Apple and Google face new antitrust battle over Arizona app store bill

A controversial Arizona bill that addresses the fees technology companies like Apple and Google charge app developers is raising new antitrust challenges for embattled US tech giants.

The bill – which passed the Arizona state house last week and now will move to the state’s senate – would require Apple and Google to allow app developers to use their own payment systems, rather than Google’s or Apple’s, to process user purchases within the app.

It is one of several bills targeting Apple and Google over the fees they charge developers that have been introduced in recent months as the tide turns against an industry that had thus far avoided substantial regulation.

“This is this is the new front that has opened up in the battles over how tech should be regulated,” said Janelle Wrigley, director of the antitrust division at Thomson Reuters Practical Law. “If it ends up passing in Arizona, I think there will be a rush to pass similar legislation in other states.”

Apple and Google both tax developers up to 30% on all payments made for apps as well as in-app purchases. Apple makes $15bn per year through fees levied on developers through its App Store. If a user spends $5.00 in an app, for instance, Apple could take up to 30%, or $1.50, of that under its current policy. Arizona’s new legislation would allow the app to charge consumers directly through other payment services that do not take such a large cut.

Arizona’s bill is just the latest measure targeting the app store structure. Similar legislation is being considered in several US states including Georgia, Hawaii, Illinois, New York, Massachusetts and Minnesota – and in Britain. Meanwhile the state senate in North Dakota voted against a similar bill in February.

The Arizona legislation has been backed by the Coalition for App Fairness, a trade group made up of big players in the app industry. The coalition includes Spotify, which spearheaded its own campaign on the issue called Time to Play Fair, and Epic Games, which is embroiled in its own lawsuit with Apple over the in-app purchase tax.

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“This app tax cuts deeply into consumer purchasing power and stifles developer revenue,” the coalition said in a statement. “This is especially unfair when this tax is imposed on apps competing directly with similar apps sold by Apple. This puts businesses at a distinct competitive disadvantage and thus drives up the prices for consumers.”

Apple did not respond to a request for comment, but an executive at the company commenting on the similar North Dakota legislation previously said the measure “threatens to destroy iPhone as you know it”. Google did not respond to request for comment.

The issue has come up repeatedly in recent congressional hearings on antitrust issues. Apple’s CEO, Tim Cook, has told US lawmakers that the App Store only charges large apps such high fees while charging smaller developers far less.

“The vast majority of apps developers keep 100% of the money they make,” Cook said in a July 2020 antitrust hearing. Still, tech and human rights groups have said such taxes disproportionately harm smaller businesses and startups that cannot afford to pay them.

“These corporations are preventing Black-owned small businesses from flourishing by essentially extracting a ransom for access to users,” said Arisha Hatch, vice-president of the progressive advocacy organization Color of Change. “We need strong antitrust enforcement at both the federal and state levels to prevent tech giants from inflaming inequities throughout our economy and society.”

Amy Klobuchar, chair of the Senate subcommittee on competition policy, antitrust, and consumer rights, which is holding antitrust hearings on Thursday, has said she is “particularly interested” in competition issues that relate to Apple and Google’s app stores.

With legislation and lawsuits against Apple and Google in flux across various states and countries, Wrigley said, it was not clear which bill would pass first and which would be the most impactful.

Antitrust legislation could take longer to move through Congress than through state courts – and enforcing a patchwork of regulations would be difficult for the tech giants to tackle, she said.

“Here we have an opportunity to change the rules of the game using state legislature,” she said. “We may end up seeing widespread change as a result.”