Arizona House Passes App Store Bill, Potentially Ending Large Commissions for Apple and Google

On Wednesday, the Arizona House of Representatives passed  HB 2005 in a 31-29 vote which would prevent digital application distribution platforms (app stores) like Apple and Google from forcing app developers based in the state to use a specific payment system, typically the app store operator’s payment system. This legislation could have far-reaching consequences and place significant barriers on Apple and Google’s ability to collect their industry-standard 30 percent commission on app sales and in-app purchases.

The House overview noted that “there is no current law that addresses this subject. As a result, many digital application distribution platforms, which distribute software and other applications to mobile phones, tablets and personal computers via the Internet, operate under their own terms and conditions.”

In particular, the bill prohibits a digital application distribution platform provider that has more than 1 million downloads from Arizona users in a calendar year from: “Requiring an Arizona-domiciled developer or Arizona user to use a specific in-application payment system as the sole method of accepting payments for either a software download or a digital or physical product”; or “Retaliating against an Arizona-domiciled developer or Arizona user for using an in-application payment system or digital application distribution platform not associated with the provider.”

The bill includes exemptions, notably, one for digital distribution platforms that are: “Established primarily for use by public safety agencies”; or “Used for specialized categories of applications that are provided to users of hardware intended for specific purposes (such as gaming consoles and music players).” Additionally, the bill allows the Attorney General to receive complaints, investigate, and act on behalf of the affected parties to seek legal or equitable relief. An aggrieved party may also file a civil action to seek legal or equitable relief if the Attorney General fails to act within 60 days after notification from the party.

“Bills like the one approved by the Arizona House today would help address the range of harms that gatekeepers like Apple and Google pose to small businesses, entrepreneurs, consumers and local communities,” Pat Garofalo, Director of State and Local Policy at the American Economic Liberties Project, said. “That the bill successfully passed is proof that there is a growing desire to rein in the power of the Big Tech companies that hold sway over key areas of commerce.”

The Verge noted that the Coalition for App Fairness, which has members such as Match Group and Spotify, helped to draft the legislation and stated “Today, Arizona put a marker down and became the first state in the nation to advance a digital market that is free and fair … The Coalition for App Fairness is pleased to see the House passage of HB 2005, which will encourage business innovation in Arizona and protect consumer choice.”

Meanwhile, opponents of the bill include some Arizona Democrats, who argued that the state should not interfere in ongoing legal matters, and over concern that it would interfere with interstate commerce and could be seen as unconstitutional. “Arizona does not have an interest in this fight,” Arizona Democratic State Rep. Diego Rodriguez told CNBC. “We don’t have a dog in this fight, what we need to do is be focused on policies that are protecting consumers. This bill does not protect consumers, it protects a $1 billion company from another billion-dollar company.”

Arizona’s bill comes after North Dakota introduced a similar bill that aimed to regulate in-app purchases. However, as noted by CNBC, North Dakota’s measure failed to pass the senate. Like North Dakota’s bill, the Arizona bill is an attempt to address concerns about Apple and Google’s app store dominance, as alleged in lawsuits brought against both of those companies by Epic Games.

The legislation will now go to the state Senate, and, if passed there, will be sent to Arizona Governor Doug Ducey.