Apple wins victory with North Dakota vote on bill that would regulate app stores

The North Dakota state senate voted 36-11 on Tuesday not to approve a bill that would require app stores to allow 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 claims that the App Store is a central part of its product and that its tight control over its rules keeps iPhone users safe from malware and scams.

The North Dakota bill is the first major U.S. state law to address Apple and Google’s app stores, which charge app store sales rates by up to 30%, including in-app purchases of digital items. If the state senate had passed it, it would still have been debated and voted on in the North Dakota home.

The North Dakota bill was aimed at Apple’s fees, requiring companies that earn more than $ 10 million a year in the state through app stores – essentially just Apple and Google – to be required to offer processors for alternative payments for purchases through the app store, allowing developers to avoid cutting Apple or Google. This would only apply to companies based in North Dakota.

Apple is opposed to the project. Last week, Erik Neuenschwander, an Apple employee who focuses on privacy engineering, testified that the project “threatens to destroy the iPhone as you know it” and that Apple customers can buy other smartphone brands if they want. Phones running Google’s Android software can now use alternative app stores.

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

An Apple representative declined to comment on Tuesday.

One reason this North Dakota bill has been closely watched is that it could inspire other states, like Arizona, that are currently debating legislation aimed at Apple’s commercial power.

North Dakota is a strange place for such legislation. It is a small state, not a large application development center, and neither Google nor Apple are based there.

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

On Tuesday, the discussion of legislation focused on Apple, which senators tended to avoid naming due to decorum rules, rather than referring to it as a “technology company” or, as Senator Randy Burckhard said, from North Dakota, “the same fruit as Adam and Eva was not invited to eat.”

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

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

Epic Games is part of an effort called Coalition for App Fairness (CAF), which includes software companies like Spotify, Match Group and 50 other companies that were angered by Apple’s control over its App Store.

The Coalition for App Fairness lobbied around the North Dakota bill, a coalition spokesman said on Tuesday. A North Dakota lobbyist who worked on the bill represents Epic Games, Match Group and Coalition for App Fairness, and helped Epic Games contribute their testimony, said Tera Randall, vice president of communications and policies at Epic by email.

“Coalition for App Fairness wants to see urgent changes to the App Store and supports policy solutions at the state, federal and international levels,” said CAF Executive Director Meghan DiMuzio in a statement.

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

Match Group declined to comment. Epic Games pointed to Randall’s testimony last week.

“Anti-competitive practices on mobile platforms today stifle innovation and subject mobile device developers to crippling restrictions. This harms consumers by reducing choice and increasing prices,” Randall said last week.

In October, the House Judiciary Subcommittee said in a report that Apple’s “monopoly power” over iPhone applications gives it exaggerated profits. In 2019, the Supreme Court ruled 5-4 against Apple in a case that opened up the possibility of consumer lawsuits against the Apple app store for allegedly inflating app prices.

Last year, Apple launched a new program that reduced the App Store sales rate from 30% to 15% for companies that earn less than $ 1 million a year at the Apple store.

While Apple and Google operate essential app stores for the two main smartphone operating systems, iOS and Android, Apple has faced far more scrutiny about software distribution than its Silicon Valley rival.

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