Patrick Hedger and Dan Savickas: State bill pushes regulation without representation

This Tuesday, Oct. 5, 2021 file photo shows the mobile phone app logos for, from left, Facebook, Instagram and WhatsApp in New York. AP Photo/Richard Drew

Federal lawmakers – led by U.S. Sen. Amy Klobuchar, D-Minn. – have been pushing legislation to limit the ability of smart phone providers to vet app developers in their digital marketplaces. Despite some progress in committee hearings, these bills face a long road ahead. Evidently, it seems legislators at the state level cannot wait for the dust to settle in Washington before taking up app store legislation of their own. This would be disastrous both on the merits of the policy and in the precedent it would set going forward.

The Arizona state legislature is considering a bill to alter the ways companies like Apple and Google secure their app stores. The bill would force these smart device providers to allow any and all third-party payment processors to service consumer transactions within applications instead of Apple, Google, and other app store providers. While the rationale for this legislation is to encourage competition, the reality is that it will turn app stores from digital department stores into online flea markets. Consumers will be left with little recourse in the event something goes wrong.

Smart device providers act as “gatekeepers” in this space to protect their customers from potentially malicious app developers. This screening builds trust for consumers in otherwise unknown app developers and helps ensure that any illegal or fraudulent activity can be addressed. In 2020 alone, Apple stopped over $1.5 billion in fraudulent activity. Legislation like the bill in Arizona would inhibit that ability.

As devastating as efforts to implement such legislation would be on the federal level, it is actually more so when done at the state level. Complying with local regulations is already complicated enough for businesses where jurisdictions are clearly defined. It would become all the more so for app marketplaces that exist digitally and inherently across multiple states and nations.

If state-level app stores bills were to pass, tech companies would be put in an incredible bind. If Arizona’s legislation is passed, one of two scenarios will develop. The first is that smart device providers would have to develop an entirely different app store for Arizona users. The second would be for these providers to restructure the entirety of their operation based around the regulation of a single state.

The first scenario presents a costly path forward for tech companies. They would already be put in a bind, having to create a number of different app store frameworks. If more states passed their own app store bills with unique provisions, more variants become necessary and more costs are incurred. Not only will this stifle investment and innovation, but it will also pass along added costs to consumers, making apps and phones more expensive.

Under the second scenario, the United States would be put in a position where the legislators of a single state are exercising effective regulatory authority over the whole nation. This is, at its core, regulation without representation. American citizens the whole nation over will not have the opportunity to elect representatives in Arizona’s legislature. Yet, if something like Arizona’s app store bill were to pass, the legislation would impact the whole nation.

This also makes such state-level efforts unconstitutional. The “dormant commerce clause” is a legal doctrine which holds that because the Constitution grants the federal government the ability to regulate interstate commerce, states ought to refrain from unduly burdening it. These state-level app store bills would clearly burden digital marketplace, which are – by their very nature – interstate commerce. We’re talking about the World Wide Web, after all.

Bills like these will also exacerbate the perceived problems they are trying to solve. Such a patchwork of regulation will be incredibly costly and burdensome to abide by. The only companies that will be able to do so will be the large, entrenched players in the market. Instead of promoting competition, app store legislation will ensure that small upstart companies are priced out of the market.

For the sake of market certainty – for both consumers and companies alike – these issues are best addressed at the federal level. There are already enough concerns with federal legislation to begin with. There is no need to complicate the landscape with another 50 different frameworks.

Patrick Hedger is executive director of the Taxpayers Protection Alliance. Dan Savickas is the Government Affairs manager at the alliance.

Republished with the permission of The Center Square.