Apple App Store Changes Fail to Stem Push for Overhaul Bill

(Bloomberg) -- U.S. lawmakers are barreling ahead with legislation to change the way Apple Inc. runs its App Store, unconvinced by the company’s recent moves to address antitrust complaints from developers and regulators around the world.

A proposed bill from a bipartisan trio of senators would force significant changes to the way consumers download and use apps on their iPhones and other Apple devices. Minnesota Democrat Amy Klobuchar, head of the Senate antitrust subcommittee and one of the bill’s sponsors, said Congress is no longer willing to trust tech companies to “do the right thing.”

“Though Apple has taken some small steps to respond to criticism of its anti-competitive conduct, they did not go nearly far enough,” Klobuchar said Tuesday in a statement to Bloomberg. “There is growing momentum to pass the Open App Markets Act to finally address Apple and Google’s twin monopolies, and I will continue working with my colleagues on both sides of the aisle to get it done.”

Apple and Alphabet Inc.’s Google Play Store hold a duopoly on the mobile app market outside China. Last year in the U.S., 59% of app downloads were on Apple’s App Store, and 41% were on Google Play, according to data from Sensor Tower, an app data company.

The Senate bill would require devices to host alternative app stores, allow consumers to make purchases using alternative payment systems, and give app developers access to all aspects of iPhone hardware, including components that previously remained exclusive to Apple’s apps and accessories.

Some of these changes would impact Apple more than Google, which allows Android users to download competing app stores. IPhones don’t, operating more as a “walled garden” that Apple says prioritizes user security.

Several global developments, including a similar law passed last month by South Korea’s National Assembly, have generated momentum for the U.S. to make its own changes. Bipartisan support for the app store proposal means it has potential to gain traction, even though Congress has a full slate when lawmakers return to Washington this month.

More senators are planning to sign on as co-sponsors, according to two people familiar with the drafting of the bill. The next step for the legislation is a hearing in the full Senate Judiciary Committee.

There’s bipartisan support for a companion bill in the House, which was introduced by Georgia Representative Hank Johnson, a Democrat, and Colorado Representative Ken Buck, the top Republican on the House antitrust subcommittee.

The legislation has been cheered by app developers like Spotify Technology SA, Match Group Inc. and Tile, all of which testified in an April Senate hearing to examine app store practices, including the 15% to 30% commission Apple and Google charge for app-based sales.

Apple last week said it would allow some media apps like Netflix to direct people to other places like a website to pay for services. While prices for consumers need not change, Apple would lose the commission.

This concession, which came in response to an investigation by Japan’s Fair Trade Commission, also only applies to certain kinds of apps -- and notably not to the games that account for more than 80% of Apple’s app-store revenue and a third of the downloads, according to evidence presented by Epic Games Inc. in its lawsuit against Apple over its app practices.

Still, the change is more significant than the largely symbolic settlement Apple made last month in a class action lawsuit brought by app developers. But U.S. lawmakers say those changes still fall short of what’s needed to address alleged anticompetitive behavior in app stores.

The concession to media apps might quiet Apple’s loudest critics, but forcing game developers to continue to use the company’s in-app purchase system still raises legitimate antitrust questions about abuse of market power by Apple, said John Bergmayer, legal director of tech-policy organization Public Knowledge, which supports the Klobuchar bill.

“There’s not 100% agreement among critics of the App Store model on exactly how far to go, but there’s consensus that probably we need to go a little further than what Apple has announced,” he said. “It would be better if we resolved it in a more systematic way rather than waiting for these little piecemeal approaches.”

Developers leading the complaints against Apple say more needs to be done. One person familiar with an app-based company’s strategy said Apple has a tendency to make concessions sound bigger than they are. By applying the change to certain apps and payments, the response to Japanese regulators doesn’t help the apps that generate the most revenue, the person said.

Both developers and lawmakers see momentum building for the Senate bill, which is also co-sponsored by Connecticut Democrat Richard Blumenthal and Tennessee Republican Marsha Blackburn.

Apple and Google lobbyists have been in touch with members of the Senate antitrust subcommittee since the April hearing on app store practices, arguing that the measure would hurt user safety and consumer choice. Apple is especially pushing back against provisions that would force alternative app stores on iPhones, a process called sideloading, according to lobbyists and Senate staff members who have heard from them.

Google declined to comment and Apple didn’t respond to a request for comment.

The bill’s supporters are also expecting Apple to take issue with the enforcement provision that would allow individual developers to sue for damages.

One development that could impact Congress’s push to change app stores is the coming decision in the Epic case. U.S. District Judge Yvonne Gonzalez Rogers’s decision could mandate changes to Apple’s App Store, and she has indicated that her ruling won’t please either side.

Epic Chief Executive Officer Tim Sweeney scoffed at Apple’s settlement with Japan to allow only certain kinds of apps to avoid Apple’s pay system, questioning why gaming apps like Epic’s Fortnite were excluded.

Japan is hardly the only government scrutinizing Apple and Google. European competition authorities have issued a complaint against Apple that accuses the company of abusing its power in music streaming. In the U.S., a coalition of state attorneys general sued Google in July over its app store practices, calling out what they called an “extravagant commission” earned on app sales.

The Justice Department is also pressing forward with an antitrust investigation of Apple that began during the Trump administration, according to a person familiar with the matter. Officials will probably decide next year whether to file a case, the person said.

(Updates with House companion bill in the ninth paragraph)

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