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Yet Another Anti-Trust Inquiry For Google (& Apple)

Greg Sterling on May 5, 2009 at 3:47 am

Last year Google was all but forced to back out of its proposed paid-search deal with Yahoo because of a reportedly impending Justice Department anti-trust action against it. Much more recently — in fact, just last week — Google’s Book Search settlement came under anti-trust scrutiny from the US Justice Department.

Now the Federal Trade Commission (FTC) is apparently looking at the question of whether two shared directors between Apple and Google violate anti-trust laws, according to a report in the NY Times. The common board directors are Google CEO Eric E. Schmidt and Arthur Levinson, a former CEO of biotech firm Genentech. (See Apple Board, Google Board.) As an aside, former US Vice President Al Gore is an Apple Board member and a “senior advisor” to Google, but not a board member.

What’s the issue? Section 8 of the Clayton Act (15 U.S.C. §19), one of several statutes that form the backbone of US anti-trust law, prevents any individual (or individuals from the same firm) from serving as a director or an officer of two or more competing firms at the same time. This situation is called an “interlocking directorate.” Historically, however, the law has not been aggressively enforced. The Clayton Act, including Section 8, was originally enacted in 1914. For those who want more, there’s some interesting historical information I found through Google Book Search.

The concern of most anti-trust law is the protection of the public interest by ensuring competition in markets. The potential danger with a so-called interlocking directorate is that it will hypothetically enable or cause otherwise competing companies to coordinate their activities through the common board members and thus undermine competition.

According to a legal discussion I reviewed, Section 8 is deemed a “prophylactic statute.” It is intended to prevent interlocking directorates from happening — period. To show a violation the statute doesn’t require evidence that competition is actually being harmed in any way or that there is in fact collusion between the companies involved. Overlap itself among directors is sufficient to trigger the provision.

It appears then the central issue here is whether Google and Apple are in fact “competitors” within the meaning of Section 8. As the Times article points out Google increasingly competes with Apple through Android (vs. iPhone) and Chrome (vs. Safari), as well as in a couple of lesser areas.

The question is: do these areas sufficiently make Google and Apple “competitors” under the meaning of Section 8? There are arguments to be made on both sides. Notwithstanding Android, and looking holistically at the two companies, I would probably come down on the side of “no” at present. It’s not clear that the FTC will agree with me, however.

The Times article focuses in part on the fact that Eric Schmidt’s public support for President Obama (and advisory role) is not gaining Google any favors. Indeed, Obama’s recently confirmed head of anti-trust at the US Justice Department, Christine A. Varney, is a Google critic. The following is a quote attributed to her by Bloomberg:

The U.S. economy will “continually see a problem — potentially with Google” because it already “has acquired a monopoly in Internet online advertising,” she said.

My bet is that this inquiry by the FTC, if it proceeds further, will cause Eric Schmidt to resign from the Apple board. If that were to happen, the other common director, Arthur Levinson, would probably be forced to choose between the two companies. I’m speculating on the outcome of all this of course. It could also be that Google and Apple are determined to not be “competitors” under Section 8 or the FTC simply doesn’t go further with the investigation.

While the fact of common directors between the two companies does seem to suggest the application of Section 8, there’s a seemingly “gratuitous” dimension to all this. We could probably find a number of other lower profile companies in adjacent market segments where overlapping directors existed. Google, always a news magnet, would appear to be becoming a magnet for anti-trust investigations as well.

It would thus seem that in a new regulation-friendly political climate Google is bumping up against the political and legal limits of its size and success.

About The Author

Greg Sterling

Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog, Screenwerk, about connecting the dots between digital media and real-world consumer behavior. He is also VP of Strategy and Insights for the Local Search Association. Follow him on Twitter or find him at Google+.