South Korean lawmakers on Tuesday passed the world’s first law to force tech giants such as Google and Apple to offer alternative payment systems on their app stores, a move critics of the companies say will loosen their stranglehold over profits derived from the lucrative online marketplaces.

Washington lawmakers who favor more regulation of tech companies immediately hailed the action and urged passage of a similar proposal that a bipartisan cast of lawmakers introduced this month.

“South Korea is taking steps to foster competition in the app economy. The U.S. can’t fall behind,” Sen. Richard Blumenthal, D-Conn., one of the U.S. lawmakers leading the push for greater app store restrictions, tweeted after the South Korean action.

Google and Apple resisted the legislation in South Korea, arguing that customers’ privacy could be compromised on smaller and less secure payment systems and that the measure’s impact on consumers and developers is uncertain. NetChoice, a tech trade association that counts the two companies as members, has made some of the same arguments in its efforts to head off similar legislation in Washington.

“The proposed Telecommunications Business Act will put users who purchase digital goods from other sources at risk of fraud, undermine their privacy protections, make it difficult to manage their purchases, and features like ‘Ask to Buy’ and Parental Controls will become less effective,” Apple said in a statement after the proposal passed South Korea’s National Assembly.

The South Korean measure amends the nation’s primary telecommunications law to block marketplace operators from forcing customers to use their in-app systems to make purchases – where the giants can collect commission rates of up to 30 percent that some developers say harm competition. Failure to comply could result in fines of as much as 3 percent of the tech companies’ revenue in South Korea.


The measure now goes to President Moon Jae-in for his signature. His party has championed the bill.

Google, too, said the assembly hadn’t studied the measure enough to know how it will affect the estimated 500,000 registered app developers in South Korea or their customers. “We worry that the rushed process hasn’t allowed for enough analysis of the negative impact of this legislation on Korean consumers and app developers,” it said.

Tech critics see the legislation as a necessary guardrail to protect consumers and businesses from anti-competitive practices that enrich app store operators at the expense of the companies whose customers are reached largely through the app stores. Match Group, a member of a coalition of developers that is pushing Apple and Google to change their policies, called the South Korean action “historic” and “a monumental step in the fight for a fair app ecosystem.” It praised South Korean lawmakers for “bold leadership.”

The move comes as the debate over the tech giants’ app store dominance heats up. Last week, Apple announced that it would institute major changes to its App Store as part of a proposed settlement with developers who sued, maintaining that Apple’s pricing tiers and lack of payment options outside of its own were monopolistic.

Apple said it now will allow developers to inform their iPhone and iPad customers about ways to pay for their services beyond the official App Store. The new policy would also expand the types of prices that developers can offer for subscriptions, in-app purchases and paid apps, among other initiatives.

But the company’s critics scoffed at the changes, which still must be approved by the judge in the case, calling them insufficient and pledging to press ahead with other efforts globally to regulate Google’s and Apple’s app stores more stringently.


Sen. Amy Klobuchar, D-Minn., who in August was among the sponsors of a bill that would prohibit app store operators from requiring developers to use their in-app payment systems, said the effort “builds on our growing momentum to implement serious reforms.”

“Mobile technologies have become essential to our daily lives, and now just two app stores wield incredible power over which apps consumers can access and how they access them,” she had said last week. “When you see this same issue arising all over the world, it is even more obvious that we need to take action.”

Rep. David Cicilline, D-R.I., who co-sponsored the companion app-store bill in the House, also applauded the South Korean legislation. “It is clear that momentum is building around the world to rein in abusive and anticompetitive practices by dominant online platforms, including in the mobile app economy,” he said in a statement last week in support of the bill.

Google’s and Apple’s control of their app stores faced renewed scrutiny after Epic Games, maker of the Fortnite video game series, sued the giants last year, alleging anticompetitive behavior after they removed the game from their app stores for violating payment policies. A decision in that case is expected soon.

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