Apple

Apple finds itself under scrutiny in Washington’s big tech crackdown

Apple finds itself under scrutiny in Washington's big tech crackdown

US lawmakers on both sides are expressing concern about how Apple Inc.

AAPL -2.39%

runs its App Store, leaving the company to fend off legislation that would loosen its grip on the profitable business.

The Senate Judiciary Committee voted 20-2 this month to advance legislation that could erode the fees Apple collects from digital app revenue. The vote came despite appeals to senators from chief executive Tim Cook and warnings from the company that the bill would harm user privacy and security.

The bill is backed by a loose alliance of Apple rivals, including Epic Games Inc. and Microsoft Corp.

It also offers common ground for lawmakers who want to rein in Big Tech but can’t reach consensus on thorny issues like how to regulate social media content.

The fact that Senate leaders have Apple in their sights is a marked shift from Congress’s focus on other tech issues like Amazon.com Inc.

processing of retailers, control of advertising activity by Alphabet Inc.

Google and how meta-platforms Inc.

manages content that could be harmful on Facebook and Instagram.

Mr. Cook also did not face the same intensity of questioning as other CEOs – Jeff Bezos of Amazon, Mark Zuckerberg of Meta and Sundar Pichai of Google – who testified at a congressional hearing in 2020. on Big Tech’s market power.

“For a long time, Apple floated above the fray in Washington,” said Paul Gallant, political analyst at Cowen & Co. Now, he said, the company has “been dragged through the mud.”

While Apple’s lobbying spending of around $6.5 million last year was about a third of that of Amazon or Meta, Mr Cook has long used his public persona to personally influence people at home. power and guide the company through the entanglements of Washington.

During the Trump administration, he cultivated a relationship with the former president’s family who were instrumental in waiving tariffs on iPhones and some other electronics.

The App Store bill is now just one front in a war Apple is waging against rivals around the world as they challenge its control of the app economy and access to more a billion users of its devices.

Big Tech executives Mark Zuckerberg, Jeff Bezos, Sundar Pichai and Tim Cook during a House Judiciary Subcommittee hearing in Washington in 2020.


Photo:

News Mandel Ngan/Bloomberg

The distribution of third-party software on iPhones was at the heart of a high-profile antitrust lawsuit brought by “Fortnite” maker Epic Games. While Apple mostly won last year, its practices have drawn renewed attention and the verdict has prompted cries from rivals that Congress needs to tackle the power of the giant. technology.

Apple has argued that it provides a digital ecosystem that users want and that the fees it collects – up to 30% from transactions – are fair for the technology it provides.

Mr. Cook shared a scene with Sen. Mike Lee (R. Utah) at a technology conference in Salt Lake City last October and argued that Apple should not be confused with social media companies.

“The industry is not monolithic,” Cook said. “These are very different segments and very different markets…we’re not in the social media business.”

Mr. Lee praised Apple’s entrepreneurial spirit at the time, but he voted to advance the bill targeting app stores, citing complaints from Tile Inc., the tracking device maker that accused Apple of discriminatory behavior, and Talk, the social media app that Apple and Google pulled from app stores after the Jan. 6, 2021 Capitol Riot.

The tech giants “wield extraordinarily significant market power,” Lee said in the vote. He declined to comment for this article.

The bill targeting app platforms still has a long way to go. This would allow developers to bypass Apple altogether by allowing software to be “sideloaded” on iPhones outside of its App Store, or let apps use the store but ignore Apple’s built-in payment system.

The bill would also apply to the App Store on Google’s Android operating system, called Google Play.

Apple’s hardware, software, and services work so seamlessly that they’re often called a “walled garden.” The idea is central to the recent antitrust review and Epic v. Apple case. The WSJ’s Joanna Stern went to a real walled garden to explain everything. Photo illustration: Adele Morgan/The Wall Street Journal

A second, broader bill has already passed the committee, although the debate was more contentious and the vote count was tighter, at 16-6. It would target allegedly discriminatory behavior on other major tech platforms as well as app stores. Mr. Lee objected.

In recent weeks, Apple said sideloading would allow social media companies, such as Facebook, to circumvent safeguards put in place to limit how user data is collected.

“Apple has made the choice to ban sideloading and alternative distribution of apps because smartphones contain a person’s most sensitive data and protecting that data is imperative,” said lobbyist Timothy Powderly. Apple, to Senate leaders in a letter reviewed by The Wall Street Journal.

Lawmakers aren’t rejecting all of Apple’s pleas, and in some cases have changed their legislative proposals to address the company’s concerns. But Senate votes, especially Republican support, will improve the bills’ chances of passing the House, said Rep. Ken Buck (R. Colo.), the top Republican backing the legislation in the House. low.

Sen. Ted Cruz of Texas voted for both bills, but said he would seek changes to the bills before a full Senate vote.


Photo:

Lenin Nolly/Zuma Press

Ahead of the Senate votes, Cook made the company’s case during a 40-minute call with Republican Sen. Ted Cruz of Texas, where Apple has a large campus.

Mr Cruz, who described the appeal during one of the committee’s votes, said Mr Cook feared the bill would “create barriers to Apple giving consumers the ability to opt out of apps monitoring what they do online”.

Mr. Cruz said he disagreed, pointing to provisions that allow for measures to protect privacy. “The wording of this bill is entirely consistent with consumers having the right to opt out,” he said.

He voted for both bills, saying the market power of tech companies would “make John D. Rockefeller blush.” He also said he would seek changes to the bills before a vote by the full Senate.

In at least one instance, Apple’s outreach left a senator feeling rebuffed. The company requested a phone call between Mr Cook and Sen. Marsha Blackburn (R., Tennessee) but canceled it before the App Store vote, a person familiar with the matter said.

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During the committee debate, Ms Blackburn remarked on “the arrogance of some Silicon Valley executives who think they don’t need to work with us here in Congress.”

The pre-vote call was postponed due to scheduling conflicts and for no other reason, according to an Apple spokesperson. Mr Cook and Ms Blackburn finally spoke about two weeks later, and she pushed back against the CEO’s arguments about the bill affecting user privacy and security, the person familiar with the matter said.

Ahead of recent Senate votes, Mr. Cook also reached out to Sen. Amy Klobuchar (D., Minn.), according to his office. She accused Apple of blocking competition.

All Democrats on the Senate panel voted to move the App Store bill forward, though both California senators expressed reservations.

“Some consumers might prefer a closed device that provides a layer of security,” said Sen. Alex Padilla (D., Calif.) of the App Store Bill. “If we’re not careful, we could take a pick out of the market.”

Write to Ryan Tracy at [email protected] and Tim Higgins at [email protected]

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