The Open App Markets Act

The Open App Markets Act

Legal Sidebar

The Open App Markets Act
June 8, 2022
Efforts to reform competition law proceed at different levels of generality. Some bills would tackle
antitrust writ large. Others are more focused, applying special rules to a handful of Big Tech companies.
The Open App Markets Act (OAMA) is narrower still, targeting one segment of the digital economy—
mobile software application (app) stores—with sectoral regulation.
While limited in scope, the legislation would reshape key technology markets. Last year, the two largest
app stores—Apple’s App Store and Google Play—generated combined sales of $133 billion, which
reportedly contributed a fifth of the operating profits at Apple and at Google parent Alphabet. The OAMA
(S. 2710, H.R. 5017, and H.R. 7030) would require these firms to make major changes to their business
practices in the name of protecting app developers and consumers from alleged abuses of monopoly
power.
This Sidebar provides an overview of S. 2710, a version of the OAMA which the Senate Judiciary
Committee advanced with amendments in February 2022.
Competition Issues in the App Industry
App stores are considered critical nodes in the digital economy, enabling software developers to distribute
their apps to mobile-device users. In turn, those apps allow consumers to perform a sweeping array of
tasks, ranging from messaging to gaming to ordering food.
The app-store market is dominated by Apple and Google, which also control the leading mobile operating
systems (iOS and Android). Both the app-store market and the market for mobile operating systems
contain high entry barriers and exhibit strong network effects, potentially giving Apple and Google
significant power to shape the app industry.
Global competition authorities have investigated several ways in which the firms have allegedly abused
that power. The practices motivating the OAMA’s proponents include:
 Restrictions on the Availability of Rival App Stores. Apple and Google have allegedly
leveraged control of their operating systems to favor their own app stores over
alternatives. In Apple’s case, the alleged self-preferencing is straightforward—Apple’s
App Store is the only app store available on iOS devices. Google’s policy is less
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prescriptive, but some commentators argue that the firm’s conduct has nevertheless
harmed competition. While Google allows users of Android devices to download
competing app stores, it has required device manufacturers to pre-install the Google Play
Store as a condition of licensing the Android operating system. Critics contend that this
pre-installation requirement gives Google Play major advantages over rival app stores,
because consumers tend to stick with pre-installed options. Market participants have also
alleged that Google has implemented measures that make downloading competing app
stores unnecessarily difficult.
 In-App Payment Processing and Anti-Steering Provisions. Apple and Google have
developed tools for collecting payments from users who make purchases within apps
downloaded from their app stores. The firms also require that developers use these tools
as a condition of participating in their app stores. The requirement has not been cheap.
Before recent changes, Apple and Google charged fees of up to 30 percent for processing
in-app purchases (IAPs). Apple had also required developers to abide by anti-steering
provisions that prohibited communications with customers about alternative payment
options. Some observers argued that these measures harmed competition in the market for
IAP processing, injuring both developers and consumers.
 Technological Self-Preferencing. The firms have also allegedly favored their own apps
over rivals. Some of the putative self-preferencing involves access to technology—in
particular, application programming interfaces (APIs). Developers of mobile operating
systems create APIs to allow apps to access a device’s features, like its camera or
microphone. Apple makes many APIs for iOS publicly available, but has also created a
variety of private APIs. Some developers have accused Apple of unfairly favoring its own
apps by allowing them to access these private APIs while denying similar opportunities to
rivals. The alleged favoritism may also extend to other device functionalities. For
example, Apple allows its payment app (Apple Pay) to access technology enabling
communications between devices and payment terminals, but blocks such access for
third-party payment apps.
 Self-Preferencing in Search. Some commentators have made similar allegations
regarding App Store search results. Separate investigations by The New York Times and
The Wall Street Journal have concluded that Apple’s apps are often ranked higher than
more relevant and popular rivals in the App Store, leading to claims of favoritism. (Apple
has denied its search algorithm preferences the company’s own apps.)
 App Pre-Installation and Default Settings. As discussed, some observers have argued
that pre-installation of the Google Play store on Android devices harms competition in
the app-store market. Some developers have criticized pre-installation of certain Apple
and Google apps on similar grounds. In 2020, the majority staff of the House Judiciary
Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law found
that Apple pre-installed roughly 40 of its own apps on the latest iPhone models. Several
of those apps were also set as the default options for Apple devices. Google has similarly
required device manufacturers to pre-install and give default status to some Google apps,
including Google Search.
 Sherlocking. Some commentators have accused Apple of exploiting its control of iOS
and the App Store to collect competitively sensitive information from app developers.
The firm has allegedly used such information from popular apps to build competing
offerings and integrate certain functionalities into iOS—a practice dubbed “sherlocking.”
Similarly, the House Antitrust Subcommittee’s 2020 report concluded that Google has
used data from third-party apps to support its own competing offerings.

