Big Tech’s next unlikely battle: North Dakota

Last month, a lobbyist approached Kyle Davison, a North Dakota state senator, with an unusual proposition: a law that would prevent Apple and Google from forcing companies in the state to hand over a portion of their sales. their application.

Mr. Davison, a Republican, focuses on bills related to a literacy program worth $ 200,000 and birth records for homeless people. But he was intrigued by lobbyists’ arguments that tech giants are hurting small businesses, and he thinks such a law could appeal to firms. technology to North Dakota. So he introduced it.

“She told me this could be huge. But for me that means the local paper will come with a camera, ”said Mr. Davison, 60,. “I wouldn’t be honest if I said I expected a response.”

At the Capitol in Bismarck, a 21-story Art Deco tower is the state’s tallest building, a hearing on the bill last week attracted the participation of Washington attorneys, the North Dakota newspaper and other CEO of Silicon Valley. On the side of Apple and Google are the Americans for prosperity, the conservative group sponsored by the Koch family. On the other side is the Fargo Chamber of Commerce. A caller came from Alaska.

Proponents of the bill say it will help smaller companies and only hurt Apple’s and Google revenue. Apple’s chief privacy engineer, Erik Neuenschwander, testified that the bill “threatens to destroy the iPhone as you know it”.

North Dakota is part of the new front in the war for Big Tech and its strength. Disappointed with the lack of action from the courts, regulators and Congress, tech rivals and critics are turning their attention to state legislatures, spurring initiatives. The law seeks to tax the biggest technology companies, curb their power and limit their control of the internet.

New York is reviewing a bill that makes it easier for the state to pursue antitrust lawsuits against major tech companies. Lawmakers in Florida this month proposed measures that, with the governor’s backing, will limit how social media companies can police the content on their websites. And on Friday, Maryland enacted a law to tax online advertising sold by companies like Facebook, Google and Amazon. Connecticut and Indiana are considering similar bills.

The interstate wars pose a conundrum for tech companies, where armies of lawyers and lobbyists are trained to quell threats in Washington and the courts. The state’s 50 legislatures are very diverse and unpredictable, with both Republicans and Democrats aligned against Big Tech.

The North Dakota bill focuses on the activities of Apple and Google in cutting up to 30% of smartphone app sales, a policy that has brought companies a total of $ 33 billion by year. last year, according to an estimate from Sensor Tower, an application data firm.

Some of the smaller companies have argued that Apple and Google force app makers to pay an artificially high fee just for their absolute dominance. The two companies’ software underpins nearly all of the smartphones in the world.

The bill would prohibit Apple and Google from asking apps to use their payment systems, allowing them to collect commissions.

It will also ask Apple and Google to allow their smartphone users to download apps from outside of their top app stores, though Mr. Davison said he was trying to remove that term. to alleviate the concerns of some colleagues. Google has allowed such downloads, but Apple does not.

The 47 North Dakota senators will vote on the measure this week after the debate begins on Monday. Progress was accelerated because the legislature only met for 80 days every two years. If a majority of the votes are in favor, the bill goes to the House of Representatives.

If the bill fails, the war between Apple and Google will be far from over. Georgia and Arizona lawmakers are reviewing nearly identical app store laws, and Andy Vargas, the state representative in Massachusetts, said he planned to introduce a comparable bill this week. Lobbyists say they are also pushing app store bills in Wisconsin and Minnesota.

Most iPhone apps are free and do not pay any commissions, an Apple spokesperson said. She added that most North Dakota companies that share revenue with Apple earn less than $ 1 million per year from their apps, meaning they pay Apple 15% of sales, instead of 30. %. Apple reduced its rates for smaller companies last year amid scrutiny of its App Store policies.

Google did not respond to a request for comment.

Mr. Davison said he was drafted the bill by Lacee Bjork Anderson, an Odney Public Affairs lobbyist in Bismarck. Ms. Anderson said in an interview that she was hired by Epic Games, the popular game maker Fortnite and the plaintiff in the Apple and Google lawsuits over their app policies. She said she is also being paid by the Application Fair Alliance, a group of companies, including Epic, Spotify and Match Group, that have opposed app commissions and are leading the push to drive store bills. application.

“Look, we are a very conservative country,” said Ms. Anderson, a Republican. “But we are also a state where Teddy Roosevelt is from, and there is no greater confidence.” (Roosevelt, the former president, was born in New York but later owned a farm in North Dakota.)

However, she admits that the bill may not have enough votes to pass, which she blamed on confusion between some senators and the active lobbying from Apple.

“They’re setting up Zoom calls with every senator,” she said. “That doesn’t have to go well here – when California executives or lobbyists try to tell people what to do.”

State Senator Jerry Klein, Republican, who heads the committee to handle the bill, agrees that Apple’s presence is being felt at the state. He said he opposes the law largely because Apple and its lobbyists warn that the bill could put North Dakota at risk of cyberattacks and expose North Dakota to costly lawsuits. . He also worries that meddling in an agreement between two private companies will harm his business.

Mr. Klein, 69, a retired grocery store owner from tiny Fessenden, said some of his colleagues are also wary of passing a bill that focuses on “digital application distribution platforms. “and” in-app payment system “as they struggle to understand the effects.

“All the people here know is that they have their phones plugged in, have the power source, they can take pictures and show them their pictures,” he said. “This goes far beyond some of us.”

However, some application manufacturers have relied heavily on the law. David Heinemeier Hansson, a Danish technology entrepreneur who has struggled to avoid Apple fees with his email client, Hey, said the bill could be a blow to the policies of Apple though, it will only apply to North Dakota companies.

He said that if the bill passes, he is prepared to set up an office in North Dakota. And he predicts that if moving there would mean avoiding Apple 30% of revenue, many other companies would join him.

“You don’t have to be such a big software company before 30% of sales are your biggest category,” he says. He added that he has never been to North Dakota where the temperature the day before went down to minus 18 degrees Fahrenheit, “but I heard it was great.”

Heinemeier Hansson said he is not betting on North Dakota passing the law, but he said the fact that the bill is gaining attention and receiving votes would encourage other states to consider similar measures.

He said: “That’s why Apple came up with the scary picture that this would end the iPhone as we all know it. “Of course it won’t end the iPhone as we know it, let this happen in North Dakota. They fear that any state that opens flood discharge gates first, the sewers will open. “