Apple is facing a number of regulatory and legal challenges around the world. Photo / Karsten Moran, The New York Times
The US Justice Department’s lawsuit against Apple is the latest in a series of regulatory actions that are hitting the tech giant at the same time.
For more than a decade, Apple could do almost no wrong. The iPhone made it the world’s most valuable company. The App Store helped launch businesses such as Uber and Airbnb. And the company’s new products made it a player in health, Hollywood and finance.
Now, the difficulties are piling up. The Justice Department filed an antitrust lawsuit against Apple on Thursday for giving its own products advantages that it deprived rivals of having. The suit is the latest in a series of actions brought against the company by regulators on three continents.
The troubles are testing the resiliency of Apple’s brand and undermining its business dominance, even though Apple’s products remain popular and continue to power an extremely profitable business. The company reported US$97 billion ($160 billion) in profit last year on US$386 billion in sales.
Here’s a look at the challenges ahead.
The Justice Department filed a sweeping antitrust lawsuit against Apple on Thursday that takes direct aim at the company’s most important business: the iPhone. The government argued in an 88-page lawsuit that Apple broke antitrust laws by preventing other companies from offering applications that compete with Apple products such as its digital wallet.
The suit follows a yearslong investigation into Apple that focused on the ways that the company has controlled the user experience on iPhones and other devices to create what critics call an uneven playing field. It has granted its own products and services access to core features, including its NFC chip and notification system, that it denies rivals like PayPal and Garmin smartwatches.
It could be months before the case goes to trial.
On March 4, the European Commission fined Apple €1.8 billion ($3.2 billion) for thwarting competition by preventing music streaming rivals from offering users promotions and subscription upgrades. Because Apple is the sole gatekeeper controlling developers’ access to iPhone customers, European regulators said that it wrote the rules for the App Store in ways that allowed Apple Music to offer benefits that it denied rivals like Spotify.
“From now on, Apple will have to allow music streaming developers to communicate freely with their own users,” said Margrethe Vestager, the European Commission executive vice president who oversees competition policy. The size of the fine, she added, “reflects both Apple’s financial power and the harm that Apple’s conduct inflicted on millions of European users.”
Since the fine was issued, Apple has delayed a request by Spotify to inform users of offers on its website, Spotify said. The European Commission has said that Apple could face additional fines if it fails to comply with orders.
Apple is facing fines from regulators in the Netherlands and South Korea, as well.
In 2021, Dutch regulators ruled that Apple violated competition laws in the dating app market by preventing services such as Tinder from using payment systems other than the one Apple provides. Rather than allow other payment systems to collect that money, Apple reduced its commission to 27 per cent on the price paid per user, from its usual rate of 30 per cent. But Dutch regulators said that move didn’t comply with the law and last year fined Apple €50 million.
A similar situation is playing out in South Korea, where lawmakers were among the first in the world to respond to developer complaints about App Store commissions by passing legislation to force Apple to allow alternative payment systems. Apple relaxed its requirement to 26 per cent. The country’s telecommunications regulator said it might fine Apple US$15.4 million for “unfair practices.”
Apple said that it disagreed with the findings of Dutch and South Korean regulators. It is appealing the Dutch fine and awaiting the results of a South Korean investigation.
Several other countries are exploring legislation or regulation that could force Apple to loosen its grip, including Japan, Australia and Britain. The regulatory changes they are discussing could require Apple to offer alternative payment options and reduce its commissions. Having watched how Apple has complied with similar laws elsewhere, the lawmakers could choose to be more prescriptive in their rule making.
The rules would be the latest to fracture what was once a single App Store into a jumble of digital shops across national borders.
Last fall, China began telling employees of government agencies not to use iPhones for work. Authorities made no public pronouncements beyond pointing out that there were “media reports” about security flaws in iPhones. But the directive has rippled through the country’s smartphone market.
Sales of iPhones in China fell 24 per cent in the first six weeks of the year, according to Counterpoint Research, which tracks the smartphone industry. At the same time sales of Huawei, once China’s largest smartphone maker, surged 64% behind the introduction of a new phone with 5G wireless capabilities.
Apple largely triumphed over Epic Games, the maker of Fortnite, after the video game company sued Apple in 2020 over the App Store. But a federal judge struck a serious blow against Apple’s control of the App Store, ruling that it violated California’s competition laws by preventing app makers from providing alternative ways to pay for services.
After the Supreme Court decided not to take up the case, Apple said that it would comply with the ruling just as it has complied in the Netherlands: by cutting its commission to 27 per cent for developers who use alternative payment options.
Last week, Epic filed a motion in court challenging Apple’s compliance, saying that the new fees and rules subvert the judge’s order. Meta and Microsoft have filed a brief in support of Epic, setting the table for the court to have to rule again on whether Apple is violating California law.
Before European regulators began enforcing a new competition law to give customers more choice this month, app makers were complaining that Apple’s response to the law defied the rules. The company was supposed to open the iPhone to alternative app stores and payment systems, but it added those capabilities alongside new commissions and requirements.
On Monday, developers met with Apple in Europe and questioned how the fees complied with the law, which has several “free of charge” provisions. Apple has insisted that its policies are consistent with the new rules.
European regulators could open a formal investigation into Apple’s plans. The process could set up a lengthy legal battle that could force Apple to change or risk fines up to 10 per cent of its global annual revenue, which was nearly US$400 billion last year.
Apple’s investors are clamouring for it to jump into the world of generative artificial intelligence. The technology, which can answer questions, create images and write code, has been heralded for its potential to create trillions of dollars in economic value.
But at a time when peers such as Microsoft and Google are beginning to build generative AI businesses, Apple has yet to introduce a product. Tim Cook, Apple’s CEO, has assured investors that something is coming later this year. The company has held talks with Google about adding its AI model called Gemini to iPhones.
Investors have sent shares of Apple down more than 3.75 per cent this year. At the same time, the Nasdaq Composite Index, which is chock-full of tech stocks, has risen nearly 11 per cent.
This article originally appeared in The New York Times.
Written by: Tripp Mickle
Photographs by: Karsten Moran
©2024 THE NEW YORK TIMES
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