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The Legislation
The OAMA would prohibit many of the practices described above. The bill would impose the following
prohibitions and requirements on firms that own or control app stores with more than 50 million U.S.
users.
 Section 3(a): Exclusivity and Tying. S. 2710 would prohibit covered companies from
requiring app developers to use their IAP processors as a condition of participating in
their app stores. The bill would also prohibit “most favored nation” pricing requirements,
whereby app-store operators dictate that developers price their offerings on terms that are
equal to or more favorable than those the developers offer in other app stores. Likewise,
covered companies could not take “punitive action” against developers based on prices
offered in other app stores or via other payment systems.
 Section 3(b): Interference with Legitimate Business Communications. S. 2710 would
buttress these prohibitions by preventing covered companies from imposing restrictions
on app developers’ communications with users concerning “legitimate business offers,”
including pricing terms. Accordingly, app developers could inform users of the benefits
of using alternative payment options for IAPs.
 Section 3(c): Nonpublic Business Information. S. 2710 would prohibit sherlocking by
making it unlawful for covered companies to use non-public business information
derived from third-party apps for the purpose of competing with those apps.
 Section 3(d): Interoperability. The legislation would also impose certain requirements
intended to prevent covered companies from favoring their own apps and app stores over
competitors. In particular, S. 2710 would require covered companies that own or control
the operating systems on which their app stores run to allow users to:
 Choose third-party apps and app stores as defaults;
 Install apps or app stores through means other than the covered company’s app store
(commonly called “sideloading”); and
 Hide or delete pre-installed apps and app stores.
 Section 3(e): Self-Preferencing in Search. Under the bill, covered companies would be
barred from “unreasonably preferencing or ranking” their own apps over rivals in their
app stores’ search results.
 Section 3(f): Open App Development. Finally, S. 2710 would prohibit certain forms of
technological self-preferencing. The bill would require covered companies to provide
developers access to their operating-system interfaces, development information,
hardware, and software on terms that are functionally equivalent to those they offer to
their own internal development teams or business partners.
These requirements and prohibitions would not be absolute. S. 2710 would offer covered companies
several affirmative defenses. In particular, a covered company would not be in violation of any of the
provisions discussed above for an action that is:
 Necessary to achieve user privacy, security, or digital safety;
 Taken to prevent spam or fraud;
 Necessary to prevent unlawful infringement of preexisting intellectual property; or
 Taken to prevent a violation of, or comply with, federal or state law.

