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Inquiry centers on common board members for the two companies including Google CEO Eric Schmidt

Apple is currently reaping a large portion of its profits from the sales of its popular iPhone. Sales for the firm's notebooks are slowing along with the global economy. At the same time, Google is fighting a slowing advertising market and looking to break into mobile advertising via its Android mobile phone OS.

The two companies work closer together than some might imagine and even share a significant board member -- Google CEO Eric Schmidt. Schmidt sits on the board of both companies, which are increasingly competing against each other as Google broadens its offerings and Apple does the same.

Google now competes in the mobile phone market with Android-powered smart phones like the Samsung i7500 and T-Mobile G1. With Android being eyed as a possible OS for netbooks, Apple and Google could soon find themselves competing in the notebooks market as well. Another area where the two technology giants overlap is in web browsers with Google's Chrome and Apple's Safari.

With the increasing overlap between the two companies, the FTC has notified the firms that it has began an inquiry into whether the ties between the two company's boards amount to a violation of antitrust laws.

The New York Times reports that The Clayton Antitrust Act of 1914 prohibits a person's presence on the board of two rival companies when it could reduce competition between the two firms. Experts say that the provision causing the issue is Section 8 which prohibits interlocking directorates -- it is a rarely enforced provision.

The NYT cites sources close to the matter saying that the FTC has notified both firms of its inquiry.

Antitrust division head Christine A. Varney singled Google out last year as a possible source of future antitrust concerns for its near monopoly on internet search and advertising.

Sanford Litvack from Hogan & Hartson said, "I expect the administration to be aggressive, generally, on antitrust enforcement. I don’t expect Google to either be singled out or to receive a free pass because of Schmidt’s relationship with the administration."

The NYT reports that interlocking directorates rarely leads to major confrontations between the company and the government because the executives in question typically just resign from one of the boards to prevent proceedings.

Google does say that Schmidt carefully removes himself from any board meetings where talk of overlapping products like mobile phones will be a topic. Interlocking directorates are not considered a problem within companies that compete in categories as long as the revenue for the categories is less than 2% of the company's entire sales.

Andrew I. Gavil told the NYT, "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."

Gavil says that regulators are probably not concerned that the Apple and Google have a common rival in Microsoft, even if the two companies were found to be talking about ways to compete with Microsoft.

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Correct me if I'm wrong here
By FITCamaro on 5/5/2009 12:22:27 PM , Rating: 2
But doesn't the very nature of the fact that they heavily compete with each other mean they aren't violating anti-trust laws?

To me this would be likened to large automakers having a stake in or working with smaller ones being against anti-trust laws.

I'm not an expert so some explain to me why them merely sharing a board member and working together means they're violating anti-trust laws.

RE: Correct me if I'm wrong here
By rcc on 5/5/2009 12:32:04 PM , Rating: 1
I'd assume that the concern is that having a common board member might result in price fixing between the rival divisions.

RE: Correct me if I'm wrong here
By tmouse on 5/5/2009 12:44:07 PM , Rating: 2
Well I'm certainly no expert but here is my take. First the FTC is not accusing anybody of a violation yet, it's an inquiry. Being competitors doesn't stop them from working in unison to harm other entrants into the market. Care has to be taken to ensure a de facto cartel dose not form. If it's just a board member its somewhat less of a problem than if it's the CEO of one of the companies. It is a little silly to think a CEO excuses himself from every talk where the topic involves a direction where the company is planning to make major inroads into, or that he would not get the information other ways in the course of doing his job. Sooner or later Schmidt will almost have to leave Apple's board.

By PrezWeezy on 5/5/2009 1:38:02 PM , Rating: 2
Consider for a minute Intel and AMD sharing a board member. They don't, but if they did there would be nothing stopping them from deciding users should pay $2000 for a low end chip. That's obviously an extreme situation but when you start to think about volume, $1.00 per chip makes a big difference. Not to mention they don't have to compete so their products don't need to get better. Right now they are constantly trying to one-up the other. If they didn't have to worry about that then we wouldn't ever get anything better. The point of this law is to ensure that companies' board members don't stop progress.

RE: Correct me if I'm wrong here
By Kibbles on 5/5/2009 2:08:20 PM , Rating: 1
It's not just any board member, he's the CEO of Google.

RE: Correct me if I'm wrong here
By nafhan on 5/5/2009 2:50:33 PM , Rating: 3
They could definitely compete heavily with each other and still violate antitrust laws.
For example, lets say they were in a position to collude and push all other competitors out of a given market. This would effectively create a duopoly where they would still be competing with each other, but everyone else would be shut out.
That is the type of problem that they are probably trying to prevent. Whether it is on purpose or inadvertant collusion can stifle competition, and having board members in both companies makes collusion more likely to occur.

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