Why the Department of Justice Is Suing Apple

The Department of Justice (DOJ) filed a lawsuit against Apple (AAPL) Thursday, alleging the tech giant violated antitrust laws and stifled competition with a monopoly over the smartphone market in the U.S.

The DOJ and 16 state and district attorneys general filed the lawsuit in New Jersey federal court Thursday, claiming Apple has harmed American consumers and developers by limiting competition and software development for the iPhone, and also making consumers spend more money on Apple products through a number of anticompetitive tactics.

"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 Thursday press conference. "We allege that Apple has employed a strategy that relies on exclusionary, anticompetitive conduct that hurts both consumers and developers."

The DOJ alleged that among the ways Apple stifled competition, Apple exerted control over how apps can interact with Apple's software and often made it more difficult or costly for users to switch away from iPhones or use a non-Apple smartwatch with an iPhone.

Garland said Apple intentionally degraded the quality of features like messaging with non-Apple products and other apps to give users the impression that Apple products are superior. The suit also cited the Apple Wallet, which Garland said unnecessarily inserts Apple into a transaction where a digital wallet could be created directly between a user and a credit card issuer, which presents security and privacy risks.

In the App Store, using Google to search on an Apple device, and through fees on tap-to-pay transactions, the DOJ said Apple repeatedly earns money through licensing and other fees on content or services it had no part in creating. Small companies and app developers rely on access to iPhone users to make money, allowing Apple to take a large percentage of each transaction.

"Apple’s smartphone business model, at its core, is one that invites as many participants, including iPhone users and third-party developers, to join its platform as possible while using contractual terms to force these participants to pay substantial fees," the complaint states. "At the same time, Apple restricts its platform participants’ ability to negotiate or compete down its fees through alternative app stores, in-app payment processors, and more."

Simply having a popular product and gaining monopoly control on merit does not violate antitrust laws, Garland said, but that if a company acts to stifle competition in order to gain or keep monopoly power, the DOJ will "vigorously enforce" antitrust law to protect consumers. He noted Apple is estimated to control over 70% of the performance smartphone market in the U.S.

The complaint also noted that a similar antitrust suit helped Apple thrive in the early 2000s, when the DOJ successfully sued Microsoft (MSFT), allowing companies like Apple to offer platforms like iTunes on Windows PCs.

The suit against Apple joins others from the DOJ, a number of state attorneys general, and the Federal Trade Commission against other tech giants like Amazon (AMZN), Google (GOOGL), and Meta (META). Many of those same companies have also come under regulatory scrutiny from the European Union in recent months on a number of issues.

Apple did not immediately respond to a request for comment.

Apple shares were down 3.6% at $172.08 as of 1:30 p.m. ET Thursday and have lost more than 7% year to date.