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To prevail under these defenses, a covered company would need to show by a preponderance of the
evidence that its action was non-pretextual, applied consistently to all apps, and “narrowly tailored and
could not be achieved through a less discriminatory and technically possible means.”
S. 2710 would grant enforcement authority to the Federal Trade Commission and state attorneys general.
The bill would also provide a private right of action for treble damages to injured app developers, with the
exception of app developers owned or controlled by a foreign state.
Analysis
There are several strategies for addressing concerns about excessive market power. First there is antitrust,
a common law system of adjudication that requires courts to apply broad principles—no unreasonable
restraints of trade, monopolization, or unfair methods of competition—to specific fact patterns. This
approach is already being deployed to combat allegedly anticompetitive conduct in the app economy.
Developers, consumers, and state attorneys general have brought antitrust lawsuits against Apple and
Google that are currently working their way through the courts.
Ex ante regulation represents a second approach to market power. While antitrust lawsuits require courts
to determine after the fact whether challenged conduct violates certain general standards, regulation
identifies specific practices as lawful or unlawful before a firm engages in them.
There are also a variety of approaches that lie somewhere between antitrust and regulation. One scholar
has employed the term administration to describe systems that rely primarily on informal solutions and
negotiated agreements between regulated parties and their regulators. The Hart-Scott-Rodino
merger-review regime—in which regulators and merging parties can agree to bespoke remedies that
ameliorate competition concerns—is one example. Another commentator has identified an
agency-oversight model in which a specialist regulator is tasked with implementing general standards and
exercising ongoing supervision over regulated entities.
Each modality has potential costs and benefits for different stakeholders. Antitrust is flexible, but can be
slow and may not produce guidance that can be generalized for use by non-parties. Policymakers also
may not like prevailing antitrust doctrine at any given point in time. For its part, regulation may be faster
and provide greater certainty than antitrust lawsuits, but can err by being over-inclusive. Finally,
intermediate approaches that combine ongoing agency oversight with flexible legal standards can work
quickly and potentially avoid the error costs of regulation, but may create institutions that are vulnerable
to regulatory capture.
This rough taxonomy offers a framework for evaluating the OAMA and its alternatives. The bill embraces
the regulatory approach to promoting competition in app markets, prohibiting covered companies from
engaging in specified categories of conduct. Accordingly, the legislation may have efficiency advantages
over antitrust litigation, which can be costly and time-consuming. The OAMA would also hedge against
the possibility that plaintiffs will not prevail in such litigation. (A game developer is currently appealing a
lower-court decision rejecting its federal antitrust claims against Apple.)
At the same time, regulation arguably entails higher potential error costs than antitrust. While a court
adjudicating an antitrust dispute can delve deeply into a detailed factual record, bright-line rules apply
broadly and may condemn some procompetitive conduct. For example, Apple has argued that rules
requiring it to allow app sideloading and the use of alternative IAP processors will threaten the security of
iOS devices. Likewise, some commentators have argued that a categorical prohibition of sherlocking
would be on net anticompetitive. (When Apple or Google integrates a feature into their operating systems
that was previously supplied by third parties for a fee, consumers may benefit even if third-party
developers suffer.)

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More generally, supporters of Apple and Google have argued that existing app-store revenue models
produce several benefits that the OAMA would disrupt. In particular, the current commission-based
model may subsidize upstart developers by forcing popular apps to bear most of the costs of maintaining
the relevant platforms. Observers have also argued that the revenue Apple and Google derive from their
app ecosystems may allow the firms to lower prices elsewhere. Google, for instance, has argued that pre-
installation of its search engine allows it to monetize Android, which it otherwise might not license to
device manufacturers for free. One scholar has similarly suggested that Apple may charge less for its
devices because of the revenue it earns from apps and IAPs.
While antitrust and regulation have recognized costs and benefits, intermediate approaches to digital
competition have received less attention in the United States. The United Kingdom (U.K.), however, is
developing one such strategy. The U.K.’s Competition and Markets Authority (CMA) has established a
Digital Markets Unit (DMU) to oversee firms with “strategic market status.” While Parliament has yet to
adopt legislation empowering the new unit, the CMA’s proposal envisions a regime in which the DMU
would develop firm-specific codes of conduct to achieve the general objectives of “fair trading,” “open
choices,” and “trust and transparency.”
Other countries have gone in a different direction. South Korea recently adopted rules prohibiting
dominant app stores from forcing developers to use their in-app purchase processors. The European
Union is also considering comprehensive legislation that would impose ex ante regulations on digital
“gatekeepers,” with several of the rules mirroring provisions in the OAMA. Congress thus has several
possible models to draw from in developing its approach to competition issues in app markets.

Author Information

Jay B. Sykes

Legislative Attorney

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