U.S. Justice Department official does not rule out seeking breakup of Apple, $AAPL, says 'structural relief' a possibility.
The Department of Justice filed a lawsuit against Apple on Thursday, alleging that its iPhone ecosystem has created a monopoly that has driven the company's valuation to "astronomical" levels at the expense of consumers, developers, and rival phone makers.
The government has not ruled out the possibility of breaking up Apple, with a Justice Department official stating in a briefing call that structural relief was an option if the U.S. were to prevail in the case.
The lawsuit alleges that Apple's anti-competitive practices go beyond its iPhone and Apple Watch businesses, citing its advertising, browser, FaceTime, and news offerings.
According to the suit, each action taken by Apple has strengthened its smartphone monopoly. The lawsuit, filed by the DOJ and 16 attorneys general, seeks to address these practices in New Jersey federal court.
Following the news of the lawsuit, Apple's shares fell more than 4% during trading on Thursday. If successful, a breakup of Apple would be a rare occurrence under the Sherman Act, with the last major breakup being the Bell System in 1982.
The Justice Department claims that Apple has taken steps to maintain consumer demand for iPhones by blocking cross-platform messaging apps, limiting compatibility with third-party wallets and smartwatches, and disrupting non-App Store programs and cloud streaming services.
The lawsuit poses a significant challenge to Apple's business model, which relies on a closed ecosystem. Apple argues that compliance with regulations would be costly, could hinder the introduction of new products or services, and could reduce customer demand.
If the lawsuit is successful, Apple may be required to make changes to some of its most lucrative businesses, including the iPhone, which generated over $200 billion in sales in 2023, the Apple Watch, part of a $40 billion wearables business, and its services segment, which reported $85 billion in revenue.
U.S. Attorney General Merrick Garland stated at a news conference that the Supreme Court defines monopoly power as "the power to control prices or exclude competition," and that Apple holds this power in the smartphone market. He added that if Apple's actions are not challenged, the company will continue to strengthen its smartphone monopoly.
