the mobile app store market.
But in a narrow victory for Epic, the appeals court ruled that under anti-steering laws, Apple must allow app developers to offer more ways for app users to pay for purchases. The judgment of the court of first instance was also upheld.
Apple and Epic are currently appealing this decision to the Supreme Court, but the Supreme Court has not yet announced whether it will hear the case. Newman said how the case affects antitrust litigation led by the Justice Department will depend on where the department chooses to litigate.
“They could bring the fight right to Apple’s doorstep, but then Epic’s lawsuit would loom larger than the Justice Department’s,” Newman said. “The Department of Justice may want to completely break away from the Ninth Circuit and write with a clean slate.”
battle of google
The second case that could affect how the Department of Justice approaches Apple is the pending antitrust case against Google over its control of the search engine market.
Closing arguments in the case are scheduled to be heard in March. Apple enters the conversation because in 2021, Google paid a total of $26 billion to mobile phone manufacturers, including Apple, to use it as their default search engine.
The majority of these payments went to Apple. Bernstein analysts said the figure would likely give Apple an annual profit of $18 billion to $20 billion. At $20 billion, the payment would represent 5.5% to 7% of Apple’s annual revenue over the past three years.
If the Justice Department’s investigation into Apple is indeed nearing an end, talks between lawyers and Apple have likely already begun, Edel said.
These discussions and negotiations could also resolve the Justice Department’s competition concerns without litigation, he said.
Alexis Keenan is a legal reporter at Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
daniel howley I’m the technology editor at Yahoo Finance. He has been covering the technology industry since his 2011. You can follow him on Twitter. @Daniel Howley.
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