The Justice Department sued An apple on Thursday, saying its iPhone ecosystem is a monopoly that drives its “astronomical valuation” at the expense of consumers, developers and rival phone makers.

The government has not ruled out breaking up one of the world’s biggest companies, with a Justice Department official telling a briefing that structural relief is on the table if the US wins.

The lawsuit alleges that Apple’s anticompetitive practices extend beyond the iPhone and Apple Watch businesses, citing Apple’s advertising, browser, FaceTime and news offerings.

“Each step in Apple’s course of conduct built and strengthened the moat around its smartphone monopoly,” according to the lawsuit filed by the DOJ and 16 attorneys general in New Jersey federal court.

Apple shares fell more than 4% in trading on Thursday. Apple’s breakup, if successful, would be one of the few breakups under the Sherman Act. The Justice Department has considered using it in other antitrust cases, but hasn’t since the collapse of the Bell System in 1982.

The Justice Department said in a statement that to get consumers to buy iPhones, Apple moved to block cross-platform messaging apps, limited third-party wallet and smartwatch compatibility, and cut off programs outside the App Store and cloud streaming services.

The challenge poses a significant risk to Apple’s walled-garden business model. The company says compliance costs it money, could prevent it from introducing new products or services and could hurt customer demand.

The lawsuit could force Apple to make changes in some of its most valuable businesses: the iPhone, in which Apple reports more than $200 billion in sales in 2023, the Apple Watch, part of the company’s $40 billion wearables business, and its profitable line of services, which reported $85 billion in revenue.

US Attorney General Merrick Garland told a press conference that the Supreme Court defined monopoly power as “the power to control prices or exclude competition.”

“As set out in our complaint, Apple has this power in the smartphone market,” Garland said. “Unchallenged, Apple will only continue to strengthen its smartphone monopoly.”

US Attorney General Merrick Garland announces an antitrust lawsuit against Apple at the Department of Justice in Washington on March 21, 2024.

Mandel Ngan | AFP | Getty Images

Apple said in a statement that it disagreed with the premise of the lawsuit and that it would defend itself against it.

“This lawsuit threatens who we are and the principles that distinguish Apple products in highly competitive markets. If we succeed, it will hinder our ability to create the technology that people expect from Apple — where hardware, software and services intersect,” an Apple spokesperson told CNBC. “It would also set a dangerous precedent by empowering the government to take a heavy hand in designing technology for people.”

The case follows years of investigations into Apple’s business practices and two previous DOJ cases against Apple: one over e-book pricing and another over allegations that it colluded with other tech companies to cut wages.

“This anti-competitive behavior is designed to preserve Apple’s monopoly power while extracting as much revenue as possible,” the complaint said.

iMessage, Apple Watch and cloud gaming

Apple CEO Tim Cook speaks on stage during Day 2 of the Vox Media 2022 Code Conference in Beverly Hills, California.

Jerod Harris | Getty Images Entertainment | Getty Images

Prosecutors highlighted one exchange between Cook and a user.

“I don’t want to make it personal, but I can’t send certain videos to my mom,” the complaint said, one user told Cook, citing a 2022 interview at a Vox Media event.

“Buy your mom an iPhone,” Cook replied.

The Justice Department also took aim at Apple’s smartwatch, the Apple Watch, saying the company designed it to work only with iPhones but not Android devices. The company’s decision means “consumers who purchase the Apple Watch face significant out-of-pocket costs if they do not continue to purchase an iPhone,” according to the complaint.

The Justice Department said Apple is cracking down on cloud-based streaming services on its App Store platform, blocking consumer access to high-quality iPhone video games, echoing complaints from Microsoft and Facebook parent Meta.

Garland said the Justice Department is also looking at changing policies around Apple Wallet, the company’s phone-based credit card and payments app.

“When an iPhone user puts a credit or debit card into Apple Wallet, Apple becomes involved in the process that would otherwise occur directly between the user and the card issuer,” Garland said.

Apple has faced several significant antitrust challenges recently, largely focused on control of the iPhone App Store. Most notably, it won a civil suit against Epic Games in 2021, though it made concessions during the trial and had to make some changes to its policies under California law.

“Today’s lawsuit is intended to hold Apple accountable and ensure that it cannot implement the same, illegal game in other vital markets,” the US government said in a statement.

Jonathan Kanter, assistant attorney general for antitrust, argued during Thursday’s press conference that Apple benefited from previous DOJ antitrust actions against Microsoft.

“Apple itself was a significant beneficiary of this case,” Kanter said. “And the remedy paved the way for Apple to launch iTunes, the iPod, eventually the iPhone, without anti-competitive restrictions, excessive fees and retaliation.”

The company is currently battling with the European Commission over whether it complies with the EU’s new Digital Markets Act, which forces Apple to open up the iPhone app store to competitors like Microsoft or Epic Games. Apple plans to charge large companies that avoid the App Store 50 cents per download.

Apple was fined $2 billion by the EU over a dispute with Spotify about whether a music streaming service can link to its website and account system in its app.

Apple had 64% of the US smartphone market share in the last quarter of 2023, compared to 18% for Samsung. according to Counterpoint Research.

Apple isn’t the only major tech company facing government scrutiny. The Justice Department filed an antitrust case against Google in 2020 over its dominance in search and another year over its advertising business. The Justice Department also sued Microsoft in the 1990s, eventually forcing it to allow users to decouple the Internet Explorer browser from the Windows operating system.

Correction: This story has been updated to correct that Apple had 64% of the US smartphone market share in the last quarter of 2023, according to Counterpoint Research.

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