Policy

Apple and Google lobbyists are swarming Arizona over a bill that would reform the app store

HB2005 would allow app developers to use third-party payment systems.

Apple and Google lobbyists are swarming Arizona over a bill that would reform the app store

HB2005 could make it through the Arizona House of Representatives as soon as this week.

Photo: James Yarema/Unsplash

Arizona State Rep. Regina Cobb hadn't even formally introduced her app store legislation last month when Apple and Google started storming into the state to lobby against it.

Apple tapped its own lobbyist, Rod Diridon, to begin lobbying in Arizona. It hired Kirk Adams, the former chief of staff to Arizona Gov. Doug Ducey and speaker of the Arizona House of Representatives, to negotiate with Cobb on its behalf. It quickly joined the Arizona Chamber of Commerce, which began lobbying against the bill. And lawyers for both Google and Apple went straight to the Arizona House's lawyers to argue that the bill is unconstitutional.

"We went through a very difficult weekend where Apple and Google hired probably almost every lobbyist in town," Cobb said.

There's a reason Apple and Google care so much: Cobb's bill would allow app developers to use third-party payment systems to circumvent the 15% to 30% cut that Apple and Google take from app sales.

In the three weeks since Cobb introduced her bill, Arizona has become an unexpected hotspot in the country's antitrust debate, with the full force of the country's progressive anti-monopoly movement lining up behind a cadre of small- to medium-sized developers against an aggressive army of Apple and Google lobbyists. HB2005 could pass the House this week and potentially even make it through the Republican-majority Arizona Senate, making Arizona the first state to push through legislation to loosen Apple and Google's grip over their app ecosystems in the country. There's similar legislation being considered in Minnesota, Georgia, Hawaii and other states, mostly being pushed by Match Group, Epic Games and the broader Coalition for App Fairness, which only formed last year and includes Spotify, Tile and others.

Cobb said she was first approached by Ryan O'Daniel, a local lobbyist who represents Match Group and the Coalition for App Fairness, in early February with the idea that would become HB2005, an amendment that would force smartphone app stores to allow third-party payment systems.

"I felt like it was a good idea right away," Cobb told Protocol. She'd worked with O'Daniel before, and she was compelled by his argument that the legislation could create new economic opportunities in Arizona. Cobb, the chairwoman of the Arizona House Appropriations Committee, decided to put her political muscle behind it and eventually had it assigned to her committee. Over the past two weeks, she said, members of her committee have faced a barrage of lobbying efforts from free market groups, the Arizona Chamber of Commerce, and of course, lobbyists retained by Apple and Google.

Apple did not immediately respond to Protocol's request for comment. Kyle Andeer, Apple's chief compliance officer, said at a hearing last week that HB2005 amounts to a "government mandate that Apple give away the App Store."

"This bill tells Apple it cannot use its own checkout lane and collect a commission in the store we built," Andeer said. The app developers supporting the bill say it would prevent Apple and Google from taking a 30% cut from sales facilitated through their app stores, a fee that they have called "highway robbery." Apple has responded that most software developers don't pay a commission and those that do often pay around 15%, claiming the main beneficiaries of the Arizona legislation would be Epic Games, Spotify and Match.com, each multibillion-dollar companies.

Google did not respond to a request for comment.

Similar legislation failed in North Dakota last month. The bills are so similar that a representative for the American Legislative Exchange Council, a right-wing organization focused on shaping state legislation, forwarded a statement expressing ALEC's opposition to the North Dakota bill to Arizona lawmakers on Feb. 15, according to an email obtained by Protocol.

"The legislation introduced in North Dakota is virtually the same as what has been proposed in the strike-everything amendment to HB 2005," the ALEC lobbyist wrote. "I am comfortable sharing the North Dakota version [of the ALEC opposition statement] with you, as the sentiments are likely to be the same."

But the North Dakota legislation was broader — it would have forced major platforms to allow alternate app stores altogether, while the Arizona legislation only bars Apple and Google from forcing their payment-processing systems onto developers.

"I think it's just an easier bill," said David Heinemeier Hansson, the co-founder and CTO of Basecamp, who has been an outspoken antitrust advocate ever since he got into a public fight with Apple over his email service's payment system last year. He's been involved with the Coalition for App Fairness and testified in support of the Arizona legislation last week.

He said he's blown away by how quickly the Arizona legislation is moving. It was introduced on Feb. 10 and quickly voted out of committee last week. "Maybe it doesn't pass, but it would be mind-blowing if it did — it would change the entire ecosystem of Big Tech," Hansson said. "This would be the first major piece of legislation anywhere in the world that's directly addressing this monopoly power and providing the relief, not just slapping them with a fine."

Overnight, Hansson said, Arizona could become "the most attractive place in the world to start a new business that sells software through the app stores."

But the legislation is facing serious opposition from a somewhat surprising faction: Arizona Democrats. HB2005 passed the Appropriations Committee last week 7-6, mostly along partisan lines. "It is not the obligation or the responsibility of the state legislature to get involved in the midst of litigation," said Rep. Cesar Chavez, a Democrat, repeating one of the major arguments from Apple: that the concern around app store control is being litigated in California's Epic Games v. Apple. Other Democrats on the House Appropriations Committee said the federal government should take action on the issue rather than the state and raised concerns about how the bill would affect the iPhone ecosystem.

The pushback is highlighting the complicated dynamics around antitrust playing out across the country: While the most radical antitrust proposals are coming from Democrats at the national level, Republicans are often leading the charge among the states.

A coalition of progressive groups, including the anti-monopoly group American Economic Liberties Project and the Arizona Working Families Party, wrote to Arizona lawmakers last week urging them to vote in favor of the legislation. "HB2005 would prevent Big Tech from imposing terms onto developers by opening up competition in payments systems, as well as protecting smaller companies that refrain from using Big Tech's payment systems from retaliation," they wrote. "Additionally, it would incentive developers to locate to Arizona, a huge boon for companies already looking to relocate to another state."

This week, Cobb said she is planning to have a meeting with Apple executives to potentially negotiate the contours of the bill. The meeting is being organized by Adams, who did not respond to a request for comment.

"It's time to make some concessions," Cobb said. She believes that Arizona will provide an early lesson for the companies and their critics. "I'm sure other states are going to be watching from the sidelines. On both sides, I think they're going to start navigating a little bit more precisely after they've been able to gain knowledge from this experience in Arizona."

Cobb said that aggressive strategy has only made her more determined in her support for the legislation, which is likely to go to a vote in the House this week. "I felt like, if they could do this to me, they could do this to smaller companies also," she said.

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