by Apple ( AAPL ) has long avoided the government-inflicted antitrust headaches while fending off Big Tech rivals like Amazon ( AMZN ), Google ( GOOG , GOOGL ), and Meta ( META ). Until now.
The Department of Justice is reportedly in the final stages of deciding whether to launch a massive legal attack on Apple that could turn the headwinds that are already picking up steam for the world’s most valuable company into a rough start to the new year .
According to the New York Times, US antitrust investigators are conducting a two-year probe into Apple’s closely guarded ecosystem. Investigators are looking into whether the integration between the company’s suite of products — including iPhones, the App Store, Apple Watch, iMessage, and AirTags — hinders competition.
“You don’t ramp up unless you find out that there is something significant that you want to investigate,” said Professor Martin Edel at Columbia University Law School, about the reported investigation. The perennial probe, he said, usually acts as a trigger that the department has found something it wants to pursue.
However, he cautioned, the DOJ investigation may not do any wrongdoing on Apple’s part.
Threatening the ‘walled garden’
Concerns over Apple’s confidence come as the company faces three downgrades from Wall Street analysts amid fears of weak demand for iPhones in China as that country’s economy continues to sputter. On Friday, Microsoft surpassed Apple as the world’s most valuable publicly traded company at the end of the trading day.
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 company’s successor to the iPhone.
But the AR/VR market is still extremely small compared to the smartphone space, and consumers tend to ditch the devices after a few months of use.
The DOJ’s 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 that connect to the iPhone are also extremely profitable. The company’s wearables, home and accessories business, including its Apple Watch and AirPods sales, generated $39.8 billion last year, and its growing services business includes subscriptions for things like Apple Music+ sales and App Store, $ 85.2 billion in.
Edel said he expects any DOJ antitrust action against Apple to look at how the company maintains its dominant position in a particular market where it has an alleged monopoly, not how it established a dominant market position.
Apple could be particularly vulnerable to a government-led antitrust challenge in the final months of the Biden administration, which has kept up an aggressive push in Big Tech.
“The department has been fairly aggressive after companies it thinks have maintained a monopoly position through illegal means,” Edel said.
Professor John Newman of the University of Miami School of Law told Yahoo Finance that while no antitrust case is easy, and monopoly cases are among the most difficult, the DOJ brings many strengths to the table.
For one, he said, prosecutors can access company documents and data before filing a complaint.
“If I were Apple, I would be very concerned about this,” Newman said, adding that the DOJ has some of the best antitrust litigators in the world.
Critics say Apple abuses its market position in a number of ways, including by charging app developers a 15% to 30% fee on app store sales.
The company has also been accused of locking out rivals 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 devices and services can use.
The epic effect
There are currently two separate antitrust cases that could affect how the DOJ approaches claims against Apple.
One is a federal antitrust case heard by the Ninth Circuit Court of Appeals in October. Justice Department lawyers have been 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 ruling that Apple did not have a monopoly in the market for mobile app stores.
However, in a small win for Epic, the appeals court also upheld the trial court’s ruling that Apple, under anti-directive laws, 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 not yet said whether it will hear the case. How the case would affect an antitrust suit led by the DOJ, Newman said, would depend on where the department chose to file its case.
“They could take the fight to Apple’s doorstep, but that would make the Epic case bigger than the DOJ case,” Newman said. “DOJ might want to stay out of the Ninth Circuit altogether and write on a clean slate.”
Battle of Google
A second case that could affect how the DOJ approaches Apple is a pending antitrust suit against Google over its dominance of the search engine market.
Closing arguments in the case are scheduled for March. Apple is involved in the conversation because in 2021 Google paid mobile phone manufacturers, including Apple, a combined $26 billion to serve as their default search engines.
The lion’s share of those payments went to Apple. Analysts at Bernstein say it probably nets Apple between $18 billion and $20 billion a year. At $20 billion, the payments represented between 5.5% and 7% of Apple’s annual revenue over the past three years.
If the DOJ’s investigation into Apple is nearing completion, Edel said talks are likely already underway between her lawyers and Apple.
Those talks and negotiations, he said, could also resolve any DOJ competition concerns without the need for litigation.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Daniel Hawley He is the technology editor at Yahoo Finance. He has been covering the tech industry since 2011. You can follow him on Twitter @Daniel Howley.
