Apple has effectively acknowledged a controversy over exaggerated advertising of its iPhone artificial intelligence (AI) features by agreeing to pay hundreds of billions of won in damages, admitting that it misled consumers by overstating actual capabilities. As industry criticism that iPhone's AI features lag behind competitors mounts alongside growing consumer complaints, Samsung Electronics (005930) is aggressively targeting market demand for AI phones in a bid to expand its share this year.
Reuters reported on the 5th (local time) that Apple recently agreed to pay a total of $250 million (roughly 360 billion won) to settle a class-action lawsuit filed by U.S. iPhone consumers over "Apple Intelligence" and next-generation "Siri" features. The settlement effectively acknowledges the false and exaggerated advertising claims that U.S. consumers alleged when they filed the damages suit in California federal court in 2024.
At Worldwide Developers Conference (WWDC) 2024, Apple unveiled Apple Intelligence, its in-house generative AI feature for the iPhone, and announced plans to upgrade Siri into an AI voice assistant through the technology. Consumers purchased the "iPhone 16" series released shortly after WWDC 2024, anticipating the arrival of the first "AI iPhone." But contrary to Apple's promise to roll out key feature updates, including the Siri upgrade, on a staggered basis starting that year, the rollout has been delayed for nearly two years and continues into this year. Rising consumer frustration eventually led to the lawsuit.
The plaintiffs argued that "Apple deceived investors and consumers through false advertising without even a working prototype." Industry observers have also criticized Apple, saying it "exemplifies moral hazard by resorting to 'marketing lies' to close the AI gap with competitors such as Google and OpenAI."
Consumer damage claims could spread beyond the U.S. to other major markets. Because feature launches in non-English-speaking regions are scheduled to follow their U.S. debuts, delays in the U.S. push back global rollouts as well. In South Korea, the Seoul YMCA filed a complaint last year with the Fair Trade Commission accusing Apple of violating the Act on Fair Labeling and Advertising, and an investigation is underway.
Facing limits to its in-house AI technology, Apple is shifting from its traditional closed-ecosystem strategy to an open-ecosystem approach, bringing competitors' AI agents such as ChatGPT and Gemini onto the iPhone. "Resolving this matter (the lawsuit) allows us to focus on delivering the most innovative products and services to our users," Apple said, still expressing confidence in its technology. Apple also maintained that the settlement does not amount to an admission of false or exaggerated advertising.
Analysts say the situation presents an opportunity for Samsung Electronics. Given that Apple still dominates the premium smartphone market, Samsung can aggressively court AI-phone demand from consumers dissatisfied with the iPhone. According to Counterpoint Research, Apple held a 48% revenue share in the global smartphone market in the first quarter of this year, far ahead of Samsung Electronics' 18%. The gap between the two widened by 5 percentage points from a year earlier. While shipments were tied at 21% apiece, the figures indicate Apple is significantly ahead in high-end phone sales.
In response, Samsung Electronics plans to soon extend its "One UI 8.5" operating system — which contains AI phone features first installed on the "Galaxy S26" series in March — to older models, starting with the Galaxy S25. The key feature is the Galaxy series' first multi-AI-agent system, which maximizes performance by supporting a range of AI agents including Gemini, AI-search leader Perplexity, and an upgraded proprietary Bixby. With a simple voice command, the AI can launch apps such as Uber or Kakao T to hail a taxi. Samsung also signaled a major AI upgrade for the "Galaxy Z8" foldable phone series to be unveiled in July, which will be the first to run "One UI 9."
