/Arizona House passes bill that threatens Apple and Google’s app stores

Arizona House passes bill that threatens Apple and Google’s app stores

Tim Cook, chief executive officer of Apple Inc., speaks during the Apple Worldwide Developers Conference (WWDC) in San Jose, California, U.S., on Monday, June 4, 2018. 
David Paul Morris | Bloomberg | Getty Images

The Arizona House of Representatives voted 31-29 on Wednesday to pass a bill that will require app stores to allow app makers to use their own payment processing software, avoiding fees charged by Apple and Google.

The vote is a setback for Apple, which opposed it, and a victory for the Coalition for App Fairness, a group representing app makers upset with the app stores, which backed the bill.

The legislation still has a lot of challenges to overcome before it becomes state law. First, the Arizona Senate has to discuss and pass the legislation. Then, Arizona Gov. Doug Ducey would have a choice to veto the bill. If it becomes law, Arizona will have to grapple with questions including how Apple or Google will comply, or if it would be challenged in court.

The vote comes weeks after the North Dakota state senate voted against passing a similar bill.

The Arizona bill, HB 2005, targeted Apple’s fees by requiring companies that run app stores with over a million downloads per year to allow apps to offer alternative payment processors, enabling developers to avoid fees ranging from 15% to 30%. The bill would apply to companies and users in Arizona.

While the bill didn’t specify any companies, it was clearly targeted at Apple’s App Store, which approves any app that runs on iPhones, and the Google Play app store for Android phones, which takes 30% of sales of digital goods from Android apps. Discussion of the bill in the Arizona House focused mostly on Apple, with some discussion of Google. The bill exempted digital software stores for game consoles or music players.

“I think they have a monopoly on the market right now,” Republican Arizona State Rep. Regina Cobb, who sponsored the bill, said. “There isn’t anybody in here that doesn’t have a Google Android or Apple phone, I guarantee it.”

Other legislators opposed the bill on other grounds, including a rushed process, questions over whether it’s a federal issue, and a concern that the legislation would be challenged in federal court because it could conflict with the U.S. constitution.

“Arizona does not have an interest in this fight,” Democratic Arizona State Rep. Diego Rodriguez said. “We don’t have a dog in this fight, what we need to do is be focused on policies that are protecting consumers. This bill does not protect consumers, it protects a $ 1 billion company from another billion-dollar company.”

Apple opposed the Arizona bill, and Kyle Andeer, Apple’s Chief Compliance Officer, said at a hearing last week that it amounts to a “government mandate that Apple give away the App Store.”

“This would allow billion-dollar developers to take all of the App Store’s value for free—even if they’re selling digital goods, even if they’re making millions or even billions of dollars doing it,” Andeer said.

Apple and Google representatives declined to comment.

Arizona’s bill is the latest effort to regulate Apple’s App Store, which has come under fire for its strict rules and fees for digital purchases, which some software makers say is unfair and anticompetitive.

State legislatures have become a battleground and similar legislation is being considered in states including Georgia and Minnesota.

Arizona’s bill was backed by the Coalition for App Fairness, which includes software companies like Spotify, Match Group, and Epic Games, which have chafed under Apple’s control of its App Store and want Apple to reduce its fees, open up iPhones for alternative app stores, and permit alternative payment processes.

“The Coalition for App Fairness is pleased to see the House passage of HB 2005, which will encourage business innovation in Arizona and protect consumer choice. While this is cause for celebration, it is only a first step toward achieving a truly level playing field for all,” said Meghan DiMuzio, executive director for the Coalition for App Fairness.

Last year, Epic Games filed antitrust lawsuits against Apple and Google that are currently working through the courts, focusing on many of the same issues, such as giving software makers the option to use their own payment processor.

In October, the House Judiciary Subcommittee released a report that said that Apple has “monopoly power” over iPhone apps, which it uses to generate outsized profits.

In 2019, the Supreme Court ruled 5-4 against Apple in a case that opened up the possibility of consumer lawsuits against Apple’s app store for allegedly inflating app prices.

The scrutiny appears to be having an effect on Apple’s App Store policies. Late last year, Apple introduced a new program that reduced its fee from App Store sales from 30% to 15% for companies that make less than $ 1 million per year on the App Store, addressing some complaints.

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