by Apple (AAPL) has long avoided the government-induced antitrust headaches that now 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 broad legal attack on Apple that could compound headwinds already gathering strength for the world’s most valuable company in a difficult start to the new year.
According to the New York Times, American antitrust investigators are wrapping up a two-year investigation into Apple’s closely guarded ecosystem. Researchers are looking into whether integration across the company’s suite of products, including iPhones, the App Store, Apple Watch, iMessage and AirTags, blocks competition.
“You don’t move forward unless you discover there’s something important you want to investigate,” Columbia University Law School associate professor Martin Edel said of the reported research. The multi-year investigation, he said, tends to serve as an omen that the department has found something it wants to move forward with.
Still, he warned, 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 rating downgrades from Wall Street analysts amid fears of weak demand for iPhones in China as that country’s economy continues to falter. On Friday, Microsoft surpassed Apple as the world’s most valuable publicly traded company at the close of trading.
Apple is also preparing to launch its most ambitious product yet, the Vision Pro space computer. The AR/VR headset, which goes on sale on February 2, is Apple’s first new device category since it launched the Apple Watch in 2015 and could serve as the successor to the company’s iPhone.
But the AR/VR market is still incredibly small compared to the smartphone space, and consumers tend to tire of the 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 the sale of its popular iPhone, which accounted for $200.6 billion of the company’s $383.3 billion in total revenue in 2023.
But Apple’s services and hardware tied to the iPhone are also incredibly lucrative. The company’s wearables, home and accessories business, which includes its sales of Apple Watch and AirPods, generated $39.8 billion last year, while its growing services business, which includes subscriptions to things like Apple Music+ and sales from the App Store, generated 85.2 billion dollars.
Edel said he expects any Justice Department antitrust action against Apple to look at how the company maintains its dominant position in a particular market where it has an alleged monopoly, and not how it established a prominent position in the market.
Apple may be particularly vulnerable to a government-led antitrust challenge in the final months of the Biden administration, which has maintained an aggressive push to dominate Big Tech.
“The department has been quite aggressive in going after companies that it believes have maintained a monopoly position through illegal means,” Edel said.
John Newman, a professor at the University of Miami School of Law, told Yahoo Finance that while no antitrust case is easy and monopolization cases are among the most difficult, the Justice Department brings many strengths.
For one thing, he said, prosecutors can gain access to company documents and data before filing a complaint.
“If I were Apple, I would be quite concerned about this,” Newman said, adding that the Justice Department has some of the best antitrust litigators in the world in-house.
Critics say Apple abuses its market position in several ways, including charging app developers a 15% to 30% fee on sales in the App Store.
The company has also been accused of preventing competitors from using Apple services such as Find My and the tech giant’s payment technology.
Interoperability between Apple and third-party services is also a sticking point, with app developers and hardware manufacturers accusing Apple of intentionally cutting off access to certain features that Apple devices and services can use.
The epic effect
There are currently two separate antitrust cases that could affect how the Justice Department addresses claims against Apple.
One of them is a federal antitrust case heard by the Ninth Circuit Court of Appeals in October. Justice Department lawyers were allowed to present arguments in a high-stakes dispute between popular app developer Epic Games and Apple.
In that case, the appeals court upheld a California trial court’s ruling that Apple did not have a monopoly in the mobile app store market.
However, in a minor victory for Epic, the appeals court also upheld the lower court’s ruling that, under anti-steering laws, Apple must allow app developers to offer more ways for app users to applications pay for your purchases.
Apple and Epic are now appealing the decision to the Supreme Court, which has yet to say whether it will hear the case. The impact the case would have on an antitrust lawsuit led by the Justice Department, Newman said, would depend on where the department decided to bring its case.
“They could take the fight to Apple’s doorstep, but that would make the Epic case more important than a Justice Department case,” Newman said. “The Justice Department may want to stay out of the Ninth Circuit and write from scratch.”
The Google battle
The second case that could affect how the Justice Department approaches Apple is a pending antitrust lawsuit against Google over its dominance in the search engine market.
Final arguments in the case are scheduled for March. Apple is in the conversation because in 2021 Google paid mobile phone makers, including Apple, a combined $26 billion to serve as its default search engines.
Most of those payments went to Apple. Bernstein analysts say the figure likely nets Apple between $18 billion and $20 billion a year. At $20 billion, the payments would represent between 5.5% and 7% of Apple’s annual revenue over the past three years.
If the Justice Department’s investigation into Apple is indeed close to an end, Edel said talks between its lawyers and Apple are likely already underway.
Those talks and negotiations, he said, could also resolve any Justice Department concerns about competition without the need for litigation.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Daniel Howley is Yahoo Finance’s technology editor. He has been covering the tech industry since 2011. You can follow him on Twitter. @DanielHowley.
