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Apple shares fall as the company could face investigation for violating consumer protection laws

Published Jul 23rd, 2020 5:54PM EDT
Apple Stock
Image: AP Photo/Mark Lennihan

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  • Apple may face a multi-state investigation and potential lawsuit for deceptive business practices.
  • Details regarding Apple’s supposed wrongdoing remain incredibly murky. 
  • Apple stock dropped by nearly 20 points in trading earlier today.

It’s been a rough day for Apple across the board. The drama kicked off this morning when Goldman Sachs issued an investor note arguing that Apple stock should be avoided as the company’s share price is unsustainable. The note prompted a huge sell-off which saw Apple’s share price drop by nearly 20 points.

Following that, word emerged via Axios that Apple could find itself the target of a multi-state probe for allegedly deceiving consumers. Details of the probe remain incredibly murky but early evidence suggests that litigation may be imminent.

The investigation is reportedly being spearheaded by the Consumer Protection Division of the Texas Attorney General. A document regarding the investigation was initially obtained by the Tech Transparency Project via a FOIA request and shared with Axios.

The Texas AG’s Consumer Protection Division “initiated this investigation for enforcement purposes. If violations are uncovered, CPD will initiate enforcement proceedings. Accordingly, the OAG anticipates litigation in this matter,” the document reads.

The state’s consumer protection law polices practices deemed false, deceptive or misleading.

Again, it remains entirely unclear what type of deceptive practices Apple allegedly engaged in, so it will be interesting to see how this all plays out.

While Apple has been hit with similar lawsuits over deceptive business practices in the past, the suits are, more often than not, frivolous. In 2018, for example, Apple was hit with a lawsuit claiming that Apple’s advertising materials didn’t show the full extent of the notch design on the iPhone XS. This, the suit argued, prompted some consumers to believe that the iPhone XS featured a full notch-less display.

Notably, Apple’s legal issues extend far beyond the murky investigation referenced above. Recall that the company is also battling antitrust allegations over how it runs the App Store. This coming Monday, Tim Cook will appear before the House Judiciary Antitrust Subcommittee and field questions on the matter.

Apple, meanwhile, has taken pro-active measures to counter the narrative which holds that the manner in which it runs the App Store is problematic. Earlier this week, the company released a report — which it commissioned — defending its 30% cut of App Store revenue.

The study ultimately found:

Our study shows that Apple’s App Store commission rate is similar in magnitude to the commission rates charged by many other app stores and digital content marketplaces. The commission rates charged by digital marketplaces most similar to the App Store, such as other app stores and video game digital marketplaces, are generally around 30%.

Marketplaces that distribute digital content such as videos, podcasts, eBooks, and audiobooks generally charge commission rates of 30% or more. Commission rates charged by e-commerce marketplaces vary by industry but sometimes exceed 30%.

Many sellers currently sell (or previously sold) their goods through brick-and-mortar stores and marketplaces. We find that sellers generally earn a substantially lower share of total revenue from the distribution through brick-and-mortar stores and marketplaces than through digital marketplaces such as the Apple App Store.

All of the above, together with the fact that Apple will likely see a huge revenue hit on account of the coronavirus, suggests that Apple may have a rocky road ahead in the near-term.

Yoni Heisler Contributing Writer

Yoni Heisler has been writing about Apple and the tech industry at large with over 15 years of experience. A life long expert Mac user and Apple expert, his writing has appeared in Edible Apple, Network World, MacLife, Macworld UK, and TUAW.

When not analyzing the latest happenings with Apple, Yoni enjoys catching Improv shows in Chicago, playing soccer, and cultivating new TV show addictions.

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