Introduction The Apple Computer Company, as it was then called, was founded in 1976 to make and market personal computers. From its inception, Apple had a knack for expensive, high-end design and niche marketing relative to its competitors. But it struggled to compete against rivals that offered lower prices and more programs. After two decades, Apple struggled to compete against Windows personal computers and by the late 1990s, it was on the brink of bankruptcy.
Defendant Apple Apple is a global technology company with headquarters in Cupertino, California. Apple is one of the world’s most valuable public companies with a market capitalization over $2.5 trillion. In fiscal year 2023, Apple generated annual net revenues of $383 billion and net income of $97 billion. Apple’s net income exceeds any other company in the Fortune 500 and the gross domestic products of more than 100 countries.
Smartphones Are Platforms Smartphones combine the functionality of a traditional mobile phone with advanced hardware and software components. This cluster of services and features results in a distinct product for consumers and developers. For example, smartphones not only make phone calls, but also allow users to listen to music, send text messages, take pictures, play games, access software for work, manage their finances, and browse the internet. Smartphones are platforms.
Apple Unlawfully Maintains Its Monopoly Power A. Apple harms competition by imposing contractual restrictions, fees, and taxes on app creation and distribution Apple’s internal documents show that, soon after the iPhone’s introduction and notwithstanding its success, the company began to fear that disintermediation of its platform and the commoditization of the iPhone would threaten Apple’s substantial profits from iPhone sales and related revenue streams. Accordingly, Apple exercised its control of app creation and app distribution in key cases to cement the iPhone and App Store as the primary gateway to apps, products, and services.
Anticompetitive Effects A. Apple’s conduct harms the competitive process As described above, Apple protects its monopoly power in smartphones and performance smartphones by using its control over app distribution and app creation to suppress or delay apps, innovations, and technologies that would reduce user switching costs or simply allow users to discover, purchase, and use their own apps and content without having to rely on Apple. As a result, Apple faces less competition from rival smartphones and less competitive pressure from innovative, cross-platform technologies not because Apple makes its own products better but because it makes other products worse.
Privacy, Security, and Other Alleged Countervailing Factors Do Not Justify Apple’s Anticompetitive Conduct There are no valid, procompetitive benefits of Apple’s exclusionary conduct that would outweigh its anticompetitive effects. Apple’s moat building has not resulted in lower prices, higher output, improved innovation, or a better user experience for smartphone users. Apple markets itself on the basis of privacy and security to differentiate itself from what competition is left in the smartphone market.
The Smartphone Industry A. Background Mobile phones are portable devices that enable communications over radio frequencies instead of telephone landlines. These signals are transmitted by equipment covering distinct geographic areas, or “cells,” which is why mobile phones were called cell phones. The first commercial cell phones became available in the 1980s. Since then, improvements in both cell phone components and wireless technology have made it possible to transfer large volumes of data around the globe in a short period.
Jurisdiction, Venue, and Commerce The United States brings this action pursuant to Section 4 of the Sherman Act, 15 U.S.C § 4, to prevent and restrain Apple’s violations of Section 2 of the Sherman Act, 15 U.S.C. § 2. The Attorneys General assert these claims based on their independent authority to bring this action pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26, and common law, to obtain injunctive and other equitable relief based upon Apple’s anticompetitive practices in violation of Section 2 of the Sherman Act, 15 U.
Violations Alleged A. First Claim for Relief: Monopolization of the Performance Smartphone Market in the United States in Violation of Sherman Act § 2 Plaintiffs incorporate the allegations of paragraphs 1 through 198 above. Performance smartphones in the United States is a relevant antitrust market, and Apple has monopoly power in that market. Apple has willfully monopolized the performance smartphone market in the United States through an exclusionary course of conduct and the anticompetitive acts described herein.
Request for Relief To remedy these illegal acts, Plaintiffs request that the Court: Adjudge and decree that Apple has acted unlawfully to monopolize, or, in the alternative, attempt to monopolize, the smartphone market in the United States in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2; Adjudge and decree that Apple has acted unlawfully to monopolize, or, in the alternative, attempt to monopolize, the performance smartphone market in the United States in violation of Section 2 of the Sherman Act, 15 U.
