Congress is diving into the App Store fight

For years, tech companies like Facebook and Amazon have faced the brunt of antitrust criticism by Congress, and Apple has gotten far fewer questions. But that changed on Wednesday, when Congress finally sunk its teeth into Apple as part of a hearing titled “Antitrust Applied: Examining Competition in App Stores.”

The hearing brought in representatives from companies like Spotify, Tile, and Match Group, a dating app company, to explain how Apple’s App Store fees and walled-garden business strategy harms their companies. All three companies gave harsh testimony, accusing the iPhone-maker of anti-competitive behavior over the burdensome fees it charges some app developers on its App Store.

The timing couldn’t be worse for Apple, coming just a day after the company announced an iPhone-linked item tracker called the AirTag in direct competition with Tile. Speaking to Congress, Tile’s General Counsel Kirsten Daru said that once Apple decided to develop its own item-tracking devices and services in 2019, the two companies’ friendly relationship dissolved.

“If Apple turned on us, it can turn on anyone,” Daru told lawmakers. “And Apple has demonstrated that it won’t change unless someone makes them, making legislation so critical.”

Apple’s shifting platform relationships were a theme in the hearing, with each company testifying to how quickly Cupertino’s collaborative outreach could turn competitive. Match’s Chief Legal Officer Jared Sine told lawmakers that app store fees amount to the company’s single largest expense, totaling around a fifth of the company’s total sales. Spotify’s Head of Global Affairs and Chief Legal Officer Horacio Gutierrez said that Apple’s business model equated to “a classic bait and switch,” luring developers into its app store and suddenly changing the terms to benefit the iPhone-maker.

“We all appreciate app stores and the roles that Apple and Google have played in helping to create many of the technologies that have defined our age,” Sen. Amy Klobuchar, chair of the subcommittee, said on Wednesday. “We’re not angry about success… It’s about new products coming on. It’s about new competitors emerging. This situation, to me, doesn’t seem like that’s happening.”

WHAT IT MEANS

Sen. Klobuchar, who chairs the committee, is using these hearings to build support for her Competition and Antitrust Law Enforcement Act, which she introduced in February. The bill’s provisions don’t line up perfectly with the App Store problem, but there are a few key provisions that would make it easier for companies like Tile to push back against Apple. In particular, the bill would make it less difficult for law enforcement to bring cases against tech companies for engaging in “exclusionary” conduct, something Sen. Klobuchar has been eager to highlight in interviews.

“I don’t think people realize there’s this 15 to 30 percent tax on major companies people enjoy getting music from, like Spotify, that Apple or Google assesses, that there’s all this exclusionary conduct going on,” Klobuchar told Axios on Wednesday.

For the most part, the companies giving testimony seemed happy to agree. Throughout the hearing, all three representatives argued that legislation is necessary for companies like Apple to change their behavior. But Spotify and Tile argued that the committee should also look into proposing federal legislation specifically targeting app stores.

“We respectfully request that some consideration be given to app stores right now,” Tile’s Daru said in light of discussion over Klobuchar’s larger bill.

Outside of federal legislation, states like Arizona have introduced their own measures to make developer-friendly changes to Google and Apple’s app stores. Many of these bills, like Arizona’s, have failed following intense lobbying efforts by tech.

“They are fighting so hard because it’s core to the maintenance of their monopoly,” Sine said.

THE HIGHLIGHT

Biden’s nominee to be the next Democrat on the Federal Trade Commission is also ready to turn up the heat on the App Store. At Lina Khan’s confirmation hearing Wednesday, Klobuchar asked Khan about the power companies like Apple and Google have in regards to their app stores:

Khan: It’s really the source of the power. Basically, there’s two main options so that gives these companies the power to really set the term in this market in some cases. I think you’re absolutely right that certain terms and conditions really lack any type of beneficial justifications. So, I think in those cases we need to be especially skeptical and really look closely.

WHAT’S NEXT?

Earlier this year, Klobuchar said that the committee would hold a series of hearings aimed at competition in the tech sector, including Facebook and Google’s dominance in the ad market. The hearings have yet to be scheduled.

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