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App Store Competition Bill Contains A Loophole

Posted  August 13, 2021
By Kristian Soltes

Although Congress has already had a busy 2021 pushing antitrust legislation that targets large digital technology platforms, even more legislative battles are looming on the horizon.

Earlier this year, bipartisan members of the House introduced six antitrust bills designed to curb the perceived power of tech platforms, some of which were also introduced in the Senate.[1]

Those bills have made it through the House Judiciary Committee and now await full vote on the floor of the House. In April, Sen. Amy Klobuchar, D-Minn, chaired a hearing by the Senate antitrust subcommittee on competition in the app store market.[2]

Now, a bipartisan group of senators has introduced the Open App Markets Act, specifically targeting Apple Inc. and Google LLC’s app stores.[3]

The Bill’s Provisions

The proposed Open App Markets Act aims to set out clear rules about how covered companies, defined to essentially mean Apple and Google, although arguably it includes other companies like Microsoft Corp. and Valve Corp., can regulate their app stores.[4]

For example, the bill would prohibit Apple and Google from requiring app developers to use the companies’ proprietary in-app payment systems as a condition of selling the app in the app stores.

It would also allow app developers to sell their products, or offer deals and other perks, directly to users at a lower rate than in the app stores.

As a corollary, the bill would allow users to sideload apps onto their operating systems outside of an official app store, a practice that Apple currently prohibits. Both of these provisions are meant to encourage competition in app distribution with the hopes that such competition will drive down commission fees charged by Apple and Google.

Those commission fees have already been the subject of high-profile private litigation in recent years, most notably the case brought by Epic Games Inc. against Apple last year. And last month, state attorneys general across the country brought an antitrust suit against Google for its Play Store commissions.[5]

Finally, the bill has a few other provisions designed to restrict Apple and Google from leveraging their positions as app store operators when developing their own apps.

Specifically, it would prohibit them from:

  • Using a third-party developer’s proprietary app data to develop a competing product;
  • Unreasonably preferencing or ranking their own proprietary apps above the apps of third-party app developers; and
  • Restricting access to operating system interfaces, developments and features to third-party developers.

The Escape Hatch

Despite all of these provisions, the Open App Markets Act does seemingly include an exception clause that allows a covered company to avoid every single one of the bill’s provisions if “necessary to achieve user privacy, security, or digital safety.”[6]

Considering Apple’s and Google’s digital security justifications for many of their rules, this escape hatch can be problematic, and will likely be subject to intense debate as the bill moves through the Senate.

In fact, in response to the Open App Markets Act, an Apple spokesman has already commented that Apple’s “focus is on maintaining an App Store where people can have confidence that every app must meet our rigorous guidelines and their privacy and security is protected.”[7]

This is a sure preview of Apple’s likely arguments that any continued restrictions are necessary for user safety and security.

The bill does state that it requires the covered company establish “by clear and convincing evidence” that the action is necessary, and that it is “narrowly tailored” and not achievable through a less discriminatory means.[8]

This high burden may make it difficult for a covered company to justify, for example, restricting outright third-party developer access to operating system interfaces, developments and features.

And it may also be difficult to defend requiring proprietary payment systems in app stores, as Apple does. But given the consistent history of rationalizing the many app store restrictions via user safety and security, the bill’s exception clause will surely feature in any dispute.

As one obvious example, Apple’s prohibition against sideloading apps — Google permits sideloading — is fundamentally predicated on ensuring security for its users.

This past June, Apple released a 16-page report titled “Building a Trusted Ecosystem for Millions of Apps,” in which it presented its arguments for prohibiting sideloading, calling it a “fundamental human right.”[9]

In the report, Apple even cited a 2017 U.S. Department of Homeland Security Report for the proposition that “users should avoid (and enterprises should prohibit on their devices) sideloading of apps and the use of unauthorized app stores.”

