Illinois could be the first state to put limits on fees Apple, Google app stores can charge

SPRINGFIELD – Two bills pending in the General Assembly would rein in the ability of tech giants like Apple and Google to dictate how transactions are conducted, and how much of a cut they receive from those transactions, when consumers make certain kinds of purchases using smartphone apps.

The bill would make Illinois the first state to regulate that segment of the e-commerce industry, but a broader bill is also pending in Congress where it appears to have bipartisan support.

Currently, app developers pay Apple's App Store and Google's Play Store an annual fee to distribute their apps on those platforms. In addition, however, Apple and Google take a commission percentage on what are known as “digital-only” transactions like dating services, journalism or digital music – those that do not involve the purchase of physical goods or services.

Those commissions amount to 15% of the transaction on the first $1 million of sales, and 30% of all transactions above that.

“I was there in the tech industry the last time the U.S. government pursued a major tech monopolist with the (2001 Department of Justice) case against Microsoft,” David Heinemeier Hansson, CEO and cofounder of the Chicago-based software company Basecamp, told a Senate committee Tuesday.

“What Apple and Google are doing today makes what Microsoft did then look like child's play,” he said. “At the height of its power and arrogance, Microsoft never even thought they could impose a tax on all software running on the Windows operating system. But that's where we are today, Apple and Google demanding a cut of 30 percent of revenue for an ever-increasing share of transactions on their platforms.”

Two bills are now pending in the General Assembly that would give Illinois-based app developers more control over their app-based sales, Senate Bill 3417 and House Bill 4599, creating the “Freedom to Subscribe Directly Act.”

It would prohibit large app distribution platforms like the App Store and Play Store from requiring Illinois-based app developers to use a particular in-app payment system as the exclusive mode of accepting payments.

It would also prohibit those stores from requiring Illinois customers to use those in-app payment systems to download or purchase an app, and it would prohibit them from retaliating against Illinois-based app developers or users for using a different in-app payment system.

The bill would not apply to certain “special purpose” app distribution platforms, including those designed for gaming consoles, music players and public safety agencies.

Mark Buse, head of government relations for Match Group, the makers of Tinder and other online dating apps, said his company paid Apple and Google $550 million in fees last year -- money that he said ultimately comes out of consumers' pockets.

“That is money that we could invest back into technology, hiring of employees, putting employees on the ground in Illinois, and giving consumers lower prices,” he said.

Industry officials, however, argued that consumers actually do have choices in payment methods and app developers have options for distributing their software.

Carl Szabo, vice president and general counsel for NetChoice, a trade association that promotes free speech and free enterprise on the internet, noted in a House committee hearing Wednesday that companies such as Netflix and Spotify require their users to go directly to their company websites to sign up for services and therefore pay Apple and Google no commission fees for distributing their apps.

“Simultaneously, Match Group for example, you could actually walk down the street to CVS right now, go buy a gift card for Match and Tinder and all the services that they provide,” he said. “So the notion there's only one form of payment doesn't match reality.”

Montana Williams, director of state and local public policy for the Chamber of Progress, a trade group that represents technology companies, also said the bill would violate the commerce clause of the U.S. Constitution, which gives Congress the sole power to regulate interstate commerce.

“Since Apple and Google's App Stores are not confined to state laws, the state of Illinois does not have the power to regulate these interstate transactions,” she told the House committee.

Neither committee has taken action on the bills, and supporters said Wednesday that technical amendments are needed before they are ready to be sent to the full House and Senate.

Article Comments
Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacks. People who harass others or joke about tragedies will be blocked. If a comment violates these standards or our terms of service, click the "flag" link in the lower-right corner of the comment box. To find our more, read our FAQ.