Apple (AAPL) App Store Targeted by North Dakota Lawmakers

Apple Inc. (AAPL) faces the prospect of having to eliminate various anticompetitive practices employed by its App Store in North Dakota, should a bill introduced recently in that state’s senate become law. Any “digital application distribution platform” with more than $10 million in annual revenue would be subject to this legislation, the other leading platform being the Google Play Store from Alphabet Inc. (GOOG, GOOGL).

David Heinemeier Hansson, chief technology officer (CTO) and co-founder of Basecamp, which he calls “a small internet company from Chicago that sells project-management software and email services,” testified before the same committee, reading from prepared remarks. Key passages include:

“[F]ees upwards of 30% of revenue, applied selectively, and in many cases capriciously, put an enormous economic burden on many small software businesses … [That,] paired with the constant uncertainty as to whether the next software update will be rejected, or held for ransom, can put entire businesses in jeopardy.”

“[S]mall software developers from all over the country … are tired of being bullied and shaken down by a handful of big tech monopolists out of Seattle and Silicon Valley.”

“[W]hen it comes to the app store duopoly, no single change will have a greater impact than giving small software makers like us a choice when it comes to in-app payment systems, and protection from retaliation, if we refuse the onerous deal the monopolists are offering.”

“It’s simply obscene that a small software company that makes $1,000,000 dollars in revenue has to send a $300,000 check to Cupertino or Mountain View, rather than invest in growing their business, while Facebook [Inc. (FB)] makes billions off those same app stores without paying any cut of their revenues whatsoever.”

Moreover, passage of this bill may encourage other states, and perhaps the United States Congress, to adopt similar legislation that will crimp the profits of these platforms and possibly impose yet more compliance costs, especially if the legal requirements vary significantly by state.

In its 2021 notice of annual meeting and proxy statement, Apple indirectly acknowledged for the first time ever that potential antitrust action is becoming a growing risk for the company. Back in November 2020, Apple announced that it was cutting App Store commissions in half, to 15%, for smaller app developers who book less than $1 million in annual revenues from the App Store. This move clearly was intended to reduce some of the antitrust scrutiny and political heat directed against it.