Sunday, February 28, 2021

Could a single state legislature topple both mobile app store monopolies? At least it could make a historical contribution.

This is just my first post on legislative initiatives in multiple states concerning mobile app stores, so I've really just begun to research the topic and have a lot to learn.

A couple of weeks ago, the North Dakota state senate voted against a bill that would have required Apple's App Store and the Google Play Store to allow app developers to use other payment in-app payment systems. The fact that the state legislature decided against it doesn't represent a ringing endorsement of the status quo of mobile app stores. It's possible that many of the lawmakers who voted against the proposal simply didn't want their state, with not even a million inhabitants, to take such a fundamental decision against two of the country's largest and most powerful companies.

There definitely is broadbased political support for the fight against app store monopolies: last fall, the Democratic majority of the United States House of Representatives adopted a report on digital markets that condemns the current situation in pretty strong terms.

All three branches of U.S. government are dealing with the issue in different ways: the judiciary has various antitrust lawsuits against Apple and Google before it (with a case management conference in Epic Games v. Apple taking place tomorrow, Monday); the executive government (the DOJ's Antitrust Division and various state attorneys-general) may bring antitrust cases as well; and as far as lawmakers are concerned, there's the aforementioned House report (which is non-legislative, though it does recommend that measures be taken) as well as activities in multiple states.

As a developer who's experienced (and continues to experience) how tyrannical and harmful those app store monopolies are, I welcome any initiative that has the potential bring about change, or at least to raise the level of awareness. The situation is unsustainable. I've been in this industry for decades, and I remember the times when Microsoft was accused of expanding into other markets by abusing its control over Windows. What was alleged at the time was, seriously, negligible compared to the present setup. I remember computer book publishers who were unhappy about the creation of Microsoft Press; established office app makers like WordPerfect and Lotus complaining about Microsoft using secret Windows API calls, though I never saw any evidence for that (and, in fact, those companies initially didn't even want to make the transition from MS-DOS to Windows); and there were antitrust issues, but they affected only those competing with Microsoft at the operating system level, like Digital Research with DR-DOS, or at least at the network server level, like Samba, which got help from the European Commission. But the market was wide open then compared to what it is today. Microsoft didn't (as it couldn't) prevent anyone from publishing anything. Microsoft made itself comfortable at the top of the food chain, but a self-serving, arbitrary, or tyrannical gatekeeper it was not.

The fight against the abuse of app store monopolies is generally a marathon, not a sprint. In particular, antitrust enforcement and ligitation are time-consuming. But there can always be a sudden breakthrough somewhere that brings about change. To topple the app store monopolies thorough state legislation is rather ambitious, but my initial analysis is that the Coalition for App Fairness (CAF) has everything to gain and nothing to lose by playing that game. That's because even if a dozen state legislatures voted against such initiatives, the House report would still be far more persuasive--but if any single state enacted an app store law, app developers might find ways to benefit from it, such as by setting up shop in that state, and Congress would have a pressing reason to prioritize this subject at the federal level.

That said, it's just hyperbole that Apple claimed a measure like the North Dakota bill would be the end of the App Store as we know it. Shopping apps like Amazon or parking apps (I just used one a couple of weeks ago) are also allowed to use their own payment systems. Many users may still prefer to create just one account with Apple and to use it across all apps, but the market should decide. Apple's position is that because it made iOS, it shouldn't have to face competition in app distribution.

My own #1 (and #2, #3, #4, ...) issue with Apple and Google is about their rules relating to apps that mention COVID. I see the point, however, in some organizations' criticism of the restrictions those platforms impose on in-app payment systems. We can't solve all issues at the same time, and maybe the payment context is the one in which the cost to consumers is clearest (after all, the Supreme Court allowed a consumer class action against Apple to go forward). But it would be a misconception to believe it's just about "the 30%." In a twittersation on Thursday, the founder and CEO of Epic Games clarifies what this is fundamentally about. In response, I listed a handful of related issues:

For state legislatures, the in-app payment part is particularly intriguing because lawmakers can directly benefit consumers in their states and, potentially, attract app development companies. State-level initiatives have been reported from various states, such as Minnesota (StarTribune article) and Arizona (KAWC News).

The Coalition for App Fairness reported that the Arizona House Rules Committee "voted unanimously that [a bill including a part on app stores] is constitutional and in proper form." As a result of Apple's and Google's counterlobbying efforts (which show that they take those initiatives seriously), the question came ujp whether the proposal is allowed under the Commerce Clause, which gives U.S. Congress the power to legislate commerce. However, my research shows that the Commerce Clause doesn't prevent states from regulating commerce in their states as long as what they do doesn't run counter to federal legislation.

Of the three bills I've seen so far (Arizona, Minnesota, and North Dakota), my personal favorite is the language of the Grand Canyon State's version of the bill, which would make it illegal for Apple and Google to "require a developer that is domiciled in this state to use a particular in-application payment system as the exclusive mode of accepting payments from a user to download a software application or purchase a digital or physical product or service through a software application" (emphasis added). As Apple and Google are based in California, not Arizona, the argument is apparently made by the bill's opponents that this is interstate commerce and Arizona is just trying to favor its own companies, but again, the vote on constitutionality was unanimous and in favor of this proposal.

Assuming for the sake of the argument that Arizona (though it could also be any other state) passed such a statute into law, what would happen? Apple and Google could theoretically try to stop providing their app stores in that state, just so they would stop to meet the threshold (number of downloads, or revenue level) set forth in the bill. But after selling numerous iPhones in a given state, Apple could hardly stop serving those customers. The same applies to Google after its OEMs have sold tons of Android devcies somewhere.

Could Apple (or Google) stop doing business with app developers based in that state, especially if companies from other states set up offices in Arizona to benefit from the law? If they did so, they might be required under federal antitrust law or state UCL (unfair competition law) to make their essential facilities available to developers.

The first state legislature to enact such an app store state law could make history, and would benefit consumers and developers alike. I keep my fingers crossed, but there are so many other things going on that I'm sure it's not a question of if, but when, the app store situation will improve. When I campaigned against the EU software patent directive in 2004 and 2005, I thought it was the most fundamental threat to developers ever. It's how I became a campaigner for the first time in my life, and a little over a year after joining the fray, I received an award that went to Governor Schwarzenegger two years later, and I received more votes than fellow nominee Bono, which shows there were a number of people who thought I had made an impact on a major issue. But this app store cause is more important. I'm not going to be a full-time campaigner again, but I am determined to make my little contribution.

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