Apple wins victory as North Dakota votes down bill that would regulate 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 North Dakota state senate voted 36-11 on Tuesday not to pass a bill that would have required app stores to enable software developers to use their own payment processing software and avoid fees charged by Apple and Google.

The vote is a victory for Apple, which says that the App Store is a core part of its product and that its tight control over its rules keeps iPhone users safe from malware and scams.

North Dakota’s bill is the first major U.S. state-level legislation to address the Apple and Google app stores, which take fees from app store sales up to 30%, including in-app purchases of digital items. If the state senate had passed it, it would still have been debated on and voted in the North Dakota house.

The North Dakota bill targeted Apple’s fees by requiring companies that make more than $10 million per year in the state through app stores — essentially, just Apple and Google — would be required to offer alternative payment processors for purchases through the app store, allowing developers to avoid Apple or Google’s cut. It would only apply to companies based in North Dakota.

Apple opposes the bill. Last week, Erik Neuenschwander, an Apple official who focuses on privacy engineering, testified that the bill “threatens to destroy iPhone as you know it” and that Apple customers can buy other brands of smartphones if they want. Phones running Google’s Android software can already use alternative app stores.

“Simply put, we work hard to keep bad apps out of the App Store; Senate Bill 2333 could require us to let them in,” Neuenschwander said. “For a store owner, that would be like the government forcing you to stock your shelves with products you know lack in quality, authenticity, or even safety.”

An Apple representative declined to comment on Tuesday.

One reason why this North Dakota bill was closely watched is that it could inspire other states, such as Arizona, which are currently debating legislation targeting Apple’s commercial power.

North Dakota is an odd venue for this legislation. It’s a small state, not a major center of app development, and neither Google nor Apple is headquartered in there.

“North Dakota has a chance to be a leader, we have a chance to send it across the hall for further discussion,” state senator Kyle Davison, who introduced the bill and supported it, said. “It’s an economic development bill, because if this bill gets across the hallway, there isn’t enough hangar space to fly the private jets in from California.”

On Tuesday, discussion of the legislation focused on Apple, which the senators tended to avoid naming due to decorum rules, instead referring to it as a “technology company” or, as North Dakota state senator Randy Burckhard said, “the same fruit Adam and Eve were not asked to eat.”

“North Dakota is not the place to settle a dispute between companies on what the commission rates or payment systems should be,” Jerry Klein, a state senator who opposed the bill, said.

Epic Games’ role

Last year, Epic Games, the gaming company that makes the popular shooter Fortnite, filed antitrust lawsuits against Apple and Google that are currently working through the courts, focusing on many of the same issues, including alternative app stores and giving software makers the option to use their own payment processor.

Epic Games is leading an effort called Coalition for App Fairness (CAF), which includes software companies like Spotify, Match Group and other companies that have chafed under Apple’s control of its App Store.

The Coalition for App Fairness has lobbied around the North Dakota bill, a spokesman for the coalition said on Tuesday. A North Dakota lobbyist who worked on the bill represents Epic Games, Match Group and the Coalition for App Fairness, and helped Epic Games contribute testimony, Tera Randall, Epic’s VP of communications and privacy, said in an email.

“The Coalition for App Fairness wants to see urgent changes to the App Store and is supportive of policy solutions at the state, federal, and international levels,” CAF executive director Meghan DiMuzio said in a statement.

The New York Times first reported Epic Games’ lobbying around the bill on Tuesday.

Epic declined to comment, but pointed to part of Randall’s testimony last week:

“The anticompetitive practices on mobile platforms today stifle innovation and subject mobile developers to crippling restrictions. This hurts consumers by reducing choice and inflating prices,” Randall testified last week.

In October, the House Judiciary Subcommittee said in a report that Apple’s “monopoly power” over iPhone apps gives it 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.

Last year, Apple introduced a new program that reduced its fee for App Store sales from 30% to 15% for companies that make less than $1 million per year on Apple’s store.

While both Apple and Google operate critical app stores for the two major smartphone operating systems, iOS and Android, Apple has faced significantly more scrutiny over software distribution than its Silicon Valley rival.

One reason for that is that Apple does not permit competing app stores on iPhones, whereas Android enables stores like Samsung’s. The North Dakota bill when opened a door for competing app stores when it was introduced, but an an amendment on Tuesday limited the legislation to payment processing.

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