Apple (AAPL) has long avoided the government-induced antitrust problems now plaguing major tech rivals like Amazon (AMZN), Google (GOOG, GOOGL) and Meta (META). Until now.
The Justice Department is reportedly in the final stages of deciding on a sweeping legal attack on Apple, which could add to headwinds already building for the world’s most valuable company in a tough start to the new year .
According to the New York Times, US antitrust investigators are wrapping up a two-year investigation into Apple’s closely guarded ecosystem. Researchers are looking into whether the integration between the company’s product line – including iPhones, the App Store, Apple Watch, iMessage and AirTags – blocks competition.
“You don’t move forward until you realize there’s something important you want to investigate,” Martin Edel, an adjunct professor at Columbia University Law School, said of the reported research. The multi-year investigation, he said, tends to serve as a harbinger that the department has found something it wants to pursue.
Still, he cautioned that the DOJ investigation may not uncover wrongdoing by Apple.
Threat to the ‘walled garden’
Apple’s antitrust concerns come as the company faces a trio of downgrades from Wall Street analysts amid fears of weak demand for iPhones in China as that country’s economy continues to sputter. At the end of the trading day on Friday, Microsoft overtook Apple as the most valuable listed company in the world.
Apple is also preparing to launch its most ambitious product yet: the Vision Pro spatial computer. The AR/VR headset, which goes on sale February 2, is Apple’s first new device category since the launch of the Apple Watch in 2015 and could serve as the company’s successor to the iPhone.
But the AR/VR market is still incredibly small compared to the smartphone market, and consumers often grow tired of the devices after a few months of use.
A DOJ lawsuit 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 from sales of its wildly popular iPhone, which accounted for $200.6 billion of the company’s total revenue of $383.3 billion in 2023.
But Apple’s services and hardware related to the iPhone are also incredibly lucrative. The company’s wearables, home and accessories businesses, which also include sales of Apple Watch and AirPods, generated $39.8 billion last year, while its growing services business, which includes subscriptions for things like Apple Music+ and App Store sales, generated $85 billion. raised .2 billion.
Edel said he expects any DOJ antitrust action against Apple will look at how the company maintains its dominant position in a particular market where it has an alleged monopoly, rather than how it achieved a prominent market position.
Apple could be particularly vulnerable to a government-led antitrust challenge in the final months of the Biden administration, which has maintained an aggressive push to seize power in Big Tech.
“The department has been quite aggressive against companies that it believes have illegally maintained a monopoly position,” 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 DOJ brings many strengths to the table.
First, prosecutors can gain access to company documents and data before filing a complaint, he said.
“If I were Apple, I would be quite concerned about this,” Newman said, adding that the DOJ has some of the world’s best antitrust lawyers.
Critics say Apple abuses its market position in a number of ways, including by charging app developers a 15 to 30 percent fee on app store sales.
The company is also accused of excluding 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, as app developers and hardware makers accuse Apple of deliberately cutting off access to certain features that Apple’s devices and services can take advantage of.
The epic effect
There are currently two separate antitrust cases that could impact how the DOJ approaches claims against Apple.
One involves a federal antitrust case heard by the Ninth Circuit Court of Appeals in October. Justice Department lawyers were allowed to make arguments in a high-stakes dispute between popular app developer Epic Games and Apple.
In that case, the appeals court upheld a California court’s ruling that Apple did not have a monopoly on the mobile app store market.
However, in a small victory for Epic, the appeals court also upheld the trial court’s ruling that under anti-steering laws, Apple must allow app developers to offer app users more ways to pay for purchases.
Apple and Epic are now appealing the decision to the Supreme Court, which has yet to say whether it will hear the case. What impact the case would have on a DOJ-led antitrust case, Newman said, would depend on where the department chooses to file its case.
“They could take the fight to Apple’s doorstep, but that would make the Epic case bigger than a DOJ case,” Newman said. “DOJ may want to stay out of the Ninth Circuit altogether and write a clean slate.”
Google’s battle
The second case that could impact the DOJ’s approach to Apple is an ongoing antitrust case against Google over its dominance of the search engine market.
Closing arguments in the case will take place in March. Apple is weighing in on the conversation because Google paid mobile phone makers, including Apple, a combined $26 billion in 2021 to serve as default search engines.
The lion’s share of those payments went to Apple. Analysts at Bernstein say this figure will likely earn Apple between $18 billion and $20 billion a year. At $20 billion, the payments would represent somewhere between 5.5% and 7% of Apple’s annual revenue over the past three years.
If the DOJ investigation into Apple is indeed nearing its end, Edel says discussions are likely already underway between his lawyers and Apple.
Those conversations and negotiations, he said, could also potentially resolve any DOJ competition concerns without the need for a lawsuit.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Daniel Howley is the technical editor at Yahoo Finance. He has been involved in the technical industry since 2011. You can follow him on Twitter @DanielHowley.