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Big Tech’s Unlikely Next Battleground: North Dakota

Last month, a lobbyist approached Kyle Davison, a North Dakota state senator, with an unusual proposal: a law to stop Apple and Google from forcing companies in the state to hand over a share of their app sales.

Mr. Davison, a Republican, was focused on bills related to a $200,000 literacy program and birth records for the homeless. But he was intrigued by the lobbyist’s arguments that the tech giants were hurting small businesses, and he thought such a law could attract tech companies to North Dakota. So he introduced it.

“She said to me that this could be big. But to me, that means the local newspaper is going to come with a camera,” Mr. Davison, 60, said. “I would not be truthful if I said I expected the reaction.”

At the Capitol in Bismarck, a 21-story Art Deco tower that’s the state’s tallest building, a hearing on the bill last week drew Washington lawyers, North Dakota newspapers and Silicon Valley executives. Siding with Apple and Google was Americans for Prosperity, the conservative group funded by the Koch family. On the other side was the Fargo Chamber of Commerce. One person called in from Alaska.

Supporters of the bill said it would help smaller companies and only hurt Apple and Google’s revenues. Apple’s chief privacy engineer, Erik Neuenschwander, testified that the bill “threatens to destroy iPhone as you know it.”

North Dakota is part of a new front in the battle over Big Tech and its power. Frustrated with a lack of action from courts, regulators and Congress, tech rivals and critics are turning their attention to state legislatures, pushing bills that seek to tax the biggest tech companies, rein in their power and limit their control over the internet.

New York is considering a bill that would make it easier for the state to pursue antitrust cases against the big tech companies. Lawmakers in Florida this month proposed measures, backed by the governor, that would limit how social media companies could police content on their sites. And on Friday, Maryland enacted a law that will tax online ads sold by companies like Facebook, Google and Amazon. Connecticut and Indiana are looking at similar bills.

The state fights pose a thorny problem for the tech companies, whose legions of lawyers and lobbyists are trained to extinguish threats in Washington and the courts. The 50 state legislatures are diverse and unpredictable, with both Republicans and Democrats aligning against Big Tech.

The North Dakota bill focuses on Apple’s and Google’s practices of taking a cut of up to 30 percent from many app sales on smartphones, a policy that brought the companies a combined $33 billion last year, according to estimates from Sensor Tower, an app data firm.

Some smaller companies have argued that Apple and Google force app makers to pay an artificially high fee only because of their sheer dominance. The two companies’ software underpins nearly all of the world’s smartphones.

The bill would prohibit Apple and Google from requiring apps to use their payment systems, which enable them to collect their commissions.

It would also require Apple and Google to allow users of their smartphones to download apps from outside their flagship app stores, though Mr. Davison said he was trying to remove that provision to ease some of his colleagues’ concerns. Google already allows such downloads, but Apple does not.

North Dakota’s 47 senators are set to vote on the measure this week after debate starts on Monday. The timeline is accelerated because the legislature meets for just 80 days every two years. If a majority votes aye, the bill will move on to the House.

If the bill fails, Apple and Google’s fight would appear far from over. Georgia and Arizona lawmakers are considering nearly identical app-store legislation, and Andy Vargas, a state representative in Massachusetts, said he planned to introduce a comparable bill this week. Lobbyists said they were also pushing for app-store bills in Wisconsin and Minnesota.

An Apple spokeswoman said most iPhone apps were free and didn’t pay any commission. She added that most of the North Dakota companies that shared revenue with Apple earned less than $1 million a year from their apps, meaning they pay Apple 15 percent of some sales, rather than 30 percent. Apple lowered its rate for smaller companies last year amid scrutiny of its App Store policies.

Google did not respond to a request for comment.

Mr. Davison said he had been given the draft legislation by Lacee Bjork Anderson, a lobbyist with Odney Public Affairs in Bismarck. Ms. Anderson said in an interview that she had been hired by Epic Games, the maker of the popular game Fortnite and the plaintiff in lawsuits against Apple and Google over their app policies. She said she was also being paid by the Coalition for App Fairness, a group of firms, including Epic, Spotify and Match Group, that has protested app commissions and is leading the push for app-store bills.

“Look, we’re a very conservative state,” said Ms. Anderson, a Republican. “But we also are a state where Teddy Roosevelt came from, and there’s no bigger trustbuster.” (Roosevelt, the former president, was born in New York but later owned a ranch in North Dakota.)

Still, she admitted that the bill might not have enough votes to pass, which she attributed to confusion among some senators and aggressive lobbying from Apple.

“They’re setting up Zoom calls with every senator,” she said. “That doesn’t necessarily play well up here — having California executives or lobbyists trying to tell people what to do.”

State Senator Jerry Klein, the Republican who leads the committee that handled the bill, agreed that Apple’s presence was being felt at the statehouse. He said he opposed the legislation largely because Apple and its lobbyists warned that the bill could put North Dakotans at risk of cyberattacks and make North Dakota subject to expensive lawsuits. He also worried that interfering in an agreement between two private companies would be bad for business.

Mr. Klein, 69, a retired grocery-store owner from tiny Fessenden, said some of his colleagues were also wary of passing a bill focused on “digital application distribution platforms” and “in-application payment systems” when they struggled to understand the effects.

“All people here know is that they’ve got their phone plugged in, it has power, they can take pictures and show photos of their grandkids,” he said. “This goes beyond some of us.”

Yet some app makers have a lot riding on the legislation. David Heinemeier Hansson, a Danish tech entrepreneur who has fought to avoid Apple’s fees with his email app, Hey, said the bill could be a significant blow to Apple’s policies, even though it would apply only to North Dakota companies.

He said that if the bill passed, he was prepared to set up offices in North Dakota. And he predicted that if moving there meant avoiding paying Apple 30 percent of sales, many other companies would join him.

“You don’t have to be that large of a software company before 30 percent of your revenues is your largest line item,” he said. He added that he had never been to North Dakota, where the temperature the other day dipped to minus 18 degrees Fahrenheit, “but I hear it’s lovely.”

Mr. Heinemeier Hansson said he wasn’t betting on North Dakota’s adopting the law, but he said the fact that the bill was getting attention and receiving a vote would encourage other states to consider similar measures.

“That’s why Apple showed up with the big scary picture that this would end iPhone as we know it,” he said. “Of course it wouldn’t end iPhone as we know it, for this to pass in North Dakota. They’re afraid that whichever state first opens the floodgates, the floodgates will then be open.”