Last week, the House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law introduced draft legislation aimed at regulating “Big Tech” after a year-plus investigation of competition in digital markets. The legislative package largely stems from information gathered through witness testimony, documents, and interviews captured in the more than 500 page report the Subcommittee Majority staff released last year.

The five draft bills focus on core themes from the hearings and reports— nondiscrimination, conflicts of interest, portability and interoperability, merger review fees, and merger prohibition. Below we analyze each discussion draft for what our members need to know.

Nondiscrimination

Written by Subcommittee chair Rep. David Cicilline, the nondiscrimination bill would have a direct effect on the relationship between software platforms and developers. The draft text prohibits platform companies from doing anything to advantage the platform’s own products, services, or lines of business over those of competing or potentially competing firms that use the platform (and vice versa – prohibition on disadvantaging other potentially competing products or services). This might sound great, but just like the conflict of interest bill, the effect of this legislation is also to prevent offerings by the platform on the app store, which developers use all the time, and which help bring consumers to the market and want to buy a smart device in the first place. The draft also prohibits restrictions on access to platform and device controls, as well as customer data, unless the platform can show by clear and convincing evidence via an affirmative defense that it was the “least restrictive” privacy measure. Again, this might sound nice, but it prevents the platform from barring access by bad actors, so consumers would be skeptical of downloading anything from a company they do not recognize.

What you need to know:

  • The legislation would render most platform-level privacy measures illegal and force platforms to accept an app’s access to personal information. This text would greatly inhibit a developer’s ability to use privacy measures as a competitive advantage and could reduce consumer trust in platform curation. Why would consumers trust a device that is forced to allow an app to access all personal information or operating system controls?
  • The bill would also prohibit default apps such as basic camera, calendar, or email apps under the assumption that making them the default clearly advantages the platform’s own offerings. For example, let’s say a developer makes an app for bird watchers that uses the default camera API to identify a species of bird. Under this legislation, the user will have to download a specific camera app to use, meaning the developer would need to support every possible camera offering leading to friction for the consumer.

Conflicts of Interest

Written by Rep. Pramila Jaypal, this bill prohibits platform companies from owning a “line of business” that constitutes an “irreconcilable conflict of interest.” An irreconcilable conflict of interest includes a conflict that arises when the platform operator owns a line of business that creates a “substantial incentive” to “advantage the platform operator’s own products, services, or lines of business over those of a competing business or potential competing business,” or “exclude or disadvantage the … lines of business of a competing business or potential competing business.”

What you need to know:

  • With respect to software platforms, Apple and Google would have to divest not only their app stores but any of their apps or services such as their streaming music services, camera apps, mapping apps, location tracking apps, streaming entertainment apps, payment and wallet apps, etc.
  • This could result in a dramatic reduction in the number of APIs developers have access to as part of the operating system.
  • One interesting note on this draft bill— media and policy watchers speculated that this bill is squarely targeted at Amazon and its marketplace and own brands. If true, this presents a broader concern that language in some drafts intended to curb perceived anticompetitive behaviors of one company could create unintentional havoc on other industries.
  • Entry into adjacent markets by platforms is not inherently bad and categorically preventing it has the ironic effect of shielding huge competitors from credible challenges by peers. Those barriers to competition require the government to step in further to simulate its effects. A centrally planned app economy providing technology at the speed of government is a poor substitute for actual competition.

Portability and Interoperability

The text, drafted by Rep. Mary Gay Scanlon, requires platforms to allow access to datasets to potential competitors at the affirmative request of a consumer. It also requires platforms to adopt an interoperability regime that is fair, reasonable, and non-discriminatory (FRAND) to potential competitors. There are also data security and privacy requirements that platforms and potential competitors accessing data via interoperability interfaces must follow (best practices provided by Federal Trade Commission, or “FTC”).

What you need to know:

  • Portability of data is a specific remedy for specific kinds of scenarios where data is necessarily “independent” and not fused to the offering of the company/platform (e.g., a person’s health data).
  • Interoperability is also more of a specific remedy for targeted situations and not necessarily a good fit for all platforms.
  • FRAND is only appropriate where companies voluntarily agreed to FRAND terms, and they’ve required all entities to interoperate via a standard. If a bunch of companies formally agreed that Google and Apple are the only app stores that anyone is allowed to use, then they would be standardized, and FRAND could apply. But in this case, the app stores are competing with each other and with other software distributors that don’t look exactly like them, so FRAND is an odd fit.

Merger Review Fees

Drafted by Rep. Joe Neguse, this bill is probably the least controversial of the five. It increases the fees proposed merging entities pay to the FTC to review mergers.

What you need to know:

  • Draft proposals on merger fees floated through Congress over the last few sessions and generally receive bipartisan support. We don’t foresee a tangible effect on the app economy from this proposal.

Merger Prohibition

The final bill by Rep. Hakeem Jefferies prohibits platform companies from buying other companies. However, if the platform can show by clear and convincing evidence that the company it seeks to acquire does not “pose a potential competitive threat;” “enhance the platform’s market position;” or “enhance the platform’s ability to maintain its market position,” the merger can proceed.

What you need to know:

  • This bill lowers enterprise value, and eliminates a lot of acquisition prospects, for any company doing business on or around platforms, and erases procompetitive acquisitions.

With the bills’ introduction coming late last Friday (June 11), there is no set date for markup as of yet. The App Association will keep you apprised of all developments.