By: Zoe Wood
In the first quarter of 2022, Apple beat its own record for quarterly spending on lobbying ($2.5 million). What’s the occasion? Two new antitrust bills which threaten Apple’s dominance over its App Store are gaining ground in Congress.
In late January, the Senate Judiciary Committee voted to advance the American Innovation and Choice Online Act by a vote of 16 to 6. Just a few weeks later, the Committee advanced the Open App Markets Act by a vote of 20 to 2.
The bills are similar, however, the former has more sweeping coverage. It applies to all “online platforms” with 50,000,000 or more monthly active US-based individual users or 100,000 monthly active US-based business users which (1) enable content generation and content viewing and interaction (i.e., Instagram, Twitter, Spotify, etc.), (2) facilitate online advertising or sales of products or services of any sort (i.e., Amazon, etc.), or (3) enable searches that “access or display a large volume of information” (i.e., Google, etc.). The bill describes ten categories of prohibited conduct, all aimed at curbing covered platforms’ preferential treatment of their own products or services over other products on the platform.
For example, the Act would prohibit “covered platforms” from “limit[ing] the ability of the products, services, or lines of business of another business user to compete on the covered platform relative to the products, services, or lines of business of the covered platform operator in a manner that would materially harm competition.”
The latter act, the Open App Markets Act, in contrast would apply to “any person that owns or controls an app store” with over 50,000,000 US-based users. It proceeds by identifying and defining app store behaviors which are purportedly anticompetitive. For example, the Act would prohibit an app store from conditioning distribution of an app on its use of store-controlled payment systems as the in-app payment system. The Act would also prohibit app stores from requiring developers to offer apps on pricing terms equal to or more favorable than those on other app stores and from punishing a developer for doing so. Similar to the Innovation and Choice Online Act, the Open App Markets Act prohibits covered app stores from preferential treatment towards their own products in the app store search function.
Why Does Apple Oppose These Bills (Aside from the Obvious)?
While the obvious answer (the bills would diminish Apple’s dominance and therefore diminish its profit) is probably also correct, Apple has put forward a different reason for its opposition to the acts. In a January 18th letter addressed to Senators Durbin, Grassley, Klobuchar, and Lee, and signed by Apple’s Senior Director of Government Affairs Timothy Powderly, Apple expressed concern that “[t]hese bills will reward those who have been irresponsible with users’ data and empower bad actors who would target consumers with malware, ransomware, and scams.”
The bills create an exception for otherwise prohibited actions which are “reasonably necessary” to protect safety, user privacy, security of nonpublic data, or the security of the covered platform. Apple’s letter principally takes issue with this exception, finding that it does not provide the company with enough leeway to innovate around privacy and security. The letter complains that “to introduce new and enhanced privacy or security protections under the bills, Apple would have to prove the protections were ‘necessary,’ ‘narrowly tailored,’ and that no less restrictive protections were available.” According to the letter, “[t]his is a nearly insurmountable test, especially when applied after-the-fact as an affirmative defense.” Of course, this is an overly broad statement. The bills don’t subject all new privacy and security measures to this standard. Only the measures that are anticompetitive in the ways specifically spelled out by the bills are implicated.
So what privacy and security measures would the bills prohibit? The letter is most concerned with the fact that the bills would restrain Apple from prohibiting “sideloading.” Sideloading refers to downloading an application onto, in this case, an Apple device, from somewhere other than the App Store. Lifting Apple’s restriction on the practice would allow developers to implement their own in-app payment systems and avoid the commission Apple takes (up to 30%) from app sales and in-app subscriptions and purchases. The theory is that prohibiting sideloading is anticompetitive in part because it results in higher prices for consumers.
But Apple says that allowing sideloading would “put consumers in harm’s way because of the real risk of privacy and security breaches” sideloading causes. The letter further explains that sideloading allows developers to “circumvent[….] the privacy and security protections Apple has designed, including human review of every app and every app update.”
Are Apple’s Security Concerns Shared by All?
No. Privacy and security expert Bruce Schneier, who sits on the board of the Electronic Frontier Foundation and runs the security architecture at a data management company, wrote a rebuttal to Apple’s letter. According to Schneier, “[i]t’s simply not true that this legislation puts user privacy and security at risk” because “App stores monopolies cannot protect users from every risk, and they frequently prevent the distribution of important tools that actually enhance security.” Schneier thinks that “the alleged risks of third-party app stores and ‘sideloading’ apps pale in comparison to their benefits,” among them “encourag[ing] competition, prevent[ing] monopolist extortion, and guarantee[ing] users a new right to digital self-determination.”
Matt Stoller, who is the Director of Research at the American Economic Liberties Project, also wrote a strongly worded rebuttal. Like Schneier, Stoller seems to believe that Apple’s security-centric opposition to the bills is disingenuous.
A New Angle on Consumer Welfare
Regardless of whether Apple’s concerns about privacy and security are overblown, the exchange between Apple, the drafters of the new antitrust bills, and members of the public is interesting because it engages with “consumer welfare”–the entrenched legal standard which drives antitrust law–in an atypical way.
Antitrust law exists primarily in common law, and the common law is the origin of the all-important consumer welfare standard. The standard is simple and has remained consistent since a seminal case from 1977. It is concerned primarily with whether a particular practice tends to decrease output and/or causes price to increase for consumers. If it does, the practice is anticompetitive and subject to injunction. While antitrust parties occasionally introduce other aspects of consumer welfare, such as the effects on innovation of a challenged practice, such effects are extremely difficult to prove in court. Therefore, most antitrust cases turn on price and output.
The bills in question implicitly take issue with the consumer welfare standard because they, in the language of the American Innovation and Choice Online Act, “provide that certain discriminatory conduct by covered platforms shall be unlawful.” Similarly, the Open App Markets Act seeks to “promote competition and reduce gatekeeper power in the app economy, increase choice, improve quality, and reduce costs for consumers.” By defining and prohibiting specific conduct outright, the bills circumvent the consumer welfare standard’s narrow focus on price and output and save potential antitrust plaintiffs from having to prove in court that Apple’s practices decrease output or increase price.
Apple’s letter speaks the language of consumer welfare. It insists that “Apple offers consumers the choice of a platform protected from malicious and dangerous code. The bills eliminate that choice.” This point goes to the more traditional conception of consumer welfare in the antitrust context, i.e., proliferation of choice available to consumers. But primarily, the argument that Apple is making (however disingenuously) is that the bills “should be modified to strengthen–not weaken–consumer welfare, especially with regard to consumer protection in the areas of privacy and security.”
By focusing on “privacy and security” as a metric of consumer welfare in the antitrust context, Apple, legislators, and the general public are engaging in a conversation that ultimately expands the notion of consumer welfare beyond what would be borne out in a courtroom, constrained by entrenched antitrust precedent. In this way, the bills have already been productive.