Bill targets tech giants

Arizona is at the center of an app industry battle, as software developers hope the state will ban lucrative business practices by Apple and Google.

Arizona has become ground zero for a high-stakes battle in the app industry, as some software developers hope the state will become the first to outlaw lucrative business practices used by Apple and Google.

Backers of House Bill 2005 argue it would ensure businesses and, by extension consumers, get a fairer deal in the two corporations’ app stores by loosening their grip on the market.

But opponents — who have launched a lobbying push of their own — contend the bill would not help consumers but merely use Arizona as part of a fight that is playing out in Congress, state capitals and the courts.

The measure passed the Arizona House of Representatives by the narrowest margin — 31-29, with only four Republicans opposing it and four Democrats supporting it — and now heads to the Senate.

While the proposed law is limited to developers in Arizona and app users inside the state, it has grabbed national attention because what happens here could have ramifications across the tech industry.

House Bill 2005 would bar Apple and Google from requiring that payments inside apps are routed through the tech giants’ own payment systems. In other words, they wouldn’t have a guaranteed cut of some purchases that are made by consumers in an app.

As phone users turn to apps for everything from messaging to games to dating, app stores have become a huge business.

But developers have pushed back on the commissions the stores take from them.

Moreover, many app developers have argued that the structure of the current payment system allows Apple and Google to glean insights into their businesses and use that information to develop rival products or services.

The issue is getting fought in the courts, too. Apple is embroiled in a high

profile antitrust case with the maker of the game Fortnite after Apple kicked the game out of its store for including an alternative payment system.

Developers hit with big commissions

Abiding by these policies and winning approval to sell apps through the Apple and Google stores can make or break companies, proponents of HB 2005 argue.

“If you’re an app developer and you get kicked off the App Store, you’re dead,” David Heinemeier Hansson, chief technology officer and co-founder of the software company Basecamp, said in a recent interview.

Apple threatened to remove Basecamp’s email app, called Hey, from the App Store because it did not offer a way for users to sign up and pay for the product. Apple would have gotten a 30% commission, Heinemeier Hansson said. And Apple’s guidelines required that paid services offer a way of purchasing services in the app. But those guidelines also prohibit apps from steering customers elsewhere to make payments.

“I think they have a monopoly on the payment process and I think that’s a problem,” said Rep. Regina Cobb, a Republican from Kingman and sponsor of House Bill 2005.

Apple has countered that the costs are fair for the platform it provides developers. “The bill is a government mandate that Apple give away the App Store,” Apple’s chief compliance officer, Kyle Andeer, told the House Appropriations Committee during a hearing in February.

While the bill would only affect app developers in Arizona and app users inside the state, Andeer said fewer than 1 in 1,000 developers in Arizona pay a 30% commission. Most developers in the state, or 83%, pay no commission at all, he said.

Still, the measure could force changes beyond Arizona, turning the seemingly arcane bill into a high-stakes showdown.

And outside political benefit the bill’s backers.

Many conservatives are increasingly critical of big tech companies like Apple and Google, arguing they have become gatekeepers with too much power over political discourse and advertising.

Meanwhile, some Democrats in Congress have pushed antitrust investigations into tech companies that have become omnipresent in American life.

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Similar measures tried elsewhere

The Coalition for App Fairness was founded by app makers like Basecamp, Spotify and Protonmail and is backing House Bill 2005. It has put forward similar bills in other states, arguing in part that states like Arizona could attract app developers by passing such measures.

The North Dakota Legislature debated and eventually rejected a similar measure last month, after a flurry of lobbying and national attention.

That lobbying made strange allies, and has proven somewhat effective.

A proposal similar to HB 2005 had been wending through the state Senate but never gained enough traction among members to pass.

The Arizona Chamber of Commerce opposes the measure and critics on the right have maintained the bill would insert legislators into private businesses. But nearly all House Democrats opposed the bill, too, using much the same argument.

Others argued major tech companies were merely trying to use the state in a dispute that should be handled in court or by Congress, and backed an amendment to require that savings from commissions be passed to consumers.

“This bill does not protect consumers. It protects one billion-dollar company from another billion-dollar company, and that’s not why we’re here,” said Rep. Diego Rodriguez, D-Phoenix.