Contrary to the naysayers, the American Choice and Innovation Online Act won’t result in naked iPhones or iPhones cluttered with hundreds of preinstalled apps.
On a bipartisan basis, the House Judiciary Subcommittee approved a slew of bills last month that seek to constrain anticompetitive conduct by the dominant digital platforms. The purpose of these bills is to fill a yawning gap in antitrust law, which is becoming more apparent by the day. Current antitrust law seems to struggle with the platforms’ exclusionary tactics and products, many of which are free to consumers. The bills would not tweak existing antitrust law; instead, they would create new evidentiary standards outside of antitrust for the agencies to fill in this gap.
My personal favorite is the American Choice and Innovation Online Act (HR 3816), sponsored by Rep. David Cicilline (D-RI), which would police acts of “self-preferencing” by a dominant platform, or the act of steering users to a platform’s affiliated app, merchandise, or web property. Because current antitrust law tends to condone exclusionary conduct that occurs strictly within a firm’s boundaries, and because self-preferencing does not require contracting with a third party, the Act would offer a lifeline for independent app developers, merchants, and websites in their dealings with dominant platforms. As a result, it would bolster these “edge” companies’ incentives to invest in innovative offerings, without fear of being disappeared in search when competing against the platform’s product.
I had the honor of testifying before the Judiciary Committee this past February on the need for similar legislative action. In my testimony, I asked Congress to import the evidentiary standard from Section 616 of the 1992 Cable Act, which requires an independent cable network to prove that it received inferior tiering due to its lack of affiliation with the cable operator, and was materially impaired as a result. The American Choice and Innovation Online Act flips the burden of proof around, requiring a platform respondent to show via an affirmative defense that the challenged self-preferencing “would not result in harm to the competitive process by restricting or impeding legitimate activity by business users.” Accordingly, self-preferencing is not automatically condemned under the bill (akin to a per se offense), but instead the factfinder must determine whether the discriminatory act undermined competition. These affirmative defenses are important in understanding the types of cases that will likely prevail and thus be brought under this bill.
Thanks to the never-ending coverage of independent app developers and merchants being run off the road by Big Tech, we are intimately familiar with the kinds of discriminatory conduct that would be challenged under the bill. Lost-item tracker Tile complained to the Wall Street Journal that Apple refused to open the iPhone’s ultra-wideband detection capabilities, used by Apple’s own AirTags, to third-party developers. The iPhone also allegedly bombards users with pop-up notifications that the Tile app is tracking your location in the background, while allowing Apple’s apps to similarly track users without prompting the same notifications. Cosmetic retailer Beauty Bridge complained to ProPublica that it was losing a coveted spot in the Buy Box (the white box on the right-hand side of the page in search results) to Amazon’s private label products, despite Beauty Bridge offering the lowest price. As a result, the independent company felt compelled to purchase storing, packing, and shipping services from Amazon (“Fulfillment by Amazon”) to restore its search rankings.
The purpose of the legislation is to provide these and other foreclosed independents a forum outside of the press to air their grievances. In addition to empowering the antitrust agencies with new tools, Cicilline’s bill also gives independent merchants and app developers the ability to bring their own cases under the new standard, without having to lobby an agency to move on their behalf. This “private right of action” ensures enforcement levels won’t drop off when the agencies are headed by libertarians. I had proposed that the venue be set inside the FTC as a specialized tribunal, which would move faster than the federal courts, especially as it gained experience with discrimination cases; a minor demerit in an otherwise good piece of legislation.
Independent app developers tend to complain about Apple’s discriminatory treatment, without regard to preinstallation. For example, Spotify’s EU complaint concerns (1) the 30 percent forever tax that Apple imposes on its revenues, (2) “experience-limiting restrictions” that allegedly degrade its quality, and (3) Apple’s blocking its “experience-enhancing upgrades.” That is not to say that Spotify welcomes the inherent disadvantage, vis-à-vis Apple’s music app, of having to induce Apple users to initially download Spotify’s app. More likely, independents have to come to accept that disadvantage as a cost of doing business on Apple’s platform.
Yet the detractors of the bill have seized on some ambiguity in the language that, if read a certain way, could be interpreted to expose Apple to liability for merely preinstalling one of its affiliated apps. To wit, Professor Randy Picker wrote on these very pages this week that “HR 3816 would seem to bar Apple from preinstalling any number of Apple products, including Apple’s App Store, Apple Music, the Find My app, Apple Maps, a calculator, and more.”
This is a strained interpretation. But in case there is any ambiguity, it’s helpful to see what the bill actually says about preinstallation. In Section 2(b), the bill enumerates ten specific types of conduct that would violate the nondiscrimination standard, outside of the general rule outlined in 2(a), including at number five, any conduct that would “restrict or impede covered platform users un-installing software applications that have been preinstalled on the covered platform…” Thus, the bill contemplates and presumably tolerates the very conduct that Picker suggests would be per se illegal.
It is also helpful to see what the Antitrust Subcommittee’s Majority Staff Report had to say about preinstallation, as this legislation flows directly from the subcommittee’s findings. In regards to Apple, preinstallation was discussed only in the context of Apple’s advantaging its own apps in the App Store search rankings. The report notes that approximately 40 of Apple’s apps come preinstalled on iPhones—there are nearly two million apps in the App Store, making preinstallation an inefficient way to self-preference—and that these apps do not have reviews or customer ratings. Despite the lack of rating and reviews, Apple’s preinstalled apps “tend to be ranked first, even when users search for exact titles of other apps.” Preinstallation is thus not presented as a standalone barrier to competition, but instead as symbolic of a larger discriminatory strategy employed by Apple.
Nothing stops a competitor from pursuing a weak antitrust case, or an antitrust agency from pursuing a private company for the wrong reasons (for instance, President Donald Trump’s DOJ harassing atomistic marijuana makers). But this potential for abuse is not a basis for denying antitrust protection for meritorious cases. Similarly, although nothing would stop an app provider from pursuing a standalone preinstallation case against Apple in federal court under this Act, our justice system has safeguards in place to weed out meritless suits. Moreover, set against substantial attorney and expert fees, including for economists, the aforementioned affirmative defenses for Apple would make such a case exceedingly weak, thereby rendering the expected payoffs negative.
In his piece, Picker also speculates that the section of the bill covering discrimination among similarly situated business users “might be understood to require Apple to preinstall every app in a category once it had installed one of the apps—all-or-none preinstallation—as otherwise it would be engaging in impermissible discrimination.” Again, which agency would seek such a remedy? Apple could plausibly argue, as part of its affirmative defense, that larding up a homepage with hundreds or thousands of preinstalled apps would not result in harm to competition.
Despite the remote possibility of the bill resulting in a ban on preinstallation, I would have no issues with the next draft explicitly addressing preinstallation, perhaps in the affirmative defenses, so long as it was done on a standalone basis and not in conjunction with some larger exclusionary strategy. Apple might interpret blanket immunity as an invitation to double or triple its preinstalled apps. But if that were the cost of mollifying the naysayers and approving this bill, it would be a small price to pay for an important source of protection for edge innovation.
Disclosure: Hal Singer serves as an expert in a consumer protection matter in which Apple is the adverse party.