Apple Gatekeeping Digital Wallets, Says US Justice Department Complaint

March 25, 2024
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Apple’s regulatory problems are set to continue as the US Department of Justice files a lawsuit against the big tech giant for monopolistic practices.

Apple’s regulatory problems are set to continue as the US Department of Justice (DoJ) files a lawsuit against the big tech giant for monopolistic practices. 

Apple’s “broad-based, exclusionary conduct makes it harder for Americans to switch smartphones, undermines innovation for apps, products, and services, and imposes extraordinary costs on developers, businesses, and consumers”, the DoJ has complained in a new lawsuit. 

The Justice Department, joined by 16 other state and district attorneys general, filed a civil antitrust lawsuit against Apple for monopolisation or attempted monopolisation of smartphone markets in violation of Section 2 of the Sherman Act.

The complaint, filed in the US District Court for the District of New Jersey, alleges that Apple illegally maintains a monopoly over smartphones by selectively imposing contractual restrictions on, and withholding critical access points from, developers. 

It says that Apple undermines apps, products and services that would otherwise make users less reliant on the iPhone, promote interoperability and lower costs for consumers and developers, and that the company exercises its monopoly power to extract more money from consumers, developers, content creators, artists, publishers, small businesses and merchants, among others. 

Through this monopolisation lawsuit, the Justice Department and state attorneys general say that they are seeking relief to restore competition to these vital markets on behalf of the US' public.

Digital wallets and payments play a key role in the suit. 

For example, the DoJ has said that "digital wallets are an increasingly important way that smartphones are used and are a product in which users develop a great deal of comfort and trust as they typically contain users’ most sensitive information". 

"Digital wallets that work across smartphone platforms allow users to move from one smartphone brand to another with decreased frictions, among other things."

In the lawsuit, Apple is accused of denying users access to digital wallets that would have provided a wide variety of enhanced features and has denied digital wallet developers, often banks, the opportunity to provide advanced digital payment services to their own customers.

In addition, the DoJ alleges that Apple uses its smartphone monopoly to "extract payments" from payment service providers that need to access customers who use the iPhone.

"Apple’s conduct reflects its knowing degradation of the experience of its own users by blocking them from accessing wallets that would have better or different features," the complaint says. 

"In so doing, Apple cements reliance on the iPhone and also imposes fees on a large and critical slice of all digital wallet near-field-communication transactions, which the US Consumer Financial Protection Bureau estimates will grow to $451 billion by 2028."

Further, the lawsuit suggests that Apple harms competition by imposing contractual restrictions, fees and taxes on app creation and distribution, which it says has stood in the way of super apps and cloud-streaming services. 

“Apple prevented apps from threatening its smartphone monopoly by undermining mini-programs that reduce user dependence on the iPhone,” the lawsuit says.

In the lawsuit, the US Attorney General and others suggest that “Apple feared super apps because it recognized that as they become popular, demand for iPhone is reduced. So, Apple used its control over app distribution and app creation to effectively prohibit developers from offering super apps instead of competing on the merits.”

In a press conference, Attorney General Merrick Garland said that “consumers should not have to pay higher prices because companies violate the antitrust laws”.

“We allege that 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. If left unchallenged, Apple will only continue to strengthen its smartphone monopoly,” said Garland. 

He continued that the DoJ will “vigorously enforce antitrust laws that protect consumers from higher prices and fewer choices”. 

“That is the Justice Department’s legal obligation and what the American people expect and deserve.”

Apple has disputed the case, issuing a public statement warning that, if successful, the lawsuit would hinder “our ability to create the kind of technology people expect from Apple, where hardware, software, and services intersect. It would also set a dangerous precedent, empowering government to take a heavy hand in designing people's technology."

Some in Washington, DC have meanwhile greeted the move. For example, one of big tech’s biggest critics, Senator Elizabeth Warren, posted on X: “It’s time to break up Apple’s monopoly.” 

“From limiting digital wallets to raising iPhone prices. Apple has used its power to stop innovation, crush competition, and harm consumers.”

However, Kentucky Senator Rand Paul said “make no mistake about it, today’s attack by the DOJ is about Apple refusing to open a back door, not the App Store”.  

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