The US Department of Justice filed a lawsuit against Apple Thursday, accusing the company led by CEO Tim Cook of engaging in anti-competitive business practices. The allegations include claims that Apple prevents competitors from accessing certain iPhone features and that the company’s actions impact the “flow of expression” through its streaming service, Apple TV+.
However, even if the Justice Department proves any of the allegations, it is highly unlikely that Apple will face any material changes for years, as history shows that these types of lawsuits often take a significant amount of time to go to trial, let alone a resolution. The Department of Justice’s ongoing case against Google, presented in 2020It didn’t go to trial until 2023, and no remedies or financial implications are expected for up to two more years.
This is not the first time that Apple has faced legal action from the Department of Justice. In 2012, the agency sued Apple for conspiring with publishers to raise e-book prices, a lawsuit that was not resolved until 2016.
“Precedents suggest that resolution of the complaint will take three to five years, including appeals,” Bernstein analysts wrote in a note.
Morgan Stanley analysts said Friday that the current lawsuit could also favor Apple, as a judge has already ruled on many similar allegations in the Apple vs. Epic case, and the ruling states that Apple does not violate antitrust laws. The Justice Department filing also makes only relatively passing mention of Apple’s $10 billion-plus search deal with Google and does not cite the App Store as one of its top five examples of monopolistic behavior.
Previous major antitrust cases. (Image: Bernstein)
Bernstein analysts added: “While the Justice Department’s charges focus on the iPhone, we do not believe that remediation could materially affect Apple financially or undermine the iPhone franchise: in the worst case, Apple pays a fine and loosens restrictions on competition across the iOS platform, which we believe will have limited impact on iPhone user retention or service revenue.”
Which led Morgan Stanley analysts to conclude that the Justice Department’s lawsuit creates “more of a headline risk than a near-term event risk” for Apple.
They added:
Put another way, yes, this demand creates a glut of shares, but the market has a short-term memory and, in our view, fundamentals are more likely to drive Apple’s share price over the next 12 months (and several years), than this lawsuit. We can cite a number of historical cases in which companies in the midst of litigation that threaten their core product/differentiating value proposition have outperformed despite legal overreach: 1) Apple/Epic, where the stock outperformed by 15 points in the 18 months after first Epic purchase. legal filing threatening App Store acquisition rates in August 2020, and 2) US v. Google, where actions have nearly doubled since the Department of Justice first announced its investigation into the practices of Alphabet search. Our point is that regulation/litigation is a bigger long-term tail risk for Apple than it has been historically, but the stock’s underlying drivers for the foreseeable future will almost certainly be fundamentally driven, especially given that this lawsuit might not be resolved until at least 2028 (or even 2030) based on previous cases.