Hence, Apple already has a built-in justification it can cite as to why it its continued prohibition of sideloading apps or using other app stores on its iPhone devices is “necessary to achieve user privacy, security or digital safety,” the U.S. report says.

An issue for Apple here is Google, which by virtue of its permitting sideloading undercuts Apple’s necessity argument. Nevertheless, Apple will undoubtedly remain heavily invested in its stance as it continues to lobby congress with respect to sideloading.

Apple may find that the more defensible course of action is not a wholesale continuation of prohibiting sideloading, but rather to permit under certain conditions.

For example, Apple may decide that it must permit sideloading to satisfy the specific provisions of the bill, but that any app loaded onto its operating system must nonetheless satisfy certain safety and privacy checks, such as a version of Apple’s App Review process.

After all, the Open App Markets Act specifically contemplates that covered companies may have to take certain steps “to prevent spam or fraud” and would therefore not be in violation of the bill’s provisions.[10]

It is certainly difficult to imagine that the bill would operate to prevent Apple from blocking apps that might expose a user to increased risk of spam or fraud.

Therefore, Apple can in certain circumstances justify keeping some controls to deliver on a brand promise of safety and security without running afoul of the Open App Markets Act. But unless very carefully designed, any such protocol will likely open new avenues for investigatory scrutiny or litigation to decide whether Apple’s newly tailored requirements essentially amount to a de facto prohibition in contravention of the bill.

And, if Apple remains the ultimate arbiter of which sideloaded app passes security muster, it must be careful that it does not invite new cries of anti-competitive market practices. Indeed, the Open App Markets Act promises to be just the beginning of a long, uncertain road.

Legislative Fix

Closing the loophole can be done in Congress, before the bill becomes law. Amendments should be introduced, and a robust debate should follow, to clarify congressional intent and shed light on what constitutes necessary in the context of user privacy, safety and security.

The bill has already identified the low-hanging fruit: spam and fraud. But more is needed, and it is up to the Senate to be precise in their lawmaking.

Everyone would benefit from legislative clarity, including the covered companies. Otherwise, parties will be bogged down in litigation over the exception clause.

It is even conceivable that the law in its current form can be declared unenforceable as vague, considering the arguments that the exceptions swallow the bill. And that would simply create more industry setbacks.

While whether the Open App Markets Act or any counterpart in the House survive the legislative process is anything but a sure bet, this activity is another reflection of an unmistakable trend towards a concerted effort to increase the regulation of large digital technology platforms.

That said, whether the regulatory trends persist, they should strive to be clear and to avoid imprecise language that actually undermine the very intent of the regulation.

Written by Kristian Soltes

 

[1] https://www.washingtonpost.com/technology/2021/06/24/tech-antitrust-bills-pass-house-committee/.

[2] https://www.law360.com/articles/1377132.

[3] Open App Market Act, S.2170, 117th Cong. (2021), available at https://www.blumenthal.senate.gov/imo/media/doc/8.11.21%20-%20Open%20App%20Markets%20Act%20-%20Bill%20Text.pdf.

[4] Id. Sections 2, 3.

[5] Complaint, Utah v. Google LLC, 21-cv-05227 (N.D. Cal. July 7, 2021), available at https://ag.ny.gov/sites/default/files/utah_v_google.1.complaint_redacted.pdf.

[6] Open App Markets Act, Section 4.

[7] https://www.axios.com/app-stores-bipartisan-senate-bill-google-apple-081c9949-ba90-4996-ad9f-fecc16029f9e.html.

[8] Open App Markets Act, Section 4(b).

[9] Building a Trusted Ecosystem for Millions of Apps, Apple Inc. (June 2021) available at https://www.apple.com/privacy/docs/Building_a_Trusted_Ecosystem_for_Millions_of_Apps.pdf.

[10] Open App Markets Act, Section 4(a)(2).

 

This article was originally published in Law360. Read more at: https://www.law360.com/articles/1414208/app-store-competition-bill-contains-a-loophole?copied=1

Tagged in: Antitrust Enforcement,

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