[Infowarrior] - Board Ties at Apple and Google Are Scrutinized

[Richard Forno]

May 5, 2009
Board Ties at Apple and Google Are Scrutinized
By MIGUEL HELFT and BRAD STONE

http://www.nytimes.com/2009/05/05/technology/companies/05apple.html?_r=2&pagewanted=print

SAN FRANCISCO — The Federal Trade Commission has begun an inquiry into  
whether the close ties between the boards of two of technology’s most  
prominent companies, Apple and Google, amount to a violation of  
antitrust laws, according to several people briefed on the inquiry.

Apple and Google share two directors, Eric E. Schmidt, chief executive  
of Google, and Arthur Levinson, former chief executive of Genentech.  
The Clayton Antitrust Act of 1914 prohibits a person’s presence on the  
board of two rival companies when it would reduce competition between  
them. The two companies increasingly compete in the cellphone and  
operating systems markets.

Antitrust experts say the provision against “interlocking  
directorates,” known as Section 8 of the act, is rarely enforced.  
Nevertheless, the agency has already notified Google and Apple of its  
interest in the matter, according to the people briefed on the  
inquiry, who agreed to speak on condition of anonymity because the  
inquiry was confidential.

F.T.C. officials declined to comment. Spokespeople for Apple and  
Google also declined to comment. A spokesman for Genentech declined to  
make Mr. Levinson available for comment.

The inquiry, which appears to be in its early stages, is the second  
antitrust examination involving Google to have surfaced in recent  
days. It suggests that despite the company’s closeness to the Obama  
administration, Google will not escape scrutiny from regulators.

Mr. Schmidt campaigned for then-Senator Barack Obama during his  
presidential campaign and advised the transition team and the  
administration on various matters. He was recently appointed to  
President Obama’s advisory council on science and technology.

Christine A. Varney, who was recently confirmed as the head of the  
antitrust division of the Justice Department, last year singled out  
Google as a probable source of future antitrust concerns because of  
its near monopoly on Internet search and advertising.

Some antitrust experts said they did not expect Google’s ties to the  
administration to play a role in antitrust issues.

“I expect the administration to be aggressive, generally, on antitrust  
enforcement,” said Sanford Litvack, a partner at Hogan & Hartson. Last  
year, while working for the Justice Department, Mr. Litvack built a  
case to block a prominent advertising partnership between Google and  
Yahoo. “I don’t expect Google to either be singled out or to receive a  
free pass because of Schmidt’s relationship with the administration,”  
he said.

Antitrust experts say that investigations of interlocking directorates  
rarely lead to major confrontations between companies and the  
government. Executives typically choose to resign from the board of a  
competitor if it poses a problem rather than face a lengthy  
investigation or a bruising legal fight.

Like many companies in the technology industry, Google and Apple are  
both allies and competitors. Google, for instance, worked with Apple  
to design early versions of some its services, like Gmail and Google  
Maps, for Apple’s iPhone.

But the areas in which the companies are bumping up against each other  
as rivals have been increasing.

Mobile phones, in particular, loom large in the future of both Google  
and Apple. Much of Apple’s fortunes these days are tied to the success  
of the iPhone. Google, for its part, has said repeatedly that one of  
its biggest strategic opportunities is to expand its online  
advertising empire into mobile phones.

While Google benefits from the success of the iPhone, which drives  
more traffic to its mobile services than any other device, it also  
produces the Android operating system for mobile phones that compete  
with the iPhone. The system currently powers the T-Mobile G1, a phone  
that some analysts say is the most capable of a number of rivals.

Other phone makers are planning to roll out devices powered by Android  
later this year. And the Android operating system is being built into  
lightweight portable computers known as netbooks, which may compete  
with some Apple laptops.

Google and Apple compete in a variety of other areas. Apple makes the  
Safari Web browser while Google makes the competing Chrome. Apple’s  
iTunes and Google’s YouTube are increasingly competing as venues for  
distribution of music and videos. And the two companies have photo- 
editing services.

It is not clear whether regulators have singled out any of these areas  
of competition as particularly troubling. Under the Clayton Act,  
interlocking directorates are not considered a problem if the revenue  
from products in which the companies compete is less than 2 percent of  
either company’s sales.

“Government actions under Section 8 are rare, but they are brought  
under circumstances when the presence of a common director on  
competing boards is likely to be anticompetitive,” said Andrew I.  
Gavil, an antitrust expert and a professor at the Howard University  
School of Law.

Both Google and Apple share a rival in Microsoft, which competes with  
the two companies in some areas. But Professor Gavil said regulators  
were not likely to see that as a problem, even if the two Silicon  
Valley companies were discussing ways to compete more effectively with  
Microsoft.

Mr. Schmidt joined Apple’s board in 2006, about five months before it  
unveiled the iPhone. Google announced its plans for Android, its  
mobile phone operating system, nearly a year later. Since then,  
analysts have speculated that Mr. Schmidt’s position on Apple’s board  
could become untenable. Google has said he recuses himself when  
Apple’s board discusses mobile phones.