WSJ US BusinessWhy the Next Big-Tech Fights Are in State Capitals

March 14, 20210
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Tech companies are turning their attention to statehouses across the country as a wave of local bills opens a new frontier in the push to limit Silicon Valley’s power.

Arizona, Maryland and Virginia are among states where lawmakers are seeking to limit the power of tech companies like Alphabet Inc.’s GOOG -2.50% Google and Apple Inc. AAPL -0.76% on a range of issues, from online privacy and digital advertisements to app-store fees. State policy proposals have bipartisan support from lawmakers who want to temper companies’ influence and financial clout, which have grown during the pandemic.

Google, Apple and others are hiring local lobbyists and immersing themselves in the minutiae of proposed legislation, according to state representatives. Tech companies face potential rules that would curb the reach of their platforms, crimp revenues with taxes or force them to facilitate additional privacy disclosures.

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While federal lawmakers have held hearings and are in discussions about policies to regulate tech companies, debates and votes could occur in states first. If passed, state laws matter because they can become de facto national standards in the absence of federal action, as with California’s 2018 privacy law, which gave consumers both the right to access personal information that businesses collect from them and the right to request that data be deleted and not sold.

Facebook Inc. FB -2.00% initially opposed the California measures, but supported them after they took effect. Companies such as Microsoft Corp. have opted to honor the new rules across the country.

“So much has happened since California passed the original [data] privacy act” in 2018, said Sam McGowan, a senior analyst at policy research firm Beacon Policy Advisors LLC. Lawmakers’ concerns now stretch well beyond privacy to such topics as anticompetitive behavior and how social-media companies police content, he said.

In Arizona, a closely watched bill regarding app-store payments has cleared the state House and is expected to be debated in the Senate in the next several weeks. The legislation would free some software developers from fees that Apple and Google place on apps, which can run up to 30% of sales from paid apps and in-app purchases. App developers would be able to charge people directly through the payment system of their choice. The bill would apply to Arizona-based app developers and consumers yet could set a wider precedent.

Republican state Rep. Regina Cobb, the legislation’s chief sponsor, said the bill is about “consumer protection and transparency,” and said a final vote could take place within the next month. Ms. Cobb said she believes there are sufficient votes to pass the bill in the narrowly divided Senate. Apple and Google have lobbied heavily against the bill, Ms. Cobb said.

Apple declined to comment on lobbying in Arizona. A company spokeswoman said Apple “created the App Store to be a safe and trusted place for users to download the apps they love and a great business opportunity for developers. This legislation threatens to break that very successful model and undermine the strong protections we’ve put in place for customers.”

Google declined to comment on the legislation or any lobbying efforts in the state.

In February, Maryland lawmakers passed legislation that would tax the revenue of companies such as Google, Facebook and Amazon.com Inc. from digital ads. This month Virginia Gov. Ralph Northam signed into law new privacy rules similar to those in California, with added limits on the consumer data that companies can collect online.

Washington state has introduced privacy legislation. Some states have targeted online content moderation, with Texas proposing a measure that would prohibit social-media companies from banning users based on their viewpoints. New York state recently looked into changing its antitrust laws to make it easier for it to sue tech companies.

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States may have an easier path to pass laws than Congress does, Mr. McGowan said, because many state governments have fairly short legislative sessions lasting a few weeks or months, meaning bills can swiftly make their way through committees and to votes.

Tech companies’ soaring growth and influence during the pandemic has raised urgency at the state level, according to Robert Siegel, a lecturer in management and a business-strategy researcher at Stanford University.

The biggest five companies—Amazon, Google, Facebook, Apple and Microsoft—all saw staggering growth in 2020, as stuck-at-home Americans and businesses turned to online shopping, software and cloud-computing services, smart devices and video streaming. Those companies’ combined revenue grew by a fifth, to $1.1 trillion, and their collective market capitalization soared to $8 trillion during the pandemic.

Given the stakes and what some view as the inevitability of more regulation, tech companies must play a more active role in influencing legislation, Mr. Siegel said. Facebook and Google are among tech companies now calling for federal rules on issues such as data privacy and artificial intelligence.

“Large technology companies have no choice but to engage,” Mr. Siegel said. “So much money has been made by these companies, and that has everyone gunning for them. They have a size and scale and reach that nobody has.”

Big Tech on Defense

Facebook Vice President of State and Local Policy Will Castleberry said the company “will continue to support bills that are good for consumers, but a patchwork approach to privacy doesn’t give the consistency or clarity that consumers or businesses need. That’s why we hope Congress will pass a national privacy law.”

Technology companies have stepped up legislative spending at different levels of government recently. Facebook and Amazon outspent all other U.S. companies in federal lobbying last year, The Wall Street Journal reported in January.

Facebook spent nearly $20 million, up about 18% from the previous year, while Amazon spent about $18 million last year, up about 11%. Apple disclosed $6.7 million in lobbying spending, down from a record $7.4 million in 2019, and Google also reported a drop, spending $7.5 million. Google and Facebook are facing multiple antitrust lawsuits, and Amazon and Apple have been the subject of preliminary inquiries that could advance further under the Biden administration.

States are also using courts to seek change. A Colorado-led coalition of attorneys general filed an antitrust suit against Google in December over its dominance in online search. Meanwhile, California is looking into how Amazon treats sellers in its online marketplace, and authorities in Connecticut are investigating how Amazon sells and distributes digital books.

Amazon declined to comment.

Write to Sebastian Herrera at Sebastian.Herrera@wsj.com and Dan Frosch at dan.frosch@wsj.com

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